Game World!: DealBook: Elon Musk is ‘Not Messing Around’

May 11, 2020

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Elon Musk, still unhappy about lockdown orders. Win McNamee/Getty Images

Elon Musk’s lockdown lawsuit

The Tesla C.E.O. threatened to sue the California county where the carmaker’s main plant is based, disputing the timing of when it should be allowed to reopen. It foreshadows a potential clash between businesses and states over public health measures.

Mr. Musk tweeted that he would move Tesla’s headquarters to Texas or Nevada after being told that the factory in Fremont, Calif. wouldn’t be allowed to reopen last Friday. “Frankly, this is the final straw,” he fumed. “I’m not messing around.”

• An Alameda County official told The Times that the county was close to an agreement with Tesla to reopen the plant on May 18, but that Mr. Musk blew up the talks. A California lawmaker had spicy words for the Tesla chief. (Lawmakers in Texas and, for some reason, North Carolina sent tweets encouraging a move.)

• Mr. Musk previously tried to defy a local order to shut the plant, dubbing the lockdown orders “fascist.”

• His combative stance has largely put him at odds with other Silicon Valley C.E.O.s, who have pushed back office openings and followed local officials’ advice.

Tesla’s fight highlights a growing rift between some companies and states. This may play out in various ways:

• Costco requires shoppers to wear masks, butting against some states’ guidance that doesn’t mandate face coverings. The big-box retailer has also faced backlash from some shoppers.

• The billionaire investor Ken Griffin last month moved a team of stock traders at Citadel Securities from their home bases in New York and Chicago to the Four Seasons hotel in Palm Beach, Fla., to sidestep lockdown measures.

State taxes could also play a role. Steven Davidoff Solomon, a.k.a. the Deal Professor, questions whether C.E.O.s might be tempted to move operations to low-tax states, which have also tended to relax lockdowns earlier.

• This assumes that workers share the executives’ attitude to reopening and will move to the new location (or that enough new employees can be hired to substitute for workers who won’t relocate).

• For businesses where remote working is possible, it might be easier to move headquarters if clustering in big cities becomes less attractive in the long term.

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Today’s DealBook Briefing was written by Andrew Ross Sorkin in Connecticut and Michael J. de la Merced and Jason Karaian in London.

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Is this the future of air travel? Benoit Tessier/Reuters

The future of flying

The airline industry is intimately familiar with failure, but it now confronts a crisis unlike any other, Niraj Chokshi writes on The Times’s front page today.

Executives have no idea when passengers will return. It could be years before airlines fly as many passengers as they did before the pandemic, Niraj writes. And as with after the Sept. 11 attacks, new post-pandemic measures could utterly alter the experience, with temperature checks and masks potentially becoming standard features of air travel.

How long can airlines hang on? Before the crisis, airlines were in relatively good shape, after merging, paying down debt, buying new planes and charging more fees. Now, they’re resorting to financial triage before passengers return in sufficient numbers.

• The companies’ “cash burn” is what investors are watching. American Airlines expects to lose an average of $70 million per day in the second quarter; Delta at best $50 million per day; United up to $45 million per day; and Southwest up to $35 million per day.

In other news of rescues and reopenings:

• An Iowa pork plant illustrates the fraught politics of reopening meat-processing facilities.

• Historically speaking, the end of pandemics is “very, very messy.” Reopening New York will be particularly so. A spike in cases in South Korea has led it to reimpose lockdowns .

• Some factory furloughs are becoming outright closures. And when financial firms reopen their offices, many workers say they’re not in a rush to return.

Mike Bloomberg Justin Lane/EPA, via Shutterstock

Mike Bloomberg’s prescription for reopening

The billionaire lays out how the government can help companies start up again in a Bloomberg Opinion piece. It’s a mix of protecting workers and businesses.

Companies should be shielded from lawsuits if they meet certain criteria, including providing workers with protective equipment, imposing social-distancing and offering flexible sick leave. Otherwise, Mr. Bloomberg writes, “these suits could impose a significant economic cost, create uncertainty for businesses, impede needed investment and potentially cause production bottlenecks.”

Congress should expand unemployment insurance for workers at high risk for Covid-19 and let companies offer tax-free “hazard pay” for those who must be at work, Mr. Bloomberg writes.

And Washington should relax health-privacy laws that would otherwise prevent companies from verifying if employees had been sick or tracing their contacts.

Take Note: Depressed yet?

Michelle Leder, the founder of the S.E.C. filing site footnoted*, saw a disturbing pattern in the risks that companies warned investors about in the latest batch of earnings reports, which she writes about below. You can follow her on Twitter at @footnoted.

The word depression almost never shows up in financial filings, unless it’s being used by a pharmaceutical company to describe a treatment for a medical condition. But last week more than 40 publicly traded companies used it to describe their concerns about economic conditions.

A diverse group of businesses used the word for the first time in their filings last week, including the online florist 1-800-Flowers.com, the online luxury consignment retailer The RealReal and the animal pharmaceutical company Zoetis.

In its latest filing, 1-800-Flowers.com said that “even after the Covid-19 global pandemic has subsided, we may experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future.”

The RealReal changed its language about risks to consumer spending, noting that it was “adversely affected by economic downturns, including economic recession or depression.” Before, it had warned only against “economic downturns.”

In a new risk factor in its latest quarterly filing, Zoetis wrote that “it is likely that the Covid-19 pandemic will cause an economic slowdown, and it is possible that it could cause a global recession or depression.”

While there’s no consensus among economists that an economic depression is on the horizon, Gita Gopinath, the I.M.F.’s chief economist, recently wrote that an expected 3 percent decline in global economic output this year would result in “the worst recession since the Great Depression.” (From 1929 to1932, the world economy shrank about 10 percent.) In a report last week, Deutsche Bank analysts predicted that the downturn this year will be twice as bad as the I.M.F. and others expect.

While companies often list risks that may never happen as a way to warn investors, the fact that so many are now raising the possibility of an economic depression seems hard to chalk up to mere conservatism or coincidence.

The week ahead

Back in business this week: Shanghai Disneyland reopens, with a maximum of 30 percent of capacity; Apple stores reopen in Alabama, Alaska, Idaho and South Carolina, with customers and employees required to undergo temperature checks and wear masks; and Swiss schools reopen, with classes split into groups that attend two days a week.

Marriott and Caesars Entertainment report their latest quarterly earnings today, answering questions about changes they must make when resorts and casinos reopen.

America’s largest mall operator, Simon Property Group, surveys the damage to its finances today, as prominent tenants file for bankruptcy. On Friday, U.S. retail sales data for April are expected to show a fall of nearly 12 percent, the steepest decline since at least 1992, when the data was first collected.

The turmoil in oil markets is an obvious talking point for Saudi Aramco’s earnings on Tuesday, along with cuts in capital spending and a potential rise in royalty payments to the state.

⚡️ At some point this week, enough Bitcoin will be created to trigger a “halving,” a much-anticipated reduction in rewards that is designed to limit the supply of the cryptocurrency. (It’s complicated.)

Toyota and Honda report earnings on Tuesday, along with details of production cuts made in response to weak auto demand and government-mandated factory closures.

Norwegian Cruise Line and Royal Caribbean update investors on Thursday and Friday, respectively, after rival Carnival’s announcement last week that it may resume cruises as soon as August.

Other companies reporting earnings this week include Applied Materials, Cisco, Deutsche Telekom, DraftKings, JD.com, Sony, Under Armour and Vodafone.

The speed read

Deals

• Saudi Aramco reportedly wants to lower the price of its $69 billion deal to buy control of a Saudi chemical producer, Sabic. (Reuters)

• Bankers for Virgin Atlantic have reportedly approached investors like Centerbridge and Apollo about rescue financing. (Times of London)

Politics and policy

• The business of managing the Fed’s multibillion-dollar financial rescue programs has fallen largely to BlackRock and Pimco. (WSJ)

• Some White House officials have reportedly explored cutting federal spending and paying Americans to delay Social Security benefits to offset coronavirus-related rescue spending. (WaPo)

Tech

• President Trump and American computer chip makers are exploring new semiconductor plants in the U.S. to reduce dependence on Asia. (NYT)

• Regulators in Australia and France are challenging Facebook and Google over damage to their countries’ local news industries. (NYT)

Best of the rest

• How the pandemic has imperiled the empire of Napa’s top grape-grower. (NYT)

• A reminder: It’s not necessary to use Zoom for everything in lockdown. (Quartz)

Thanks for reading! We’ll see you tomorrow.

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