Return to Transcripts main page


Big Drop for the Dow; Interview With Tesla Motors CEO

Aired June 29, 2010 - 14:00:00   ET


ADRIAN FINIGHAN, GUEST HOST, QUEST MEANS BUSINESS: A big drop in confidence leads to a big drop for the Dow.

A highly charged IPO, Tesla Motors CEO tells us what hit plans to do with all that money.

And in half an hour its Spain versus Portugal in the World Cup. We look at who has the edge both on and off the field.

Hello, I'm Adrian Finighan in for Richard Quest, this is QUEST MEANS BUSINESS.

Good evening, U.S. stock markets are taking a pounding tonight as a wave of selling sweeps the world. Almost everywhere traders look, there's trouble. In China, in Europe, and in the U.S. worrying signs that the recovery may be at risk. Let's go straight to Alison Kosik, who is at the New York Stock Exchange.

Alison, doesn't look pretty. What's the atmosphere like there on the floor?

ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Yes, exactly. It does not look pretty today and so what we're doing today is turning to a trader here on the floor. Alan Valdes, with DME Securities, to find out why we're seeing this sell off today?

ALAN VALDES, DME SECURITIES: Well, you know, we knew coming into the market, this morning, we looked at the markets in Asia last night. They were selling off. Look like things are getting a little weaker in China. Europe, this morning, they got a big bill due tomorrow-Thursday, rather-of $545 billion, the banks have loans repayment. Hedge traders a little worried. This morning consumer confidence, here in America, all of weighing on the market right across the board, but from the get-go the market was down. Right from the opening bell, we were down 100 points.

KOSIK: Are we in for a bounce back? I mean, could we see a bounce back tomorrow, with such a plunge today?

VALDES: Well, you know we hope so, as traders, because we are a superstitious lot. Tomorrow is the end of the half, end of the first six months. Historically, the way the market closes tomorrow will be the way we finish the year. So, right now the Dow is down about 2.8 percent. If we close tomorrow on the downside, we could be in for a tough year ahead.

KOSIK: You know, there's been a lot of talk about a double dip recession. I mean, we're getting a lot of down beat economic reports, day after day. Are we really in for another recession?

VALDES: I don't think we'll go double-dip. I think you may see the market contract, maybe down another 8,500, 9,000, in that range; which would be bad enough. I don't think we'll double dip. I think you'll see earnings season be pretty good. I think we'll grind things out, but at the end of the day. It is all about jobs. And jobs have not changed at all. Friday we got a big jobs number and that is going to be a turning point. We'll see where that goes.

KOSIK: Well, what is it going to take to turn the markets around?

VALDES: Well, you know right now this administration has lost more jobs than Herbert Hoover. We've lost 4.4 million jobs since Obama has been elected. We have to turn that around. Some way we have to get that turned around. If you look at the U6, that is the under-employed jobs. I mean, that is on the rise. That is 16.6. Last year at this time it was a little lower. Those are the people who were making $30,000 last year and are making $15,000 this year. So that is weighing on the market, too. It's just not the quality jobs out there.

KOSIK: And there is, once again, the fear about the Friday jobs report?

VALDES: That's right that is a big number coming out. Again, that is going to kick off the next half and we'll watch that number real closely.

KOSIK: All right. We'll have to wait and see what happens. But once again, you know what, Adrian, it always comes down to jobs, doesn't it? To bring back that confidence that we lost in June, Adrian.

FINIGHAN: It does indeed, Alison. Many thanks indeed.

KOSIK: You've got it.

FINIGHAN: We'll check back on Wall Street throughout the hour to keep you up to date with what's happening there.

Well, stock markets here in Europe were on the ropes after the close, a brutal session today. There is deep concern about what will happen when a lifeline for banks expires this week and that is only one of several negatives today. Let's take a look at how things ended.

All the main markets plunged, every stock on each one of those indices lost value. The FTSE 100 at an eight-month low. Mining, metal stocks, down because of worries about weaker global demand. The big four, that's Rio Tinto, Xstrata (ph), Oslo Metal (ph), Piece & Krupp (ph). Airlines were weak today, British Airways, Lufthansa. Banks, too, Barclays down 6.3 percent, Greddy Agricola down nearly 8 percent in Paris, also BNP Paribas, and Societe Generale, all down. It is payback time for European banks, this week they must repay about $540 billion worth, extraordinary loans to the ECB.

This will reveal just how much banks still rely on low rate loans from the central bank. Will there be cash flow problems? Even a new credit crunch? That's what the markets are worried about today. Now, banking stocks were hit particularly hard in Spain, Portugal and Greece today. Banks there, of course, could face greater problems getting funds because of their exposure to weak economies, markets and people reluctant to lend, of course. Even on a day like today, you know, we're seeing some signs of optimism though, about the Euro Zone. Some people still think that things are going to get better, according to the European Union. It is economic sentiment indicator, that is a measure of the mood, is rising in the single currency area. It edged higher in June by just a fraction to 98.7, from 98.4, back in May. Now that was contrary to expectations. Consumer confidence is also up in the Euro Zone, by 1 point, on the EU index.

Well, earlier today I spoke with Joseph Stiglitz, the Nobel prize- winning economist and a professor at Columbia University. I asked him, if he thinks the EU is right to end its emergency loan program on Thursday this week.


JOSEPH STIGLITZ, PROFESSOR, COLUMBIA UNIVERSITY: I think it is very similar to the problems that are true about fiscal policy. It is premature to remove the support for fiscal policies and it is almost surely premature to remove the support for the banking system. We are not yet on the basis of a robust recovery. And particularly, as the fiscal policies undermine the recovery, there is a serious risk of a double-dip. And it is not a surprise to me that there is a high level of anxiety on the part of the banks.

FINIGHAN: I know that you are no fan of Chancellor George Osborne's budget, here in the U.K., last week. Do you think that by implementing cuts, more cuts, austerity measures here in Europe, in particular, we're in danger of repeating Herbert Hoover's 1929 mistake, when he turned the Wall Street crash into the Great Recession (sic).

STIGLITZ: Precisely, that is exactly-we have ample evidence on this. I mean, Hoover, we call these Hooverite policies, in honor of Herbert Hoover. But the IMF has done that same experiment in Indonesia, Korea, Thailand, Argentina, so we know what is almost surely likely to have happened, and that is, fiscal contraction.

FINIGHAN: But surely-


STIGLITZ: It's understandable that countries are worried about the debt, but there are ways to respond to that, that are not so short-sighted.

FINIGHAN: Yes, give me some indication of what those ways might be. Surely, governments can't spend their way out of a recession? They can't keep spending money that haven't got.

STIGLITZ: Well, what you have to do is change the strategy, both the composition of expenditures, and the structure of taxes. So, let me give you an example. If, in the United States, for instance, we spent less money on the military, on weapons that don't work against enemies that don't exist, on a war in Afghanistan that is failing, and take that same money and invest it at home. We will stimulate the economy more. We could then cut back a little bit on expenditure and have the same level of fiscal support.

But what that will mean is that because the economy will be growing on the basis of this productive investment. Taxes revenues will be coming in, both in the short run, and in the long run. And the result of that is that the long-term national debt will be lower. So, you can't look at this in a very short-sighted way. You really-what is of concern is not the debt today or tomorrow, the concern is the debt 10 years or 15 years from now. And these investment strategies are the way out of this particular conundrum that we've gotten ourselves into.

FINIGHAN: One final question, here. You're the man credited with having foreseen, predicted this recession. You are far too modest a man to say, well, I told you so. But what have you learned? Has your economic philosophy, if you like, changed or been tweaked as a result of what we've been through over the last two years, 18 months?

STIGLITZ: So far things have come along pretty much as I had predicted. And, in fact, I think the crisis is a real reinforcement for the kinds of economic theories that I had been developing over a long period of time. And standing on the shoulders of great economists, like Keynes, modifying it as the economy has changed.

So, there is a wide body of research that had actually anticipated this. But it wasn't the mainstream. The mainstream in the economics profession, quite frankly, said that bubbles don't exist, markets are efficient. Bubbles can't exist because markets are efficient. That is why you ought to deregulate, and if there was a problem the markets will be self-correcting. Well, we know pretty well not that that is not true.

And the challenge going forward is, two-fold, how to prevent the recurrence, and that is where regulatory reform is very important, but really the main challenge right now is how to get our economies going again. And unfortunately, the same mindset that brought us into the crisis, the same mindset of the financial markets, that had this belief in unfettered markets, that got us into the mess, are now dictating that austerity measures that will just make thing worse. We have so much evidence on this, I hope this is an exception, but I wouldn't bet on it.


FINIGHAN: Professor Joseph Stiglitz who is currently here in the U.K.

Well, it is turning into a summer of strikes in Spain and Greece. Riot police are back on the streets of Athens, as protests over spending cuts turn to anger. We'll take you live to Greece for a look at what's been happening today.


FINIGHAN: A fresh wave of strikes is underway in Europe as austerity bites. Police in Athens clashed with protestors as lawmakers debated a new round of spending cuts. Many public services ground to a halt in the country's fifth general strike this year. Let's go straight over to Athens now. Elinda Labrapolou joins us live via broadband.

So, it turned violent on the streets once again, Elinda?

ELINDA LABRAPOLOU, CNN INT'L. CORRESPONDENT: Yes, it did turn violent again. This is the fifth general strike we've had this year. We did have less people turning up, however, than we had until now. So, you could say, in a way that things are calming down. But what is being debated in Parliament at the moment, the pension reforms bill, is something that touches a lot of people. So, over 10,000 people took to the streets today, protesting, being angry. About, you know, their retirement age is changing. It is getting-they'll have to retire when they're older. They are getting a lot of benefit cuts, their pensions are being slashed. So that led a lot of people to the streets once again.

FINIGHAN: Plus the argument that pensions and conditions for people are being changed right across Europe at the moment. Austerity measures are being implemented wherever you look. Does that argument cut any sway with people there in Greece?

LABRAPOLOU: Well, it does up to a point, but then people look at things on a personal level and they see how it affects them. And they realize that with the new austerity measures that we've had, where the VAT tax on alcohol, tobacco, fuel has been raised. A lot of other things have gone up. They just can't make ends meet. So to most people being asked to give more is just not something that they're prepared to put up with.

FINIGHAN: Of course, Greece relies heavily upon its tourism industry. We're just a few weeks now from the peak of the season. Are people there not at all concerned that this kind of violent protest is likely to put people off coming to Greece and spending money that the country desperately needs?

LABRAPOLOU: A lot of people are very much concerned about that. Tourism figures are much lower this year. They're 12 percent down. The tourism industry amounts for about 20 percent of GDP, and one in five jobs. So it is an industry that affects a lot of people. But again, on a personal level, when people realize that they're touched directly by these measures, they're just not prepared to put up with them. So, they realize that it might affect the whole country, but they're just not prepared to put up with it.

FINIGHAN: And people who work in the tourism industry, they're taking action, themselves, tomorrow?

LABRAPOLOU: Yes, they're holding a separate strike tomorrow. This is just people in the tourism industry. So that is also going to affect services and obviously for someone who is here on holiday for a short while, you know, you have a general strike on one day. You're not quite sure what works, what doesn't. The same thing happens the following day. It makes it more and more difficult to convince people to come to Greece.

FINIGHAN: All right, Elinda, many thanks indeed. Elinda Labrapolou, there, speaking live from Athens, via broadband.

At the other side of the Med, there were signs on the streets of Madrid today that Spain's pretty unhappy with austerity, too. There was traffic chaos in the Spanish capitol, for the second day running. Metro workers went on strike over a 5 percent cut in public sector pay. Today's action closed the entire subway network. Around 2.5 million people had to find other means of getting to and from work. Metro staff are planning another walk out for tomorrow.

Well, Spanish football fans have plenty to distract them, thank goodness. We're moments away from a crucial match in the World Cup. We'll have more on that in just a moment.


FINIGHAN: So, a couple of hours ago, Paraguay booked their place in the last days of the World Cup by beating Japan. It was the first match at this tournament to end in a penalty shootout, when the game ended goal after extra time.

There is one more slot to fill in the quarter finals. And both Spain and Portugal want it. CNN's Alex Thomas joins us now live from Johannesburg, with a round up of all today's action.

And, Alex, what's being said about giving referees some extra help? I assume that is referring to controversial decisions. That affected both England and Mexico.

ALEX THOMAS, CNN SPORTS CORRESPONDENT: You are absolutely right, Adrian. Let's take you through the World Cup action so far on this Tuesday. The pen ultimate of the round of sixteen matches, it took place in Pretoria, at the Loftus Versfeld Stadium.

This is what happened. Paraguay with the majority of the possession for most of the game, and their best opportunity-or one of them-came as early as the 20th minute. Luca Barrios with a shot that forced Japan's goalkeeper to make a good save. Later in the first half, a chance for Japan as well, Diasuke Matsui rattling the crossbar with a curling shot from about 20 yards away-I thought we were going to show you some of the video action, that's why I was reading it off my black read. But clearly, we're having a big of problems with that.

It all boiled down to a penalty shootout, Adrian. Five kicks apiece at the end. The third Japanese spot kick taker hit the cross bar, didn't score. Paraguay scored their last two penalties and it meant that Paraguay goes through, 5-3 on penalties. The first shootout in this World Cup so far.

Paraguay moves (ph) to the last eight for the first time in their history, Adrian, and denying Japan the same achievement, Adrian.

FINIGHAN: Yes, you've got to feel sorry for Japan, really. It's never good to go out in a penalty shootout, Alex. Of course, we've got Portugal and Spain in just a moment. We are going to talk to Al Goodman, who is in Spain, about that match in just a moment. That's I should imagine fairly, it's quite a tight match up, isn't it?

Let's talk about that, that-those controversial decisions that affected both England and Mexico. Seth Blatter has been talking today about the possibility of looking into introducing goal-line technology?

THOMAS: That's right, Adrian. It was a news conference that was scheduled before Sunday's matches, between England and Germany, and Argentina and Mexico. And we can all recall that during those games there were two glaring referee errors. Frank Rampart scored a legitimate goal that disallowed. And in the Argentina game, Carlos Tevez's first goal for Argentina should have been ruled offside, but it wasn't. That one was allowed.

So, massive refereeing mistakes. FIFA have been hammered in the world's media for the last 48 hours. So, President Seth Blatter used today's press conference, as I said, scheduled before the controversies, to apologize to the football associations of both England and Mexico. We should stress that those dodgy refereeing decisions didn't affect the results. Germany and Argentina went through fairly and squarely. Nonetheless a huge embarrassment for world football's governing body.

And Blatter, as well as the apology, also promised to look again at the possibility of using goal-line technology in a meeting that is scheduled for Wales next month. So maybe it will be introduced in time for the next World Cup. They certainly won't change their stance for this tournament. They've got to keep the rules consistent throughout. It's all about Blatter, Adrian, has ruled out the use of wholesale video replay like you get in other sports. It is just particularly talking about the goal- line technology, whether the ball has crossed the line or not.

FINIGHAN: I'm sure, Alex, that many people here in England would agree with you there, that England were beaten fairly and squarely. But, Alex Thomas, many thanks indeed. We'll talk to you again soon.

So, in what, eight minutes' time, Portugal kick offs against their neighbor, Spain. At stake, of course, is that last birth in the quarter finals of the World Cup, as well as a load of national pride. CNN's Al Goodman is in Madrid, no doubt which side he'll be cheering for tonight.

But, Al, you speak to, um, you speak to anyone in Portugal in Spanish and they're not best pleased; and the same in Spain, there, if you try to talk to someone in Portuguese. Even though they are neighbors there is not love lost between the two countries, is there?

AL GOODMAN, CNN INT'L. CORRESPONDENT: Not really, especially, on this day, Adrian. Actually, I am on the Spanish/Portuguese border in the town of Batahothe (ph). We've been across the border that way, through Portugal, to the town of Elvis (ph). So both sides are predicting victory and this is a really important day because both of these countries have deep economic problems. They are on the watch list, if you will, of the international ratings agencies; a lot of attention on the economic problems of Portugal and Spain. But this day, the attention is all on this TV screen here in this bar in Batahothe (ph) Spain, and on TV screens like this all across the country. So, both sides predicting victory; these teams have a historic rivalry, they know each other well. We're going to see who is going to come out ahead, Adrian.

FINIGHAN: Yes, it is a chance for people to put their economic woes behind them. Just for what, 90 minutes tonight. How would you describe the atmosphere? You talk about the rivalry between the two neighboring nations? How nasty does that get? Or is it just friendly rivalry?

GOODMAN: Well, in football it is not exactly a friendly rivalry. And Spain has the upper hand in the matches overall, 15 victories, five losses. But notably they have had 12 ties. Now Spain, of course, is the much bigger economy. Portuguese is always feeling pushed, if you will-I think that is a fair assessment-by their Spanish neighbors on a number of fronts. Certainly economically, and here, this certainly for Portugal a chance to show pride and come back against the bigger more powerful neighbor next door.

But for Spain, they are the perennial underachievers in the World Cup. They have gone home many times, very early. Everybody thinks they might actually have a chance to get far this time. This is the toughest game they will have faced this tournament, Adrian.

FINIGHAN: Al, you've got a great job tonight. I'm really envious. Enjoy the match, tonight, won't you? And enjoy the atmosphere there, on the border between Spain and Portugal. Al Goodman, there.

And Al alluded to it just a moment or two ago, that the strength of the two economies there. Let's take a more detailed look at both of them in the Economic World Cup.

So, let's join Jim Boulden, once again, to see who would win if it wasn't the players, but the economies of Spain and Portugal that were head to head.

Al, sort of touched upon it there, a moment.


FINIGHAN: Of course, that Spain, you would think, being the larger country has a bigger economy. But it's in trouble. Both economies are in trouble.

BOULDEN: It is in trouble, but it is in more trouble than Portugal, to be honest with you. If you think of Spanish unemployment at 20 percent, and GDP growth negative expected this year; unemployment, as we said, you know, 20 percent. And budget deficits near 10 percent. None of those figures in Portugal come close to that. They're all-it's all better in Portugal. The unemployment rate about half of that. They are expecting growth in Portugal this year. And the budget deficit is nowhere near as bad, even though the banks are always confident (ph). And this is what Portugal always likes to say, don't put a brush on us from Spain.


BOULDEN: We're not the same.

FINIGHAN: OK, if we were talking about the strength of the economies it's Portugal that has the upper hand?

BOULDEN: This year, Portugal. Absolutely.


FINIGHAN: What's all this we're hearing about the Portugal, though, being perhaps the next Greece, the next Ireland, perhaps.


FINIGHAN: Why are we talking about Portugal in that way, and not so much Spain?

BOULDEN: Well, Spain, the Spanish banks seem to be-have invested a lot and the worry is the amount of debt they have from place like Greece.

FINIGHAN: Correct (ph).

BOULDEN: So there is a real worry about the Spanish banks, but the Spanish government constantly says our banks are not a bad as people think. They're going to do a stress test. And we're going to hear very soon, Spain says. We'll see where the banks stand. But Spain has been very transparent about that.

Portugal is a much, much smaller economy. So they're not having as much exposure like the big, big Spanish banks.

FINIGHAN: OK, who would you be rooting for tonight, then, Jim?

BOULDEN: I would have said, before the tournament, that Spain was my favorite. I still say it is my favorite, but not economically.

FINIGHAN: Really? Ah, I'm going for Portugal. Love-as a man who holidays in Portugal, takes a vacation there, most years, it has got to be Portugal, of course.

What about the earlier game we saw today? Paraguay-poor Japan, going out on penalties.

BOULDEN: Well, some country had to be the first one to go out on penalties, it was Japan. Believe it or not, I'm going to say, Paraguay.


BOULDEN: I'm going to say it for economic reasons.


BOULDEN: And you are going to say you seem crazy.

FINIGHAN: Hang on? Yeah?

BOULDEN: Yes, well, let's get the numbers.

FINIGHAN: Jim Boulden, you're crazy.

BOULDEN: The budget deficit, Paraguay, a fraction of the budget deficit problems in Japan right now.


BOULDEN: GDP growth, because it's a small country, South America, and it's neighbor Brazil. Its biggest export partner is Brazil, so it is doing well.


BOULDEN: It's got a GDP growth anywhere between 4 and 6 percent this year.


BOULDEN: Japan, of course, had well, all the Western nations have a problem in the last year. Now officially, unemployment rate, 5.7 percent in Paraguay. Officially, in Japan, 5.2 percent.

FINIGHAN: Oh, right.

BOULDEN: Now, officially Paraguay's unemployment rate isn't much worse. We're not talking about the informal economy here.

FINIGHAN: So, it is Paraguay on potential, perhaps, then?


FINIGHAN: OK. All right. Jim, many thanks indeed.

We want to know how you are combining doing a days' work and actually following the World Cup. I'm sure that many of you are managing to juggle the two of them. Like Jim and I, we were in the office today, talking economics, of course, but we were actually watching football on our big screen in there.

Send your pictures and stories of your World Cup At Work. You can find us on Facebook or e-mail us at Your you can Twitter@RichardQuest.

Now, the electric car maker Tesla is charging up Wall Street in only its first day. So why are so many investors interested? We'll tell you why, right after this.


FINIGHAN: Welcome back live from London this is QUEST MEANS BUSINESS. In for Richard Quest, I'm Adrian Finighan. Let's get a check right now of the main news headlines at this hour.


FINIGHAN: Welcome back.

Live from London, this is QUEST MEANS BUSINESS.

In for Richard Quest, I'm Adrian Finighan.

Let's get a check right now of the main news headlines at this hour.

Russia's foreign ministry is rejecting U.S. claims that it's uncovered a cold war-style espionage ring. Ten people have been arrested in the United States, another in Cypress, on suspicion that they were Russian agents on a long-term mission to spy on the U.S. government.

Russia calls the allegations "unfounded," saying that the suspects never harmed U.S. interests.

The general tapped to become the next top U.S. commander in Afghanistan says he agrees with President Barack Obama's time line for troop withdrawal. David Petraeus is testifying before a Senate committee today. He's expected to easily win confirmation to replace General Stanley McChrystal, who was forced to resign over critical comments about the Obama administration.

Well, Barack Obama is hosting Saudi Arabia's King Abdullah at the White House this hour. The two leaders are expected to discuss Israel's plan to further Jewish settlements on occupied land and Iran's nuclear program. Talks between the Saudi king and the president come ahead of a visit by Israeli Prime Minister Benjamin Netanyahu, who's due in Washington next week.

Rescuers are searching for more than 100 people buried in a mudslide in Southwestern China. According to state media, the first body, a child, was pulled from the rubble today. Hopes of finding any survivors are slim. Heavy rains triggered the mudslide, but there are still showers in the area.

Well, big losses on Wall Street today, as we've been reporting. And it's just the same for just about any U.S. stock you care to name, except one. Shares of the electric car maker Tesla Motors are up by about 12 percent. They're making their debut on the Nasdaq today.

Now, the company has yet to make a -- a profit, even for a single quarter. But that didn't stop investors handing over more than $220 million in the initial public offering. The company sold the stock for $17 a share. That's higher than the range it previously indicated after demand was stronger than expected.

And it made a little bit of history. It's the first public listing of a car maker in the state since Ford back in 1956.

But the Tesla CEO, Elon Musk, is reluctant to call the company a traditional car maker. Musk was a co-founder of the -- the company, having earlier got PayPal, the electronic payment system, off the ground. He says in the way Tesla operates, it's got more in common with Apple or Google than Ford and GM.

Well, the road certainly hasn't been smooth for the man who provided much of the funding for Tesla. He's poured millions of dollars of his own money into Tesla.

Let's go live to, the newsroom there.

Poppy Harlow joins us live -- and, Poppy, he must -- he must have faith in his product there, to pour so much money into it.

POPPY HARLOW, ANCHOR, CNNMONEY.COM: You can say that again. His name, Elon Musk. You know, it's very interesting that he relates his company to Google or Apple. Larry Paige and Sergey Brin of Google poured money, also, into Tesla. They're betting on its success.

But a big, big day, the company going public in New York, going public at about $17 a share, trading much higher, trading around $20.50. So a nice boost for that stock today.

I talked to the CEO, Elon Musk, right outside of the Nasdaq, along with all of those Tesla cars there. Beautiful. Take a look.


HARLOW: Elon, a huge day for Tesla, the company going public.

Why now?

ELON MUSK, CEO, TESLA: Well, a -- a number of reasons. We actually don't need (INAUDIBLE) proceeds for the Model S (INAUDIBLE) in production. A lot of people think we do, but that's -- that's actually taken care of with the DOE loan and with the pre-existing investment.

HARLOW: This is the Model S, by the way, folks.

MUSK: This is the Model S, right.

HARLOW: Rolling out in 2012.

MUSK: Right. The reason for the IPO was actually to raise funds for parallel development of some additional variations on the Model S platform, to give us a little bit of additional cushion in case the Model S takes longer than expected and -- and also to provide some small amount of liquidity for myself and others in -- that are in the IPR.

I'm only selling 5 percent of my holdings and I don't intend to sell anymore, to be clear.

HARLOW: And that's part of the -- part of the DOE agreement, you have to hold onto about 65 percent, correct?

MUSK: Yes, of my holdings, yes.

HARLOW: Of your holdings.

All right, let's talk about the Model S. This is the -- it's going to cost about half of what the Roadster costs.

MUSK: Yes.

HARLOW: About $50,000.

MUSK: Correct.

HARLOW: The goal is to have this roll out in 2012.

MUSK: Yes.

HARLOW: But you just said in case it takes longer than expected. That's a really aggressive time line.

I mean, do you really think that you can get these out and running, 20,000 of them, by 2012, as -- as the hope is?

MUSK: We intend to start production in mid-2012. It always takes a little bit of time to (INAUDIBLE) up the production line. So we expect to get the 20,000 unit a year run rate by early 2015.


MUSK: So 2013 will be the first year where we do the 20,000 units.

HARLOW: It's good -- it's good to clear that up for a lot of folks. Looking at -- at Tesla, this is a startup company. Like many startup companies, you lose money.

MUSK: Yes.

HARLOW: The company has lost about $260 million since its inception.

MUSK: Yes.

HARLOW: You're going public. You want the public to invest in Tesla.

What can you say to reassure investors that might have questions about the potential profitability here?

MUSK: Well, yes. We -- we do often do get that question. The -- the thing that's important to bear in mind is that if Tesla just -- were just decided to be a -- a spore scar company and sell power trains to -- to other -- other companies like to the -- to Daimler and to Toyota, we would be profitable. That's an important consideration.

However, we're choosing not to do that. We're choosing, instead, to reinvest those profits and raise additional money to increase the -- the production volume and -- and produce the Model S, which is 30 times more production volume, maybe 40 times more production volume than -- than the - - than our sport scar. And it's just impossible, if you're going through that kind of growth, to -- to remain profitable as a whole.

HARLOW: And up here we have the Roadster, right?

MUSK: Yes.

HARLOW: Are you going to stop making the Roadster in 2011?

MUSK: (INAUDIBLE) the Roadster does give us the -- a good, good time, a good -- good production run-up of -- of the Roadster. We feel comfortable stopping that first generation and actually making it much more of a collective item, as well. So when -- when people are buying a car...

HARLOW: I think what you're trying to do here, you'll make a ton of them so they get in the -- you know, people want them even more.

MUSK: Well, I think, you know, I think there is some scarcity value. And it's sort of like imagine if you had the opportunity to own the first Porsche, you know, or the first Mercedes or the first Ferrari or something like that.

HARLOW: Is this what you see Tesla becoming, as big as Ferrari?

MUSK: Well, I think -- I think much bigger than Ferrari but -- and -- and hopefully bigger than Porsche.


HARLOW: A ways to go there before it is bigger than Porsche, Adrian. Of course, as you said, they first need to turn a profit. I asked him, when will Tesla turn a profit. He wouldn't comment on that.

I'll tell you, though, Tesla has this cool factor that a lot of car companies out there -- especially electric car makers, just don't have.

And I'll end it on this little note. What's very interesting, you may have seen Elon Musk, that CEO, in "Iron Man 2." Apparently, Robert Downey, Jr. called him up himself and asked him to be in that movie.

FINIGHAN: Oh, wow!

HARLOW: Back to you -- Adrian.

FINIGHAN: Bigger than Ferrari, bigger than Porsche, well, we'll wait and see.

HARLOW: I know.

FINIGHAN: I was going to ask you, did he get to drive it?

But given the traffic that was out there in Manhattan, perhaps -- perhaps it wouldn't have been much fun.

But, no, Jim Boulden was in here earlier saying oh, he's driven one. Oh, yes, fine. But he -- he just -- I don't know, the image isn't right. You know, you'd look great in a Tesla.

Would you buy one, is the question?

HARLOW: I -- I've driven...


HARLOW: If I -- if I had $100,000 spare cash, yes, I would buy one. I actually have driven one a few months ago at this electric car race. It's amazing the pickup -- very, very fast. It's -- it feels like a Porsche, I'll give him that...

FINIGHAN: You'd better start saving...

HARLOW: -- Adrian.

FINIGHAN: You'd better start saving up, Poppy.

Many thanks, indeed.

HARLOW: I know.

FINIGHAN: Poppy Harlow live at

Now, for most U.S. car companies, home could only ever be Detroit, Michigan. But not Tesla. This is one automaker the originated far from Motor City. It's based in Silicon Valley, home of the big tech titans. Tesla Design isn't too far away from Google's headquarters. And by basing itself there, the company is going for a high tech image. Who knows, it might even be good for business.

Well, just around the corner in Silicon Valley, Google itself being accused of backing down in its censorship battle with China. The search engine announced a new strategy that it hopes will keep its Chinese Web site up and running.

But the technique isn't going down so well in the U.S. tech community.

Maggie Lake joins us now live from New York with the latest on that -- hey, Maggie.


You know, this is a very small step for a very large tech company and a very large and growing population of Internet users.

But, you know, if actions speak louder than words, pant very happy with Google today.

When users in China go to Google's home page that you're looking at right here on, instead of being automatically directed to Google Hong Kong, they're going to have to click that site there that you see first, that will then transport them to the Google Hong Kong page.

Now, that's interesting because it's a softening of the harder line that Google had taken earlier this year, when it moved its servers to Hong Kong, announced it was going to stop censoring results and automatically redirect those users, which is what it's been doing.

Now, at that time, you'll remember, the company complained of cyber attacks aimed at accessing Gmail accounts of Chinese dissidents and they expressed concern on their Web site about the, quote, "security and human rights implications." You know, using some pretty bold language.

Well, on the company's Web site today, Google's chief legal officer, David Drummond, addressed this change in tact, saying this. Quote, "Without an ICP license, we cannot operate a commercial Web site like That's a prospect dreaded by many of our Chinese users, who have been very vocal about their desire to keep alive."

So the company very much painting this as a necessary trade-off. But, tech watchers out there aren't really buying that. They say there are some other motivations going on, it's not really about protecting Chinese users, but about Google's bottom line.

Might -- Mitch Wagner, for example, blogging for "Computer World," has this to say in response: "Maybe it's not about choosing good or evil. Maybe it's just about the money. China is, after all, a market of a billion people, most of whom have yet to get Internet access. Google stands to reap vast wealth in that market. Maybe that wealth is more important to Google than defending freedom."

So the company really taking a bit of a hit on this. They were seen says -- you know, before as really standing up to China. So it's -- it is having a little bit of impact on that. And it's interesting, it's not clear whether it's going to be worth it not, not so whether this tweak is going to go far enough to impress the Chinese regulators. We haven't heard word from China and Google not really commenting on it any further, as well.

Meanwhile, Google's stock down about 3 percent today. But, of course, it is down in an overall terrible market here in the U.S. -- Adrian.

FINIGHAN: Yes, it is.

But Google isn't the only high tech firm to -- to have faced this dilemma, is it?

LAKE: No, it's not. I mean, certainly they've all come across this. And when it comes to censoring the results, it's -- it's been a big issue. Yahoo! in particular, has had a lot of problems in the past with this. They've also come under a lot of criticism.

I think the difference here, though -- and you caught it in that comment from that one tech blogger -- is that Google really sort of put forth this -- this idea that they're different from everybody else, they're the maverick. They have that, you know, do no evil sort of quote that's been widely interpreted.

So the feeling was that they were going to behave a little differently, they were going to make a stand and show everyone else how -- how to act. I mean that's really kind of their reputation. And so by backpedaling just a little bit, it's really seen as caving. In fact, our own Web site saying, you know, the search engine blinked in the face of Chinese censorship.

So it's -- they're not alone and that's why a lot of these tech companies have been calling on there to be an issue -- an international standard, because no one wants to be the first one to pull out and potentially lose that lucrative business. But that has human rights watchers, as well as tech watchers, crying foul and saying, hey, this is all about the money. Don't try to say it's anything else.

So they're not the only ones, but because they set themselves apart a little bit differently, I think they're coming -- being called to the mat a little bit more on this. We'll see. It's the early days. We'll see China's reaction. We'll see if Google has anything else to say about it on its Web site -- Adrian.

FINIGHAN: Yes, the early days, as you say. It will be interesting to see how it pans out.

Maggie, many thanks, indeed.

Maggie Lake live in New York.

Now, it's already dealing with an oil disaster, a huge drain on its funds and a storm of criticism. And now, BP faces the real thing, as a hurricane gathers speed off the coast of Mexico. We'll have the latest in just a moment.


FINIGHAN: Hello again.

Now, the disaster in the Gulf shows not only potential mistakes made by BP, a U.S. government agency also, perhaps, share some of the blame.

CNN's Joe Johns reports now on how loopholes can help lead to disaster.



JOE JOHNS, CNN CORRESPONDENT (voice-over): Before it ever began drilling out in the Gulf, BP got an extraordinary gift from the government. The agency that regulates offshore oil exploration declared it didn't believe the Deepwater Horizon would cause any environmental damage, so BP deserved a pass. BP would not be required to comply with a tough law that would have forced the oil giant to fully assess what risks its rig might pose to the environment.


JOHNS (on camera): Because it got this pass, here's what BP did not have to do.

It didn't have to produce specific information on the equipment that it was using or the place where it was drilling.

And BP didn't have to answer this question -- could there be a serious accident affecting the environment?

In other words, BP got to skip what would have been the toughest and final environmental review it would face before drilling.

(voice-over) That final environmental review would have taken time. It would have itemized in detail all the things that could go wrong and how that could hurt the environment. And that would almost certainly have delayed final approval to drill.

(on camera) Instead, BP got that pass from the agency at the Interior Department that's supposed to regulate it.

But Keeping Them Honest, as bad as all this sounds, it gets worse. It isn't just BP and Deepwater Horizon. In fact, most oil companies working in the Gulf get that same pass. That means of the hundreds of oil projects operating today in the Gulf, most got to skip that final critical environmental review.

SUCKLING: So the whole system is broken. It's not about BP having some individualized way of gaming the system. The oil industry has gamed the entire system from top to bottom.

JOHNS: Documents supplied to Congressional investigators by that Interior Department agency, the MMS, show that since President Obama took office, 254 oil development plans and 226 exploration plans in the Gulf were approved without the final environmental review.

The documents also show that every administration dating back to the first President Bush used the loophole. And they actually used it more often than Obama.

Now, though, it could end.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We're closing the loophole that has allowed some oil companies to bypass some critical environmental reviews.

JOHNS: But even if the administration closes the loophole, what about all those other projects currently operating in the Gulf?

SUCKLING: You really need to go back and redo that entire decision to allow it in the first place. Instead, what's happening is the Department of Interior is allowing those bad decisions to stand, then trying to kind of come in around the back and fix it with safety inspections. And that's just not good enough. You've really got to go back to square one on this stuff.

JOHNS (voice-over): But sometimes starting over is hard to do, especially if you've already gotten the lease, leased the rig and hired the crew.

Eric Milito is with the American Petroleum Institute.

ERIC MILITO, AMERICAN PETROLEUM INSTITUTE: You don't want to hurt that industry any more. You want to protect the jobs that are down there. And this industry provides a lot of economic input and a lot jobs to that - - that Gulf region.


JOHNS: There are other environmental reviews prior to this final one BP and others did not have to pass, but none as rigorous. In fact, the law allows 30 days for this review. But given the slow pace of government bureaucracy, no one really thinks they could get done in 30 days. And that's another reason why the agency gave BP the pass.

(voice-over): The Interior Department won't comment because of pending litigation, but now the whole process is being reexamined by the White House -- too late to help the Gulf.

Joe Johns, CNN, Washington.


FINIGHAN: And, of course, there's a storm brewing in the Gulf of Mexico.

Guillermo was telling us last night the next couple of days will be crucial in determining...


FINIGHAN: -- what this storm actually becomes, whether it turns into a full blown hurricane, and, of course, the direction.

He's here with an update right now -- Guillermo.

ARDUINO: Here we see the perspective from Central America. This is the Gulf of Mexico. You see how wide it is. It's becoming a hurricane. It's not a hurricane yet. In any case, it's going to be a powerful storm.

And things are not changing. As far as we see, the National Hurricane Center continues with the same forecast, making landfall on Thursday of this system into the Tamaulipas state here of Mexico. That's south of Texas. And this red line is the National Hurricane Center forecast. The other ones are computer models.

So we are interested to see if there are -- there is a number of models that take the cyclone into the east, but there's no actually such thing.

Now, where we see the prevailing tracks of cyclones in the month of June, we see that actually we have the very cyclone that caused the problems in Yucatan is pretty much following the path of what we see in this time of the year.

So any time within hours, it's going to become a hurricane. It is very close to it. You see seven kilometers shy of being a hurricane. And we're talking about the maximum sustained winds that at 120 it becomes a hurricane.

And then, in 40 -- within that time frame and before the 48 hour period, it is expected to make landfall. An abundant amount of rain in the area and also intense winds.

The effects on the Gulf, Adrian, though, is the effect that it would have with waves and winds on the booms that would be either overtopped or breached because of all the movement there, the swell and all the intense winds.

Some thunderstorms in the area that these are causing.

But let's talk about your nice weather. Britain looking great. I see the London forecast. I mean I'm so sorry that Richard is not here, because I love giving him good news, you know, concerning the weather.

But we're going to see the bad weather into the Ukraine and Moldova section and northern parts of Romania. It's going to continue to be warm and nice in Britain. I think that 27 degrees or so in the next days with sunny skies. That's exclusively for Adrian Finighan.

FINIGHAN: Thank you, my friend.

It's always nice to -- to see you. Always nice to get good news.

We'll see you again.


FINIGHAN: Guillermo, many thanks.

Crime doesn't pay, unless, of course, you're in the business of security.

And at the World Cup, of course, security is big business.

We'll tell you more in just a moment.


FINIGHAN: Well, in Capetown right now, Spain and Portugal are fighting for a place in the World Cup quarterfinals. Off the pitch, we're looking at the big business stories in South Africa.

CNN's Nkepile Mabuse reports now on South Africa's private security industry.



As crime as burgeoned in South Africa, so has the business of crime prevention. The country now has two private security guards for every policeman, with the industry's annual turnover estimated at more than $6 billion.

(on camera): So business has been good in the past few years, hasn't it?


MABUSE (voice-over): Neville Rothfusz manages one of the country's biggest private security firms.

(on camera): In essence, high crime levels mean very good business for you?

ROTHFUSZ: Well, crime, obviously, is a driver of business for us. But the -- there are other reasons for that, as well, from -- from the insurance companies insisting that you have some form of cover, from a non- response company or a burglar alarm or something like that. So there's a lot of -- it's not only the crime that drives that, but there's obviously some -- some commercial businesses that depend on us to -- to kind of minimize the risk for them.

MABUSE (voice-over): Despite the rapid growth of South Africa's private army, crime levels have continued to rise. House robberies have increased by more than 100 percent in the past five years, from about 9,000 in 2005 to more than 18,000 last year. Attacks on businesses have gone up by even more, from about 3,000 in 2005 to nearly 14,000 in 2009.

While the numbers might indicate otherwise, private security companies continue to defend their role in crime prevention.

UNIDENTIFIED MALE: (INAUDIBLE) can you just (INAUDIBLE) six, seven of those numbers (INAUDIBLE)?

ROTHFUSZ: I think we've got many more resources than -- than the South African police have in terms of vehicles, in -- in terms of hours and feet on the floor. And -- and we really work together with the police as a partnership.

MABUSE: A security analyst who has interviewed convicted robbers says criminals have found ways to circumvent measures meant to protect their victims.

RUDOLPH ZINN, UNIVERSITY OF SOUTH AFRICA: These are experienced criminals that have learned through experience when the alarm system would be off. But interestingly enough, explain to us that should they see that there is an alarm system installed, whether it's been triggered or not, it will -- it will help to make them try and commit the crime in the shortest possible time and leave as soon as possible. It reduces the time that they spend inside and allowing them opportunities as far as rape is concerned and torture is concerned.

MABUSE: Security analysts have criticized the police and private security companies for being reactors. The answer, they say, lies in apprehending troublemakers early.

ZINN: We think criminology is the theory, that the younger a person is the first time he would get involved in crime, the more violent that person would be becoming an adult if they're not stopped. Second, also, is the fact that if people commit crime over an extended period of time, without any intervention from the police itself, those people gradually become more and more evasive, more violent, more daring in the crimes that they commit. And this is what we see.

MABUSE: Zinn has shared his findings with the police in the hope that it will change their strategy to a more proactive one. For now, fear grips South Africans are likely to continue spending millions on anything that holds the promise of safety.

Nkepile Mabuse, CNN, Johannesburg.



FINIGHAN: The U.S. stock market is taking a pounding tonight amid a global sell-off today. Wherever traders look at the moment, they see nothing but trouble, be it China, be it Europe, be it on their own shores.

The Dow Jones now down 252 points. It's about 2.4 percent, although it's come off its earlier lows.

Closing numbers here in Europe. This is how it looked -- some of the heaviest losses for several weeks here. Bank shares, in particular, got a pasting. They're facing a deadline to repay billions of dollars in extraordinary loans from the ECB. That deal expires on Thursday. And in London, Barclays today lost more than 6 percent.

That is just about it for Tuesday's QUEST MEANS BUSINESS.

Thanks for being with us.

I'm Adrian Finighan in London.

Stay with us on CNN, live from Warsaw, Poland, "WORLD ONE" starts right now.