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Tesla is walking into the lion’s den


Welcome to Wednesday. A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.

Less than three weeks after starting trial production of cars in China, Tesla has announced the location of its second factory outside the United States: Berlin.

In a tweet Tuesday, Tesla CEO Elon Musk said the plant would build batteries, powertrains and vehicles, “starting with the Model Y.”

The context: The move takes the great electric car race to Germany, the manufacturing heart of Europe and the home of Volkswagen, Daimler and BMW.

Volkswagen has made the most aggressive move of the traditional auto companies into electric vehicles, announcing plans to invest €30 billion ($33 billion) to electrify its entire product lineup over the next four years.

The world’s largest carmaker has just started making its new ID.3 electric car series and recently announced a deal with Sweden’s Northvolt to build a giant battery factory in Germany. One of Volkswagen’s luxury brands, Audi, is already building electric SUVs that are designed to appeal to potential Tesla buyers.

The big question is whether Tesla can hold onto its lead in electric-car manufacturing once Volkswagen and other established carmakers really get into the game. The old guard have several advantages: they possess huge expertise in manufacturing and deep pockets that can fund new technology.

What Tesla is up against: In 2018, Volkswagen delivered a record 10.8 million cars. The company has 665,000 employees and annual revenue of $265 billion.

All of which is not to say there’s not a place for Tesla in the auto industry of the future. In fact, the company is having a great couple of months. Shares in Tesla are now up roughly 4% this year and have soared nearly 50% in the past quarter.

Wall Street is on board with the plans to boost production for the Model X and Model Y and it looks like Tesla is finally on a path to consistent profitability. The company made money last quarter and analysts expect it to remain profitable.

The futility of guessing where Trump’s going on trade

Investors have paid dutiful attention to developments in trade negotiations between the United States and China. Global stocks rallied last week on reports that both sides had agreed to reduce tariffs as part of a interim deal, and they later retreated when President Donald Trump said the reports were false.

Investors who hoped Trump would deliver some clarity during a speech to the Economic Club of New York on Tuesday were left disappointed.

The American president said he was “close” to agreeing a preliminary deal with Beijing, but he also revived his threat to impose additional tariffs on goods imported from China.

If Beijing doesn’t agree to America’s trade terms, Trump said, “we’re going to substantially raise those tariffs.” “We will only accept a deal if it’s good for the United States,” he added, according to the New York Times.

What comes next is anyone’s guess. “Working out the next step in a seemingly random sequence of moves by President Trump as he demonstrates The Art of the Trade Deal really would come in handy at the moment,” Societe Generale strategist Kit Juckes wrote in a research note Wednesday.

Google attracts the wrong kind of attention

A US federal inquiry has been opened into Google’s efforts to collect health data on millions of Americans through its “Project Nightingale” program.

The Department of Health and Human Services’ Office for Civil Rights opened the inquiry on Tuesday, The Wall Street Journal reported.

Investigators want to know whether efforts to collect detailed health information on 50 million Americans violated the Health Insurance Portability and Accountability Act of 1996.

Privacy experts say Project Nightingale appears to be permissible under federal law, according to the Journal. But Google is wading into some very tricky territory.

The big lesson from the epic unravelling of blood-testing startup Theranos was that tech companies need to play by the rules when they expand into highly-regulated areas of the economy, such as health care.

Up next

Earnings from Canada Goose, Luckin Coffee and Cisco Systems.

Also today:

  • US inflation data for October will be published at 8:30 a.m. ET
  • Fed chair Jerome Powell testifies before Congress.

Coming tomorrow: Jerome Powell testifies before Congress; Germany GDP; Canopy Growth, Walmart, Weibo, NVIDIA earnings

Article Topic Follows: Biz/Tech

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