Editor's OpinionEditor's Opinion

Tesla bizarre conference call

On Wednesday Tesla reported Q1 2018 earnings and re-affirmed that Model 3 production is on track to ramp to 5000 cars/week in about 2 months. Tesla said they are also on track to become profitable and cash flow positive in Q3 and Q4 this year. Overall, Tesla looks like they’re in great shape and on a cusp a very important turning point, specifically becoming a consistently profitable company.

However, the conference call turned awkward and bizarre as Elon cut of two analysts and refused to answer their questions since they were “dry” and “boring”. Elon then proceeded to take a series of questions from a YouTuber who was originally scheduled to ask one question. In a matter of minutes, the stock dropped over 10 points.

Here’s my take on the situation. The relationship between investors/analysts/media and Elon is tense, to say the least, at the moment. Many investors were counting on Elon’s previous goals of 5000 Model 3 cars/week by end of last year and overall investor mood has been somewhat frustrated by the slow ramp and delays. On Elon’s side, he’s seen an increasingly larger number of people short TSLA and as a result the stock has languished over the past several months. Tesla is on the cusp of turning a historical corner and becoming profitable, yet many investors, analysts and media are so short-term focused that they’re missing what’s really going on.

The Model 3 is a historic car that is poised to transform Tesla into a major auto company, and one that is profitable as well. The Model 3 is such an amazing car there really isn’t anything stopping it from becoming a runaway hit in redefining the auto landscape. Sure, lots of people point to existing auto makers and their upcoming electric vehicles coming to market. But most of those cars suffer from short-range, high price, lack of supercharging, and lack of performance compared with Tesla’s cars. The reality is that existing auto makers have their best cars at the best price they can make them out on the road right now. And to think that they will magically come up with new cars that will outperform Tesla’s vehicle at the same cost just isn’t realistic. In that sense, Tesla is in a great place and as long as they continue to innovate they will lead the next generation of cars.

However, currently investor mood around TSLA has turned negative as the Model 3 production ramp has encountered its delays. And in the midst of the delays, there’s been an onslaught of negative media articles highlighting Tesla’s cash “burn” but without explaining that Tesla is investing into capital expenditures that will allow them to produce 500k Model 3 cars a year (which equates to about $20B in revenue) and become very profitable.

So in short, investors are frustrated over production delays and Elon is probably frustrated over the short-term focus of investors and the negative view the media is portraying Tesla in the midst of the production delays. And it’s with this background that Elon let out his frustration on a few analysts who were asking largely irrelevant (at least to Elon) questions that were short-term focused, and to Elon they were completely missing the point. Tesla is about to turn a corner in a matter of months, and these analysts were focused elsewhere.

Overall, I think the incident isn’t significant in the bigger picture. By the end of the year when Tesla is profitable, everybody, both Elon and investors, will be in a jovial mood and will get along fine. It’s just a bit of a jungle right now before getting to the other side.

Update: this morning Elon tweeted a series of tweets to explain why he cut off the two analysts, his basic point being, "The 2 questioners I ignored on the Q1 call are sell-side analysts who represent a short seller thesis, not investors. The reason the Bernstein question about CapEx was boneheaded was that it had already been answered in the headline of the Q1 newsletter he received beforehand, along with details in the body of the letter. Reason RBC question about Model 3 demand is absurd is that Tesla has roughly half a million reservations, despite no advertising & no cars in showrooms. Even after reaching 5k/week production, it would take 2 years just to satisfy existing demand even if new sales dropped to 0." And regarding the short sellers of TSLA, Elon tweeted, "Oh and uh short burn of the century comin soon. Flamethrowers should arrive just in time."

DaveT, Editor (subscribers: 3650)


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