- Tesla CEOElon Musk conducted a deeply strange conference call with analysts after the company reported its first-quarter earnings on Wednesday.
- At one point, Musk cut off an analyst and turned the call over to a YouTuber.
- Musk described questions about Tesla‘s business issues as “boring” and “dry.”
- Tesla’s stock plunged in after-hours trading.
I’ve listened to a lot of earnings calls with automakers and more than my fair share of Tesla calls presided over by CEO Elon Musk with a mixture of cheerleading and contempt.
On Wednesday night, after Tesla reported its first-quarter results, I was treated to easily the most bizarre Muskian performance yet.
Earnings calls, as anyone in the financial media will tell you, tend to be the audio equivalent of chewing steamed broccoli. You have to seriously enjoy accounting – and truthfully, there’s a lot of value in that.
Say what you will about short-term thinking, but quarterly results at least provide us a sort of pulse on a company’s health. Or, in Tesla’s case, its lack of fitness.
Musk’s car-and-energy company has not posted an annual profit in the 15 years it has existed, but the first quarter of 2018 set a new standard for money-losing, to the tune of $US710 million.
Tesla is mired in a messy production ramp for its Model 3 sedan and spending cash at a staggering clip to right the ship and – if Musk is to be taken at his word – swing to profitability by the second half of the year.
Musk used to barely tolerate earnings calls, using them as an opportunity to meander through some of his favourite futuristic talking points while providing limited chances for his CFO to do what CFOs usually do on carmaker chats with analysts from the big investment banks, which is get down in the weeds with various arcane questions related to stuff like exchange rates, cash flows, profitability targets, and dividend objectives.
A CEO like General Motors’ Mary Barra might see earnings calls as an opportunity to provide detail on how GM is running its business. But Musk doesn’t like it when Wall Street asks him how he’s running his business, because, if you go by the numbers, he’s doing it quite badly.
Musk also thinks Wall Street is good for basically one thing: raising money for him to spend.
That’s the deal – and consequently, Tesla’s calls tend to lack cordiality, wit, or any sense that Tesla and, say, Morgan Stanley or Goldman Sachs are in the financial game together.
What happens when a call goes off the rails
But Musk took the often toxic relationship in an entirely new direction Wednesday night when Musk described a lightly confrontational query from Bernstein’s Toni Sacconaghi about Tesla’s cash-burning expectations as a “boring, bonehead question.”
That was it for Sacconaghi. Next up was Joe Spak from RBC Capital Markets, who asked about Model 3 reservations and how many holders of the approximately 400,000 preorders had configured their vehicle.
“We’re going to go to YouTube,” Musk said. “Sorry. These questions are so dry. They’re killing me.”
Enter Galileo Russell, who owns some Tesla stock, has a YouTube channel about Tesla, and had asked Musk via Twitter to be included on the call to represent retail investors.
What followed was notable for Russell’s sycophantic enthusiasm for Tesla’s products, both new and promised, and his evident lack of interest in anything materially connected with actually investing in Tesla. He also likes the word “awesome,” and Musk liked his questions.
The exchange went on for longer than any I can remember with a sell-side analyst.
Did Musk have his Skilling moment?
Tesla’s stock promptly fell below $US300 in after-hours trading, after topping that level before the earnings report. On Thursday, it was routed in premarket action, down 8%, to $US278. It opened down 7%, at $US280.
Commentators pointed out that Musk might have experienced his Skilling moment – a reference to a 2001 exchange between the Enron CEO Jeffrey Skilling and Richard Grubman of Highfields Capital Management, in which Grubman asked Skilling why he couldn’t see Enron’s balance sheet and Skilling called Grubman an “arsehole.”
Though Musk has always been an outside-the-box CEO, and though the call regained a semblance of normality when some bank analysts returned to the question queue, investors were understandably spooked.
The damage had been done in what had at first looked like a holding-pattern quarter in which Wall Street could reward Tesla for losing a bit less than expected and turn its attention to assessing Musk’s ability to wrangle Tesla’s ambitious Model 3 production goals – 5,000 units weekly by the end of June – and digest his insistence that it wouldn’t need to raise new funding this year.
Musk is no stranger to talking Tesla’s stock down – so at some level, he could be borrowing a page from the Donald Trump playbook and engaging in crazy-like-a-fox behaviour.
Musk also made time on the Wednesday call to excoriate journalists for writing negative things about Tesla’s Autopilot semi-self-driving technology following a fatal accident involving the system in March.
Don’t overthink it – Musk hates Wall Street
Maybe Musk thinks Tesla’s $US50 billion market cap is a liability and should take a dip to ease the pressure on the company. I think it’s more likely that he’s just sick of the detail that analysts are seeking.
You can’t really blame them for digging – Tesla’s a small company with limited global reach that serves a niche market and is losing vast amounts of money while every other automaker is raking in cash amid a sales boom in the US and massive growth in China.
But episodes like this invite overthinking. Is Musk, you know, feeling OK? He is trying to run multiple companies – SpaceX wants to go to Mars – and he has taken to sleeping on the factory floor at Tesla’s plant in California.
In fact, he seems fine. The gloves are off. Wall Street works for him, and he genuinely is bored with all the short-term questions.
Maybe he’ll go back to the markets to raise money, and maybe he won’t. Nobody has to buy the stock. Professional analysts are, in his mind, no better than some guy with a YouTube channel and a Tesla obsession.
Reality bites. Sure, it could put a hurtin’ on Tesla shares. But if you think that matters to Elon, you don’t know Musk.