Musk says don’t buy volatile Tesla stock and investors listen
Elon Musk told investors not to buy Tesla Inc. shares if they can’t stomach volatility. They got the message.
The comments — part of a bizarre, heated conference call after the close Wednesday — sent the electric-car maker’s stock plunging. Tesla fell as much as 8.6 per cent Thursday after the chief executive rejected analysts’ questions on another quarter in which the company burned more than US$1 billion in cash.
Musk, 46, may have backed Tesla into a corner. While he repeated that the carmaker won’t need more capital this year — and said he specifically doesn’t want to raise any — even Tesla bulls harbour doubts about its cash position. The CEO demonstrated willingness to bite the hand that feeds by ridiculing representatives of Wall Street’s biggest banks, some of which have helped the company raise billions of dollars to fund his otherworldly ambitions.
“Clearly, he seems fatigued and frustrated, and this is the wrong time to lash out at the investor community,” James Albertine, an analyst with Consumers Edge Research, said on Bloomberg Television. “It was a regrettable moment, to say the least, and the stock reflects that today.”
At the end of March, Tesla had about US$2.7 billion in cash on hand. The company blazed through about US$3.9 billion during the trailing 12 months, according to data compiled by Bloomberg. The company is going to need money to eventually build its first factory in China and to develop new vehicles, including a semi truck and the Model Y crossover, which it now expects will arrive in early 2020 instead of late next year.
“He reiterated that he’s not going to raise cash. Now, no one believes that,” Ben Kallo, an analyst at Robert W. Baird & Co. with a buy rating on Tesla shares, said of Musk on Bloomberg Television. “His approach obviously didn’t go over well.”
Before the call Wednesday, Musk wrote to shareholders that Tesla will be able to generate cash and profit in the third and fourth quarters if it doubles weekly output of Model 3 sedans in about two months. The stock’s initial rally petered out and turned into a rout after the CEO said an analyst was asking “boring bonehead questions” that were “not cool.”
“Investor feedback to the call was shock that a CEO would be dismissive and the general sentiment was that the defensiveness spoke volumes,” Joseph Spak, an analyst at RBC Capital Markets, wrote in a report to clients.
Tesla shares traded down 7.8 per cent to US$277.56 as of 12 p.m. in New York and plummeted earlier by the most in a month. The firm’s 5.3-per-cent notes due 2025 were down 1.5 cents on the dollar at US87.5 cents, according to Trace bond-price data. Tesla closed Thursday at US$284.14.
Moody’s Investors Service, which downgraded Tesla’s credit rating further into junk in March, still expects Tesla will need to raise about US$2 billion selling equity, convertible bonds or debt, to offset the cash it burns this year and securities maturing through early 2019.
“Tesla’s results and Elon’s demeanour on the call definitely rattled investors,” said George Schultze, founder of Schultze Asset Management, which oversees about US$100 million and is shorting the company’s stock. “The company’s cash position is becoming more and more tenuous.”
Albertine, who has the equivalent of a buy rating on Tesla, said Musk doesn’t need to raise capital soon but may want to think about hiring a chief operating officer. The billionaire is also the CEO of rocket company Space Exploration Technologies Corp. and founded the tunnel-digging firm Boring Co.
“Is he unhinged? And is our capital secure with Tesla?” Albertine said. “That’s the question people have.”
Meanwhile, Musk delivered a one-two punch for anyone betting on cobalt to continue its record-breaking rally, and some good news for nickel fans.
The maker of electric vehicles said in a letter to shareholders it has slashed its reliance on cobalt for its Model 3 vehicle, while raising nickel content, and that its latest batteries already employ less cobalt than similar types already on the market. On a conference call with analysts, Musk went further.
“We think we can get cobalt to almost nothing,” the carmaker’s chief executive said in response to a question on reducing battery costs.
Cobalt prices have exploded to the highest in a decade as companies including Tesla strive to bring electric vehicles into the mainstream, with supply largely dependent on a few mines in the politically volatile Democratic Republic of Congo. Nickel, which has gained about 50 per cent over the same twoyear span, is more widely available and, for now, cheaper. A shift to nickelrich batteries is happening faster than expected, according to BHP Billiton Ltd., the world’s biggest miner.