TESLA TIPPING POINT
Tesla CEO dismissed analyst questions about company’s cash needs
A bizarre conference call with Musk has left many investors wondering how much more loss they can take,
DETROIT— Elon Musk’s quirky behaviour has long been chalked up to that of a misunderstood genius. But never have his actions caused so much angst on Wall Street.
Investors have for years endured millions of dollars in short-term losses in hopes of a long-term payoff. They might have even been able to stomach the $8.3 million (U.S.) that Telsa Inc. burns through each day.
But it was a conference call Wednesday night that left many wondering how much more they can take.
Just after the electric car and solar panel company announced a record first-quarter loss, the Tesla CEO cut off two analysts who sought some basic answers: details about the company’s cash needs and orders for its all-important Model 3 massmarket electric car.
“These questions are so dry. They’re killing me,” Musk said as he dismissed an RBC Capital Markets analyst in favour of a blogger who served up queries more to his liking. Musk called the analyst questions boring and “not cool.”
Shares fell quickly in afterhours trading, and analysts began writing that Musk shouldn’t bite the hands that feed his company’s enormous cash needs because soon he may need more. By Thursday afternoon, Tesla stock had lost nearly 6 per cent of its value.
“While they may be dry in nature, we argue such questions are extremely important for a highly leveraged and cash-hungry company,” Morgan Stanley analyst Adam Jonas wrote in a note to investors.
Musk took to Twitter Friday, saying the people he shut down during a contentious conference call were “sell-side analysts who represent a short seller thesis, not investors.”
He also tried to clarify some comments he made during the call, tweeting that he deemed a question about capital expenditures boneheaded because the answer was already given in a first-quarter newsletter.
Musk also said a question about Model-3 demand was absurd because “Tesla has roughly half a million reservations, de- spite 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.”
The conference call behaviour was labelled bizarre by some investors.
A Tesla spokesperson wouldn’t comment on Musk. But the stock slide showed that Wall Street’s seemingly endless patience with Musk may be growing thin.
Tesla has fallen far short of Musk’s promises to ramp up Model 3 production, which the company has said is key to turning a profit. Tesla has more than 450,000 waiting orders, but it can’t monetize them unless the cars can be assembled en masse. Without additional cash, some analysts have predicted that Musk faces a reckoning if he needs more money to fund operations, capital spending and debt payments that are due early next year.
The first-quarter loss hit nearly $710 million with a cash burn of $745 million. Free cash flow, which is cash generated minus capital spending, was a negative $1 billion.
Musk promised restructuring, more Model 3 output and capital spending cuts to ease cash strain. A net profit is likely by the third quarter, he said.
But the growing cash burn, slow Model 3 production nearly a year after it began, and rising fixed costs have caused investor concerns to mount.
“This is what puts companies out of business,” said Gartner analyst Michael Ramsey. “In this case, the demand seems fine, but you can’t actually produce those vehicles. The amount of cash required may become so large that they can’t find their way out of it through share offerings anymore.”