Tesla’s push to prove the haters wrong proves them right
THERE’S a touch of deja vu about my colleague Dana Hull’s scoop on Thursday that Tesla’s vice president of production urged a blitz of Model 3 vehicle production to “prove a bunch of haters wrong.”
You, too, may recall CEO Elon Musk’s call in the summer of 2016 for Tesla Inc’s staff to “throw a pie in the face of all the naysayers on Wall Street.” Back then, it was all about pushing sales and cutting costs to help Tesla report a rare set of positive earnings. It worked, although only by pulling a couple of levers marked “zero-emission vehicle credits” and “working capital overdrive.” Within a year, Tesla capitalised on investors’ confidence with an equity issue and its first-ever bond sale.
Similarly, the latest fightback aims to dispel the growing alarm about Tesla’s inability to hit even greatly reduced production targets for the Model 3, with figures due next week. The company’s stock, which has slumped this week, bounced a little Thursday, no doubt aided by the notion of a concerted effort to hit the target (it’s worth noting the bonds haven’t bounced).
Here’s the thing, though: Tesla’s efforts to prove its “haters” wrong just proves them right.
Start with the nomenclature. Calling those expressing scepticism “haters” serves only to underline the cultish aspect of Tesla’s stock. Yours truly has expressed quite a bit of scepticism about Tesla’s finances and whatnot over the years and been called many variants of “hater” – some quite creative, it has to be said – by more than a few...“lovers” (is that the right term?).
This cultish aspect has, of course, worked in Tesla’s favour for a while, letting it tap the external funding it needs in the absence of generating its own. But when it stops working quite as well – as happened this week – that dependence on the kindness of strangers is thrown into glaring relief. Adopting the language of Tesla as an emotional construct rather than a commercial enterprise just reinforces this.
As does, indeed, the prioritisation of ultra short-term targets – like a weekly production figure right at the end of a quarter – just to revitalise animal spirits and squeeze the shorts.
Motivational rush
Look, there’s nothing wrong with the boss sending out a missive to get everybody pumped, especially if you’re reaching.
Who among us hasn’t felt that motivational rush when those firm-wide emails grace the inbox? In this case, though, it borders on counter-productive.
Going all-out to get Model 3 production up this one week toward 2,500 – a target that’s been changed so much already it barely warrants the term -- would prove what exactly? That Tesla is now on a smooth glide-path to the skies?
As my colleague Hull reports, workers might get reassigned from making the existing Model S and X vehicles for this big push (Tesla says pauses on the latter production lines aren’t related to the Model 3). This doesn’t paint a picture of the methodical, efficient production line that enables the wider auto industry to turn a profit in a cutthroat business.
Over the longer term, such short-term resource shifting to hit one-off goals is a recipe for inefficiency (read this splendid critique of Tesla’s manufacturing approach by Bloomberg View’s Edward Niedermeyer).
Tesla’s current problem is a simple one to define: It has built a footprint, market cap and balance sheet sized for a mass-market producer of cars, but thus far lacks the crucial element – the cars.
Until it fixes that, sustainably, its dependence on external funding will intensify further. Positive cash flow – quarter-in, quarter-out – would render the haters, real or imaginary, largely irrelevant.