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Tesla Stock Plunged After Elon Musk's 'Bizarre' Conference Call (wired.com)
A recent Bloomberg article describes Elon Musk's "bizarre" conference call on Wednesday -- and its aftermath on Wall Street.
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 percent Thursday after the chief executive officer rejected analysts' questions on another quarter in which the company burned more than $1 billion in cash.
Investors had shorted a total of more than 40 million shares by Thursday -- the most ever in Tesla history -- and despite a rise in Tesla's stock price on Friday, they shorted 500,000 more shares.
Wired argues that Musk "clearly is avoiding some hard questions about Tesla's financial viability. But it's equally true that the call exposed how limited Wall Street can be about visions for the future and what it takes to create new templates for doing old things." This clash was highlighted by Musk's response to "sober questions by respected Wall Street analysts" like Toni Sacconaghi.
Musk brushed him off, sniping that "bonehead, boring questions are not cool." To add insult to that injury, Musk then fielded questions from a YouTube user, who proceeded to dominate a call normally open only to significant Wall Street analysts. That did not sit well with the Street, and Sacconaghi lambasted Musk the next day on CNBC with the rather clever jab, "This is a financial analyst call, this is not a TED talk."
Friday, Musk returned fire, with tweets asserting that the question was boneheaded because the analyst already knew the answer and was asking purely to advocate a negative thesis about the company.
But Barron's replayed the conference call, and argued that Musk was mistaken, reporting that "the analyst wanted to know about capital requirements, not expenditures."
Investors had shorted a total of more than 40 million shares by Thursday -- the most ever in Tesla history -- and despite a rise in Tesla's stock price on Friday, they shorted 500,000 more shares.
Wired argues that Musk "clearly is avoiding some hard questions about Tesla's financial viability. But it's equally true that the call exposed how limited Wall Street can be about visions for the future and what it takes to create new templates for doing old things." This clash was highlighted by Musk's response to "sober questions by respected Wall Street analysts" like Toni Sacconaghi.
Musk brushed him off, sniping that "bonehead, boring questions are not cool." To add insult to that injury, Musk then fielded questions from a YouTube user, who proceeded to dominate a call normally open only to significant Wall Street analysts. That did not sit well with the Street, and Sacconaghi lambasted Musk the next day on CNBC with the rather clever jab, "This is a financial analyst call, this is not a TED talk."
Friday, Musk returned fire, with tweets asserting that the question was boneheaded because the analyst already knew the answer and was asking purely to advocate a negative thesis about the company.
But Barron's replayed the conference call, and argued that Musk was mistaken, reporting that "the analyst wanted to know about capital requirements, not expenditures."
Gerald Ratner.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Unfortunately, as soon as you take your company public, this is the B.S. you get caught up in. Today's Wall Street investor doesn't give a crap if you're a super genius with world-changing ideas you're trying to gear up to sell to the world. They only care about profit and loss statements and projections for the next quarter's revenue. They're going to buy and sell your stock right along with hundreds or thousands of others, going by whatever trends they think they can spot to maximize their income on them. They really don't invest in you because they believe in your business and business model anymore.
I don't work in the financial world, so maybe some others who are will challenge my assertions here? But I do have a friend whose dad owned a big investment firm for something like 40 years. He decided to retire about 8 years ago, saying he always told himself he'd quit, the day he stopped feeling like any of the investing made sense to him anymore. And that day came.....
So on one hand, I have to kind of laugh and admire Musk here, doing what he did. It's a nice "poke in the eye" to the Financial "gods" who rule American business these days. But on the other, it really is true that he's so heavily financially leveraged with Tesla that he'd have nothing but unrealized ideas if all the big lenders and investors backed out on him.
And IMO, one thing he has working against him is that he needs to build out a massively expensive network of superchargers (and maintain them all, including the promise of free charging for many customers) - BUT he doesn't get any of the government protections that we've extended others who tried to undertake similarly massive infrastructure roll-outs (such as the cellular companies). I'm not saying he SHOULD have any of that, either! But he's trying to compete against the established gas station infrastructure that benefits almost all the other auto-makers. So he's going to NEED to stay on the good side of people with lots of money to lend him.
It's fun to watch, and if the stock dips down again I'll buy some more.
Tesla is a "buy and hold" stock in my opinion. Tesla has been doing everything possible to build for the future. I frankly don't care if Wall Street gets personally annoyed with Elon Musk's antics and the stock price dips. Nothing fundamental changed and the stock price went right back up again.
lf(1): it's like ls(1) but sorts filenames by extension, tersely
The issue is that during an earnings call, you field the analyst questions, not indulge feel good fanboyism.
His rationale was that the ones he snubbed were 'sell-side' and therefore just out to screw him over to help those who have shorted stock, which is problematic as that isn't what 'sell-side' means. It seems he doesn't understand that (bad for one having that responsibility) and that he is sore over how many people are shorting Tesla stock, and unable to handle it.
Even if he did feel the analysts were spinning a bad story out to get him for the sake of boosting the fortunes of those holding a short position, the right response would be to face it head on and point out how he feels the narrative implied is inaccurate, not to cut it off, which gives an impression that you don't have a rebuttal for such a story and as such the people advocating a 'short' position are right.
Musk may be unable to provide good business leadership through controversial/rough times.
XML is like violence. If it doesn't solve the problem, use more.
Until you remember how Wall Street missed Bernie Madoff, Bear Sterns, AIG, Lehman Brothers, Enron, Galleon Group, Arthur Anderson, scammed Jefferson and Orange Counties, and are pretty much the gutter monkeys of the world with the nicest suits, but the emptiest brains.
Then you realize that Emperor Norton might be wearing a fancy suit, but that doesn't make him a King.
and despite the disbelief of his colleagues he swears he was being serious.
Seems that analyst has few fans.
That said I'm becoming ever more pessimistic that Tesla can survive. They may linger for years but unless they really pull it out of the fire by the end of this year, I can't see a turnaround without a restructuring.
Pain is merely failure leaving the body
Actually, your reaction is pretty much the same as CNBC's Jim Cramer.
"WANTED: Sinking ship seeks rats."
" respected Wall Street analysts...."
That is exactly how the Wall Street racket works, by selling fake expertise on the basis of reputation.
Musk's disrespect for Wall-Street is certainly warranted. Analysts claim to possess expert knowledge which will yield higher returns, when really their returns are worse than a dumb strategy such as ETFs. Retrospective comparisons of analysts picks to passive investment show analysts perform worse.
Investment firms are a scam. Do not be a sucker and a victim. Read about investment from someone who is not trying to extract money from you.
That Musk moved the price of Tesla shares by blowing off analysts just shows how many idiot investors there are. When idiots sell their Tesla stock because Musk hurt the feelings of the con artists, the smart move is to buy Tesla.
Ceci n'est pas une signature.
The YouTuber asked the best questions on the call. The questions Musk didn't answer was A) Tony Sacconaghi's third question (he was only allowed two, and he didn't even ask before launching into a third), asking about something that was in boldface right at the top of the investor letter that everyone was supposed to have read before joining the call. And B) Joseph Spak advocating for a short selling thesis he's been pushing where he argues that there's a low conversion rate on Model 3s - despite the fact that of course there is because people can only get a very limited subset of options right now, so the majority are deferring to get their desired options.
The YouTuber, by contrast, asked about:
1) Progress with the Tesla network
2) Production capacity on the 3 line at Fremont and how they're supposed to fit Y production in there
3) Daimler's statement about Semi "breaking the laws of physics", and whether they need a new battery technology to achieve it
4) Whether Tesla plans to go to 350kW supercharging like Porsche is talking about
5) Whether Tesla is still willing to open up the Supercharger network to competitors
6) Power rates and supply-side costs for Semi megachargers
7) Prioritization of home-scale vs. utility scale on energy storage products and the state of the market going forward
(He got to ask so many because: "We'll keep going if you (46:57) ask questions that are not boring"; he didn't just start butting in with extra questions like Tony)
And from these questions, we learned that:
* Musk thinks the software will be ready for full self driving for consumers in a year, but worries about regulatory acceptance
* A processing power upgrade might be required, they're not sure at this point - but it's a plug-in replacement.
* Musk thinks journalists are causing people to die by spreading scare stories about self-driving. Compares the scenario where you have a couple deaths with autonomous systems versus over a million per year otherwise (yet the former gets all of the coverage and the latter little) - and that this overemphasis makes people less likely to use systems that he feels significantly improves safety.
* Plans to release quarterly statistics showing the impact of Autopilot on safety
* The Reuters report that Model Y was going to be built in Fremont is completely wrong, and he has no clue where it came from. Fremont is packed to the gills already. No chance Y will be built there.
* Model Y will be released in about 24 months.
* Model Y capital spend is low right now, but will be dramatically ramping up next year. But decisions made this year will have a major impact on the capital costs for the Y next year.
* Model 3's current battery tech already supports a Semi with 500 miles range. They think they may be able to do 600 miles by the time it's in production.
* Tesla doesn't agree that going to 350kW is wise for passenger cars; looks to go to 200-250kW. With batteries, you get energy density or power density, but not both; high power density cells are not only more expensive, but less energy dense. And you can up the power density just by adding more cells. He feels you get a way better vehicle and driving experience for your money going with more energy dense than power dense, and compares it to what it would be like if you could buy a phone that could charge twice as fast but you had to charge it multiple times per day.
* Wants, and has tried, to get other automakers to use their supercharger network. Thinks "moats" are dumb, and if you're relying on a moat to keep competition at bay, you won't last long. All other automakers need to agree to is to use their connector (or an adapter) and for their vehicles to pay for the power. None have taken Tesla up on the offer.
* Finds the Nikola "windshield" lawsuit laughable - not just on its merits, but the underlying premise: people don't reserve semis for their looks, flee
"WANTED: Sinking ship seeks rats."
The main issue with Tesla is that Musk is constantly promising and NEVER delivering. People are interested in the Tesla brand and the product, but Tesla continues to under-perform and has yet to deliver in time and the delay is of an unacceptable level.
Waiting 2 years for a new vehicle is unacceptable to most with the exception of a few.
Wall Street *are* his investors, and by the stock valuation we can judge their reaction. They surely did not like this, and, apparently, were more interested to find out what the answer to the analysts' question was.
The question, more likely, annoyed Musk because it pokes at a somewhat sensitive topic. But Musk is the one being a crybaby here. If he did not need Wall Street's money - sure, he could say and do whatever he wants. Yet he does, and so he needs to please those who pay to keep Tesla running - and it's not, (yet?), it's customers.
Not to inject facts into a good discussion, but the reality is that Tesla stock dropped about 2% after the call, and it's already rebounded. (If you include the part of the drop that occurred right before the call, it would be about 5%. Figure $301 to $284 and back.)
Look at the 1-month variation in this link and note that the variation after the call is about the same as four other similar variations in the past 30 days.
Big, fat hairy deal.
Also, the questions that Musk avoided weren't "sober questions by respected Wall Street analysts", they were leading questions intended to elicit a response that could be taken in a negative light. In one case, the question was answered completely by the filed papers, and illustrated that the asker didn't do his homework.
Tesla is the most shorted stock in history right now (not most shorted in todays market, by some measures it's the most shorted stock of all time), and a lot of people would like to see it fall so they can make some money.
You won't get an honest opinion about Tesla for awhile, not until the short sellers realize that they can't bring the stock down using hype.
Thanks. This was what I was actually looking for. My first suspicion that something was odd was when none of the stories about this had the questions listed. They were pulling rank to defend one of their own. Given how on-point the questions from the "Youtuber" are, I am doubting it was just some Rando McCommentor.
...
Tesla is the most shorted stock on the market, with short positions covering more than 30% of the total stock available for trading. Tesla stock has been kited to a high price by its previous short squeezes. When the commitments on short positions came due, the holders had to buy Tesla stock at the prevailing price to fulfil their obligations. They had no choice. There werenâ(TM)t lots of Tesla shares available to cover the short positions, and thus the price of the stock was driven up.
What if Elon Musk was out to further kite the value of Tesla on a short squeeze, at the expense of all of the Tesla-doubters? He might act exactly as he has been: heâ(TM)d divert attention from good news, and act like a flake. Heâ(TM)d be confident in doing this, nobody could prove it was deliberate manipulation of the stock without reading his mind. Eventually, those short positions would come due, and there would be no stock to cover them, and Tesla shares would go astronomical.
Short positions like this are called âoewidow makersâ. They can wipe out investors and sometimes drive them to suicide. Elon Musk made his fortune, and continues to, by taking risky actions that other people wouldnâ(TM)t dare. He obviously has an ego, and pauperizing the shorts would fit that.
Bruce Perens.
So we can agree that the dialogue between Musk and the "YouTuber" was rich and informative, almost like a well-scripted presentation.
At least for the latter, the correct response would be to highlight *on the call* that you have had a buyer for every model 3 that has come off the line and how badly the conversion rate would have to be for there to be a surplus of car production at some timeframe, not to snub the person because the question irritates you as you don't like their agenda. If this is a known agenda, then he should have a succinct yet useful response off the top of his head at this point. On the face of it, it doesn't seem a hard question to address, regardless on his feelings on the motivations behind it.
XML is like violence. If it doesn't solve the problem, use more.
Plenty of incredibly good business ideas are ones that need patience and time to bring to fruition. There's a need to do due diligence and make sure the company isn't just a false front, or a bunch of clueless idiots wasting every dollar they're loaned. But a company like Tesla has already proven it can deliver a working product that people find desirable. In fact, they did it several times over -- ever since the first Tesla Roadster came out.
Wall Street is destroying a lot of great ideas because they hyper-focus on short term results. If you're a big, established firm, that's probably fine. They generally sell in saturated markets where their profits are relatively stable. But for anything else, you used to have a lot of investors who bought and HELD stocks because they truly liked what the company was doing. They weren't living "quarter to quarter" to look for the first sign they needed to do a sell-off.
All the computerization of Wall Street is probably what led to a lot of this. Computer automation and ability to execute micro-trades super rapidly over high speed networks turns it into a pure game of numeric trends, vs. wishing to put your money into a business you believed in.
What we learned is that Musk has not realized that those stockholders are the owners of the company, not him.
And neither are the analysts who are upset and asked the questions we are discussing. Those are short sellers who have a negative interest in TSLA. The YouTube "retail" investor is a much better representative of the investors in TSLA. Also, the questions the analysts (accountants) ask have little to nothing to do with the current valuation of TSLA. Nobody is betting on TSLA to get the profits from the model 3. They are going long here because they think the company will be the first to mass produce electric cars with an vertically integrated supply chain for the batteries which puts them in a dominate position in transport going forward. Couple that to the fact that the entire economics of the auto industry could likely change over the next 20 years as self-driving cars become common. Also, auto ownership possibly transitions to renting (aka ride sharing). So these are the issues for which most investors are buying TSLA. So the YT questions are actually more useful to the investors than the accounting questions the analysts are asking.
"Those that start by burning books, will end by burning men."