Tesla Q1 Earnings Call
Tesla Inc (NASDAQ:TSLA) will announce its quarterly earnings after the closing bell on May 2. Two hours later, the Tesla Q1 earnings call will start.
I’m expecting hostility and frayed nerves, so bring the popcorn.
Investors are finally pushing back against Tesla and its notorious chief executive, Elon Musk, who runs the company like his personal vision board.
Musk is both the CEO and the chairman of the board of directors. He’s also a big shareholder, with more than 20 million shares of TSLA stock registered to him personally and another 150,500 registered to his brother, Kimbal Musk.
Elon Musk has unquestioned authority.
That’s not a bad thing, necessarily. Tesla’s one-man rule worked well at the start, when Musk was busy making electric cars look sexy. It took his visionary talent, unbound by the next quarter’s earnings, to make the Tesla “Model S” a reality.
But we’ve come a long way since then. Tesla is a real automaker now, with real demand, and real expectations. It can’t afford to tilt at windmills any more. And since analysts are worried about the company’s ability to execute its vision, you can expect them to put Musk in the hot seat during Wednesday’s earnings call.
Below are three issues we expect to hear about.
Will Tesla Deliver on Model 3 Production Numbers?
Tesla promised to build 2,500 “Model 3” units per week by the end of March 2018. That didn’t happen. The company barely made it past 2,000 units, suggesting that the road to 5,000 cars per week is longer than we expected.
Worse still, Elon Musk gave us that expectation; it didn’t drop from the sky. He made bold claims about the Model 3, because it was Tesla’s first mass-production car and it needed to penetrate the mainstream automobile market.
Musk’s marketing savvy paid off. Tesla racked up 400,000 pre-orders immediately after customers had a chance to nab the (comparatively cheap) $35,000 Model 3.
Investors took this news and ran with it, driving the TSLA stock price as high as $389.61.
I understand the optimism. It’s not every day that you see half a million people put deposits on cars they won’t take possession off for another two years.
Of course, you were bullish on Tesla stock! Heck, I was bullish on Tesla! Everyone was bullish on Tesla!
However, the TSLA stock price is down 23% from its 52-week high because it hasn’t delivered enough of those pre-orders. And guess what? Tesla’s ability to make these cars quickly enough was always an important caveat in my optimism.
Chart courtesy of StockCharts.com
Musk gave a mea culpa last month, saying he relied on too much automation. Well, okay, but where does that leave investors?
Tesla stock was built on the idea that traditional labor didn’t matter, that making cars could become a high-margin business. What is left when you remove that assumption? That’s what I expect analysts to ask during the Tesla Q1 earnings call.
Will Tesla Run Out of Cash?
Tesla is on shaky financial ground. It continues to burn cash extremely fast, even though it doesn’t have too many sources of funding left.
The company could always issue more TSLA stock, but doing so would dilute the value of existing shares, thus irritating investors who’ve stuck with the company through crisis after crisis.
As bad as that would be, it’s probably better than issuing more debt. Tesla inherited a ton of toxic debt during its acquisition of SolarCity Corp, meaning that it shouldn’t take on more loans, particularly in this rising interest rate environment.
Tesla had $3.4 billion in cash and equivalents at the end of 2017. I would grill Musk over this cash pile. How long will it last? Will you need to raise more? Where will you get it? If analysts don’t ask those questions during the Tesla Q1 earnings call, investors should be upset.
Will Elon Musk Step Down from His Chairman Role?
Tesla is in its first ever leadership dispute. A major investor wants Elon Musk to give up his slot as chair of the board of directors to an independent director. (Source: “Shareholder Proposal on Board Chairman Independence,” U.S. Securities & Exchange Commission, last accessed May 1, 2018.)
“Although the current leadership structure, in which the positions of Chairman and CEO are held by one person, could provide an effective leadership for Tesla at the early stage, now in this much more highly competitive and rapidly changing technology industry, it is more and more difficult to oversee Tesla’s business and senior management (especially to minimize any potential conflicts) that may result from combining the positions of CEO and Chairman.”
Management is not happy with this proposal. They intend to fight it, which means that Tesla’s shareholder meeting in June is going to get spicy. There could be a coup d’etat.
On a positive note, TSLA stock arrives at this earnings report date on an upward trend. It rose 18.8% in the last 30 days.
It’s a tiny silver lining. But that’s where the optimism ends.
At the end of the day, Tesla is in rough shape. That’s the bottom line. Try not to let the sheer brilliance of Tesla’s early accomplishments blind you; the company is now at a different stage of its life cycle.
We’re not at the point where excuses stop mattering, so Elon Musk better have some good answers during the Tesla Q1 earnings call. Otherwise, the TSLA stock price forecast could take a beating.