What Exactly Is Going On With Tesla?
Reading Time: 9 minutesTesla stock is crashing. Is Musk fully to blame?
In October, Tesla held its third-quarter earnings call, the regular update for shareholders and analysts and anyone else who wanted to listen about how the company was doing and what its future might look like. Elon Musk sounded upbeat, predicting an ‘epic end of year.’ Musk was, to put it gently, wrong.
Just weeks later, the company failed to deliver on that epic promise, missing Wall Street’s estimates for car deliveries and ending the year with their stock down significantly. Now, it feels like the hits to Tesla just keep coming. On Thursday, the company cut the prices of its models by as much as 20 percent, basically saying, ‘Hey, please buy our cars.’ And Elon Musk? His attention is … elsewhere.
On Sunday’s episode of What Next: TBD, I spoke with Dana Hull, the Tesla beat reporter for Bloomberg, about what exactly is going on with Tesla. Our conversation has been edited and condensed for clarity.
Lizzie O’Leary: Can you zoom out and give me a snapshot of Tesla in January 2023?
Dana Hull: In 2022, Tesla lost 65 percent of its value. Not shocking—a lot of big tech companies also saw their shares get decimated. But when the share price is down that [much], and it happens to be a year where Elon Musk also bought Twitter, and it happens to be a year when there’s just a lot of questions about what he is doing—is he really focused on Tesla or not?—the sentiment shifts, and so you’ve seen negative sentiment creep into the market.
What happened most recently is that in early January, Tesla reported its delivery figures, and they really missed what Wall Street was expecting. It’s better to beat expectations than to miss them, and this was a pretty big miss, and it was the third quarter miss in a row. So that’s a perfect storm of negativity right now.
It might be helpful to break down what’s inside Elon Musk’s control and what is out of his control. What are the exogenous factors?
Everything from the COVID pandemic—which is still impacting factory shutdowns in places like Shanghai, where Tesla has its most important plant—to interest rates, which make it far harder for consumers to buy cars and take out loans, to the Fed, to credit markets.
Musk has been quite public about this, particularly about the Fed. He’s said, ‘The economy right now is like a car driving around on a cliffside road and the Fed is driving it by looking out the rearview mirror.’ What do you make of that comment?
He’s talked about everything from interest rates being too high in the United States to the challenges in the property market in China, to the price of gas in Europe as all being factors that are making it very difficult for him to do his business right now. I think he is right to call those things out, and certainly other executives probably are making note of that as well, but Elon is doing it in a very public way.
That brings me to the other side of this: What’s inside of his control?
The narrative. For a long time, Elon was very shrewd and deft at controlling the narrative of what Tesla was as a company. And now, he’s lost control of the narrative a little bit because the sentiment is negative and he’s still trying to be very positive. The smart thing to do would’ve been, on the last earnings call, to be very subdued. He could have said, ‘Listen, I’ve got visibility into the end of the year. It’s not looking good. As a result, we’re going to lower our guidance.’ But he didn’t do that. The guidance stayed very bullish when the reality was a little bit more bearish. What’s in his control is giving investors, employees, customers, Wall Street, the market as a whole a better sense of what is the guidance going forward. We’re all very eager to see what he says on the next earnings call, which is Jan. 25.
Since Oct. 27, when Musk formally took over Twitter, there has been a seemingly endless laundry list of items to occupy his time—laying off employees, being sued by former employees or vendors, his near-constant tweeting. When you look at the coverage and the chatter surrounding Tesla and Elon Musk, a simple explanation is that since he bought Twitter, Musk has been focused on it to the detriment of Tesla. Is that correct, or is it missing some other important factors?
I think that that’s correct. We’re seeing some longtime Tesla customers and shareholders be very critical of him now in a way that they weren’t before, and I don’t think that the criticism would be as high if things were going well. It seems sort of like, ‘OK, we’ve always known that Elon Musk is a part-time CEO at Tesla. He also runs SpaceX, but now he’s running a third company. And he said that he was going to hire another CEO to run Twitter, but that hasn’t happened yet.’ It’s kind of amazing to have someone running not two but three companies simultaneously, and time is very valuable.
As a beat reporter, is this the sort of thing that you hear mutterings about, either from inside the company or from investors, a sort of, ‘Oh man, he’s distracted by Twitter?’
Absolutely. And the other thing that’s happening is that there’s a group of activist shareholders that are ESG investors. They care a great deal about corporate governance, environmental issues. They want to see more transparency about sustainability and supply chain, racism at the factory, how much money Tesla spends on arbitration and solving legal suits. And this whole group of shareholders were strategizing for what they would bring before the board this year. Then, Tesla very quietly announced that they were changing the date of the shareholder meeting. Last year it was in the fall; this year, it’s going to be May 16. Everybody missed it. So there may not be any shareholder resolutions on the proxy this year at all. The only person that I know who managed to file before the deadline is a small investor in Reykjavik, Iceland. She wants Tesla’s board to prepare a key-person risk report, because she wants to know that there is a succession plan if Elon should ever leave.
This is something that has come up before the board before, the question of what would Tesla do without Elon Musk. Do they have a plan?
If you look at their filings, they only have three named executive officers. Elon Musk, Zachary Kirkhorn, who’s the CFO, and Drew Baglino, who’s the SVP of engineering and the de facto CTO. So that’s only three people for a company of over 100,000 employees globally. In their filings, they always talk about how they’re highly dependent on Elon, but they have not spelled out any kind of succession planning.
And, we have very little insight into the board. No one on the board returns calls, nobody talks. They are very close to Elon personally, and it’s kind of like a lockbox system. The brand is very much intertwined with him, by design, but it comes with risks. He is so much a part of the company culture that it is hard to imagine the company existing in the same way without him at the helm. At the same time, because they have matured into this big company, it would probably behoove them to try to separate Elon and the brand. But to do that they would need to have a real reckoning about what does this company look like if and when he steps aside.
It’s not just the Tesla and Elon brands that are intertwined—so are their finances. The vast majority of Elon Musk’s wealth is tied up in Tesla stock. When he has sold that stock, as he’s done over the past year, the company’s share price goes down. How much of a concern are his stock-selling tendencies?
That’s the other reason why investors are upset. He has unloaded $40 billion worth of Tesla stock. We don’t know why. We don’t know if it’s because he got a margin call. We don’t know if it was to fund Twitter. He said in the spring that he was done selling, then he sold again.
That is a big concern. Then, what’s interesting is that because he has sold, he owns less of a stake in Tesla than he used to. There are more shares that are now on the public market. So if there was ever a year when investors could actually make a push to change corporate governance or to add a retail voice to the board or to get more transparency, this was the year to do it. And this is the year that they basically didn’t announce the date change and the filing deadline for the shareholder meeting.
There are a bunch of lawsuits and investigations that are all lurking out there. There’s a class-action suit from customers who bought self-driving mode, a shareholder suit about the 2018 tweet when he said he was taking Tesla private and had ‘funding secured’ (a trial related to that tweet started Tuesday), a federal probe into autopilot mode, to mention a few. How much do these cases weigh on the company?
Those are all risks, but they don’t seem to be huge risks at the moment. If only because at one point, Musk was sued for securities fraud by the SEC and the penalty was $20 million. And then in the wake of that whole thing, in the wake of the whole 2018 go-private fiasco, the company hit a trillion-dollar valuation. Now, obviously it’s come quite back down to earth, but the regulatory agency is like, what are they really going to do? If the regulatory hammer really drops on Elon, what does that mean? That he can’t be CEO? He would still be the largest shareholder in the company. I just don’t really know what the outcome is.
All of these things in the past have ended up feeling like blips or nonevents. Does a slightly weaker Tesla make the playing field different now, or are these still going to be blips?
It could make it a slightly better playing field. It’s also interesting that Musk has embraced this anti-government narrative at a time when there are government investigations. And you have the whole thing here in California where the state itself sued Tesla for anti-Black racism at the Fremont plant. It’s been almost a year now, that litigation is ongoing, and yet Tesla has been very public. They recently put out a blog post reminding everyone that they have 47,000 employees in the state and remain committed to California. Tesla is a fairly big company, so I think that if a regulatory agency really took them down or out in a big way, there would be political blowback.
We have talked a little bit about the macroeconomic trends in 2023 and why it is not a great year to be a carmaker in general. More specifically, thinking about where the EV landscape is now versus where it was a few years ago, it seems like there are a lot of other options now. Are these new options a threat to Tesla?
Rivian makes an electric truck, and Hyundai makes the electric Kona. If you are a consumer and you want to buy an electric car, you do have other options. I still think that for most people, Tesla has the best—the longest range, the best software, the best charging network. So it’s going to take a long time for anyone to really eat into that market share, but they are no longer the only game in town.
They also haven’t made a ton of new products. While other companies are working on newer and cheaper EVs, Tesla has essentially had the same lineup for a few years.
Tesla sells four cars right now, the S, the X, the 3, and the Y. The 3 and the Y make up 95 percent of their sales, and they’re fundamentally the same cars. The software gets better, the apps get better, but fundamentally, the cars look the same. A lot of traditional automakers have a cycle refresh where every five to seven years, they’ll do a big refresh of the model. Tesla hasn’t really done that.
In trying to think about how to place this as a moment in time for the company, I was struck by something that the journalist Patrick George said to a colleague of mine: that this is less an Elon-specific crisis and more just a company growing up and facing normal, boring grown-up company stuff. What do you think of that?
I think that that’s true. Tesla is no longer a scrappy startup. It is a major automaker. And it has supply chain issues, and it is not immune to the cyclical nature of the auto industry or the economy. Musk went through the last recession of 2008, 2009, 2010, when government support was very helpful, and now he’s sort of spacing it down again.
I think what’s interesting about Tesla is that typically, you make a decision. You either chase volume or you chase profit margins. Musk has said publicly that he’s going to continue to chase volume. He’s willing to sacrifice the gross-margin profit in order to continue growing that market share and continuing with the brand dominance.
The next announcement is Jan. 25, and then there will be the investor day on March 1. What are you expecting?
Tesla said in its release about the investor day that they’re going to be talking about the next vehicle in their lineup, the Gen 3 platform, and capacity expansion. Because they have talked about building other factories. We’ve reported here at Bloomberg that they’re looking at a plant in northern Mexico. They’re also talking about a potential plant in Indonesia. So they still have big, huge ambitions to grow as a company and to do capacity expansion. Stock price aside, financially, they’re in actually pretty good shape. If we are heading into a recession, they’ve got billions of dollars on their balance sheet. They’ve paid down a lot of debt. They still have a very loyal customer base, so they’re not completely going off the rails.
Unless Elon sells a lot more stock?
Unless Elon sells a lot more stock.
Reference: https://slate.com/technology/2023/01/tesla-stock-elon-musk.html
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