Tesla Shares Tank Amid Elon Musk’s Double-Edged Sword
Tesla shares were in freefall on Thursday, down more than 7% in mid-morning trading, extending the losses that began on the heels of an alarmingly high cash burn in the first quarter that was exacerbated by Elon Musk’s out-of-touch remarks.
The controversy surrounds the production of Tesla’s Model 3, which is the electric car maker’s maiden vehicle designed for the mainstream, and the company’s cash burn, the latter of which took Wall Street by surprise. Negative free cash flow ballooned to $1 billion after $277 million in the fourth quarter.
Tesla still has a cash war chest of $2.7 billion. But 2018 capital expenditures of $3 billion, which the company lowered from $3.4 billion, won’t fully cover that plan, even if it does help the company achieve profitability. What has analysts befuddled is not only Musk’s denial that the company needs to raise more cash but his refusal to discuss it. Instead, he pointed to robust production of its Model 3.
The cash balance came as a surprise to Wall Street and sparked a flurry of questions from concerned analysts who seemed to bring out the worst in Tesla’s co-founder and CEO. Musk, sounding more like a cryptocurrency strategist than the CEO of a $47.2 billion market cap company, basically told investors if they can’t stand the heat to get out of the kitchen.
“I think that if people are concerned about volatility, they should definitely not buy our stock. I’m not here to convince you to buy our stock. Do not buy it if volatility is scary. There you go,” said Musk on Tesla’s Q1 earnings call.
Investors evidently heeded Musk’s advice. Musk owns approximately one-fifth of Tesla and in March was awarded a $2.6 billion compensation plan comprised of stock options. The way the plan is designed, the higher Tesla’s market cap at various thresholds the higher Musk’s payday. As a result, he hasn’t done himself any favors.
What’s ironic about the earnings conference call, which took place on Wednesday after the market closed, is that it was Musk’s idea to extend the time for analyst Q&A. His aggravation level seemed to be building throughout the call and started with questions about capex prior to his outburst on volatility.
Morgan Stanley auto analyst Adam Michael Jonas got the ball rolling with his statement that Tesla doesn’t need to issue more equity. Jonas went on to say that “many analysts on this call would say that it’s better to issue capital when you don’t have to. Moody’s has suggested the same.
Meanwhile, Musk interrupted to say he disagreed. Jonas didn’t quit and asked Musk if he wanted to raise equity, in response to which Musk said, “No, I specifically don’t want to.”
Later, Musk was pressed by Sanford C. Bernstein’s Antonio Sacconaghi about Tesla’s lowered 2018 capex forecast and capital requirements. Musk shut down the analyst, saying: “Excuse me. Next. Boring bonehead questions are not cool. Next?”
It’s unclear what had Musk feeling defensive, especially considering Tesla is targeting profitability in Q3 and Q4. In the interim, it cost him about $2 billion in Tesla’s market cap.
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