Published on May 7th, 2018 | by Carolyn Fortuna0
It’s The Business, Stupid — Not Musk’s Mindset
May 7th, 2018 by Carolyn Fortuna
Tesla’s ability to capture media attention is unprecedented in the contemporary era. Without traditional print ads, Tesla has branded an image of a fully electric future of transportation that’s available today — and that image is keenly appealing to visionary upscale early adopters.
At the center of this media whorl is the the circus master himself, Elon Musk, and it is Musk’s mindset — a complicated combination of genius and intransigence, of intricate analytical capacity alongside fierce competitiveness — that both moves and baffles the markets.
The first time I witnessed a live Elon spectacle was the streamed unveiling of the Tesla solar glass tiles on the Universal Studios set of Desperate Housewives. Initially, I was caught up in the sultry evening, the multi-colored lights, and the audience murmur as they tried to absorb the surrounding Hollywood set. Then I was surprised by the public speaking demeanor of the master-of-ceremonies, the famous Elon Musk: he had halting speech patterns, periodic inattention to talking points projected behind him, and occasional lapses into tangents. He seemed unaware that his delivery had some hiccups. Was this really the icon to which the tech world giddily found itself drawn? I wanted to coach him from my seat, as I had once done with reluctant students.
On Wednesday, May 2, 2018, Tesla reported its Q1 results. On first glance, the numbers released were consistent with reduced expectations as a result of missed deliveries — even beating expectations. All in all, it didn’t seem that bad. But then Tesla CEO Musk, at the center of various analysts’ questions, made what many people felt were strange statements during the conference call.
The reason the Bernstein question about CapEx was boneheaded was that it had already been answered in the headline of the Q1 newsletter he received beforehand, along with details in the body of the letter
— Elon Musk (@elonmusk) May 4, 2018
By Thursday, Tesla stock prices were on a cellar-pointing spiral. They were down by nearly 10% before recovering some of the losses to close lower late in the day by more than 5%. The selloff couldn’t possibly have anything to do with Elon Musk’s unconventional antics during the earnings call, could it? That’s what Victor Dergunov, founder of Albright Investment Group, and many others asked. Could Musk’s atypical performance during the conference call have swayed the markets? Yes, we would all agree that it’s probably not the best form to describe interested parties as boring, uncool, and boneheaded. Mea culpa. But should a moody Musk really have been enough fodder to move financial markets?
Musk’s Mindset and Its Influences
It has been observed that Musk’s mindset is different than yours or mine (he seems to hate acronyms, he breaks rules, is a probabilistic thinker, and openly and honestly admits to highs and lows… ). An acquaintance who was interviewed by Musk when Tesla was just a young company said that Musk stood up and left the room abruptly once his questions were answered satisfactorily.
Musk’s distaste for small talk, his detail-oriented disposition and sometimes rigid behaviors, and his superior intellectual gifts are emblematic of the rarest of western inventors/innovators/futurists who changed the way humans interact with their environment, especially with regard to the Industrial Revolution. Think about the “eccentric” Nikola Tesla himself. Charles Dickens suffered from obsessive compulsive disorder. There was the consummate chronicler Buckminster Fuller. And many others with names not so familiar to us but equally as influential and individualistic.
“If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away.” — Henry David Thoreau
Most people have latent inhibition that helps filter out irrelevant data, yet creative people aren’t quite so ordered. Harvard psychologist Shelley Carson calls this “cognitive disinhibition,” which she defines as “the failure to ignore information that is irrelevant to current goals or to survival.”
You choose the label that best captures Musk’s mindset … the label isn’t actually important. What is important, however, is that the markets respond to his idiosyncrasies, plunging or skyrocketing based on Musk’s whims, off-the-cuff remarks, or social faux paus.
And investors should beware when portfolio managers or stock analysts base financial advice on anybody’s personality quirks. Building a line of complex equipment like cars from scratch takes a considerable amount of money and expertise, and the decision to place confidence via investment should rely on much more than whether Elon Musk’s mindset today is to tolerate repetitive, uninformed, trite questions from analyst callers who get their jollies off seeing their names on a Tesla earnings call transcript.
Traditional Valuation Measures, or Is Tesla Worth the Current Asking Price?
There are many issues to consider when conducting a review to consider if a stock is a good investment. Investors need to evaluate the strength of the company to determine whether the organization is worthy of owning. By all accounts, many people in the know seem to agree that Tesla is such a company. Tesla’s market cap is currently higher than Ford’s and just barely below GM’s.
Then investors figure out whether the price of the stock makes its purchase a wise investment decision. In the modern age, it’s easy to track Tesla’s financial statements to look at key statistics such as revenue, earnings, and cash flow over the past several years.
But do traditional indicators pertain to Tesla stock evaluation? The company doesn’t turn a profit, and that seemingly hasn’t been a priority. Tesla revenue has certainly grown over time, as more products, wider geographic availability, and word of mouth increases consumer access. And, while past performance is not a guarantee but can indicate whether a company may continue to grow and deliver strong returns for shareholders, when most of us started taking notice of Tesla, it was worth less than half of what it is today. It also produced a lit fewer cars, not to mention other products.
Some individuals hold to the position that, if all indicators are accurate, Tesla is pointed toward profitability. Musk has said the company will show a profit in Q3 or Q4 of this year. Model 3 demand potential is remarkable, and the company’s production of the vehicle continues to improve. It is likely that, regardless of Musk’s mindset during conference calls, public relation events, or interviews, the stock is going to continue its upward path. (Note: Do not take this as stock advice. We are not stock advisors.)
Yet some, like Jim Collins on Forbes, question Tesla’s quarterly releases. He suggests that something changed dramatically between Tesla’s year-end conference call on February 7 and Wednesday’s call. Collins wonders if Tesla has changed its entire philosophy on capital allocation, which he says “is a relevant change to question.”
Collins is hardly the harshest critic of Tesla. Tesla naysayers invoke language around Tesla’s high-expenditure identity and claim that the company’s position is worse than commonly stated. Seeking Alpha was one of many negative voices after the Q1 2018 investor letter, stating, “They burned through $1.05 billion in cash during the period.”
First, it’s important to know that Tesla is the most shorted (meaning most bet against) stock on the market & has been for a while https://t.co/srEp1tf6ZU
— Elon Musk (@elonmusk) May 4, 2018
Yes, the digital age is upon us, and tech has already begun to change the way we drive. People are more aware than ever that an electric drivetrain is more efficient than an ICE drivetrain, and Tesla advancements in battery technology, charging infrastructures, and EV service centers suggest that electric vehicles are an idea whose time has come. Market forces have already drawn enthusiastic supporters into its Tesla ranks. With the confluence of EV migrations that arise from new tech and US ZEV states, Tesla’s innovations like two screen controls, over the air updates, and 4 wheel drive tech have paved the way to the EV era.
Matt Egan on CNN Money may have made the most important point of all about Tesla’s recent market fluctuations: insulting analysts threatens to alienate Tesla from the capital markets that the company needs to finance its big dreams. Adam Jonas, a Morgan Stanley analyst, wrote to clients on Thursday, “Irrespective of the Tesla CEO’s annoyance, an important part of Tesla’s success has been its relationship with the capital markets in funding its ambitious plans.” He has also noted in the past that Tesla’s short-term cash maximization is not a priority for the company.
Musk seems to concur. “We have no interest in satisfying the desires of day traders,” Musk said. “I couldn’t care less. Please sell our stock and don’t buy it.”