Wall Street, media and government darling Tesla Motors has seen its stock price nearly halved from seven months ago. For so long it has seemed that ongoing bad news never had an effect on the heavily subsidized upstart, but now perhaps the Teflon is eroding off CEO Elon Musk.
The precipitous, rapid descent preceded last week’s horrid earnings report. USA Today helped smear lipstick on the pig, cheerily noting shares rose “14 percent at one point” after its earnings “miss” on Wednesday, because Musk delivered investors a "rosy outlook for the rest of 2016." This was in context of what the newspaper characterized as a “whopping loss” that “badly missed estimates.”
That's the history of earnings reports with Tesla and Musk. The CEO with perpetually sanguine expectations never fails to deliver promising forecasts following dismal earnings reports, despite promises that are often not delivered.
Now he’s got crashing stock prices to go along with the performance shortcomings. On July 20th Tesla shares had unjustifiably ballooned to $282.26. On Tuesday they fell all the way to $142.18, before recovering a bit by the end of the week to $151.04. Tesla believers attributed the minor uptick to Musk’s positive 2016 guidance.
But more skeptics are emerging. Previously truth-tellers such as Jalopnik’s Damon Lavrink, who at the end of 2014 wondered what “Tesla and Elon Musk (will) over-promise next,” used to be rare. The stock drop and growing number of critics indicate a shifting trend.
Besides the company’s non-generally-accepted accounting principled losses for every single quarter, tech sector analyst and Forbes contributor Chuck Jones was one of those who assessed Musk’s outlook last week, in light of Tesla’s history compared to previous guidance the last two years.
For 2014, Jones noted, Tesla missed on promises to deliver 35,000 Model S’s; to begin prototype production of the Model X with “volume deliveries to customers in the spring of 2015;” and to increase automotive gross margin to 28 percent without the benefit of zero emission vehicle credit sales mostly generated from California’s market-gaming scheme.
And for 2015, Jones said Tesla fell short in its forecasts on Model S gross margin and deliveries of the Model X, as well as slightly overshooting its expected operating expenses. Jones characterized Tesla’s 2016 guidance as “very aggressive,” with the expectation to increase vehicle sales by 60 percent to 80 percent. Besides the goals Jones identified, Tesla also said it planned to “invest” in finishing its “Gigafactory” ($1.3 billion in corporate welfare from the state of Nevada); would fund the infrastructure to begin production of the allegedly “mass market” (i.e., “cheaper”) Model 3; open 80 retail locations and service centers; and deploy 300 new “supercharger” locations (“fast” recharging – 30 minutes so you can drive another 150 minutes!).
“Given the company’s history of over promising and under delivering,” Jones wrote, “I believe a number of the guidance metrics are at risk.”
It doesn’t stop there. Former General Motors executive Bob Lutz, the “father” of the Chevy Volt, told CNBC on February 4 that Tesla’s business model is upside down and predicted the “bottom will fall out” on its stock.
“Their costs have always been higher than their revenue,” Lutz said. “They always have to get more capital. Then they burn through it.”
And like Lutz, respected auto industry analyst Edward Niedermeyer predicted that Tesla – with its limited number of models – will get “trampled” by larger manufacturers who will compete in the same electric vehicle market, only with greater capacity to absorb losses and appease fickle consumers.
“Even with an ambitious goal of building 500,000 cars a year by 2020, Tesla would only have a fraction of the scale enjoyed by its competitors in terms of global products and platforms,” Niedermeyer wrote for Bloomberg. “And a huge amount of each unit's cost would still be tied up in expensive batteries, where savings are going to be very difficult. Tesla will have to cut costs to the bone to reach the targeted price for Model 3.”
And those challenges don’t even include the headwinds presented by historically cheap gasoline, voluminous complaints about Model S defects, long lines at supercharger stations, and extremely limited customer service.
Still there are plenty, such as USA Today, who continue to swoon at every proclamation from Musk – even his admission of mistakes. In his own distorted attempt at humility last week he confessed that the Model X crossover has “too many great things at once” and that it would have been better had Tesla done “fewer things.”
Consumers, the market and investors will be the ultimate judge. They may not always catch on immediately but they ultimately do figure it out.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.