Tesla’s No Good, Very Bad Year
Martin Viecha: Good afternoon everyone, and welcome to Tesla’s Third Quarter 2022 Q&A webcast. And it is Martin Viecha account of Investor relations. And I’m joined today by Elon Musk, Zachary Kirkhorn, and a number of other executives.
Lizzie O’Leary: In October of last year, a bunch of Tesla executives hopped on a conference call for investors. It was their 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.
Martin Viecha: About his round, looking forward to a record breaking Q4. So is it really, you know, knock on wood, it looks looks like we’ll have an epic and end of year.
Lizzie O’Leary: An epic end of year. It’s the kind of quote that just dangles out there. Tempting fate. Dana Hull. Listen to the call.
Dana Hull: Of course I did. Absolutely. The epic year That wasn’t.
Lizzie O’Leary: The epic year that wasn’t Danis, the Tesla beat reporter for Bloomberg News. And she’s covered the company for more than a decade. So she was watching Tesla’s numbers closely when just weeks later the company failed to deliver on that epic promise, missing Wall Street’s estimates for car deliveries. It was the third straight quarter. The deliveries have not been so great. Tesla ended the year with its stock down a staggering 65%. And Elon Musk, well, certainly seems like his attention is elsewhere.
Lizzie O’Leary: So today on the show, what’s up with Tesla? Is this all about an erratic chief executive who is way too online? Or is there something more fundamental going on? I’m Lizzie O’Leary and you’re listening to what next, TBD, a show about technology, power and how the future will be determined. Stick around. Right 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%. Basically saying, Hey, please buy our cars. But one of the reasons that I wanted to talk to D’Anna is she has the kind of perspective built by covering a company over time. So I asked her to zoom out and give me a snapshot of Tesla in January 2023.
Dana Hull: I guess I would just note that company coverage is often cyclical and the auto industry is very cyclical and it’s pretty normal to go through phases where you have like a flurry of coverage that just seems like it’s incredibly positive and then inevitably things come back down to earth and there’s a flurry of coverage that seems to be, quote unquote, negative. A lot of that has to do, frankly, with how the share price is trading. And so in 2022, Tesla lost 65% of its value. Not shocking, like a lot of big tech companies also saw their shares get decimated. But like when the share price is down that high 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 like, what is he doing? Is he really focused on Tesla or not? You know, that sentiment just kind of shifts. And so you’ve seen kind of like negative sentiment creep into the market.
Dana Hull: What happened most recently is that in early January, Tesla reported its delivery figures and they really missed what Wall Street was expecting. And, you know, there’s a whole game about Wall Street expectations. Basically, like, you know, 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 kind of just like a perfect storm of negativity right now.
Lizzie O’Leary: I feel like it might be sort of helpful to kind of break down what’s inside Elon Musk’s control and what is out of his control. So like, if you if you were to look at the kind of the landscape of exogenous factors, what are they?
Dana Hull: Oh, gosh. So 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, take out loans to the Fed, to credit markets. I mean, there’s a whole host of factors, factors that really impact highly industrial companies like automakers.
Lizzie O’Leary: And he’s really been quite public about this, you know, particularly about the Fed talking about the macroeconomics.
Martin Viecha: It’s kind of blowing my mind that the Fed has raised rates so high. They’re just dealing with old information. And it’s it’s like basically like the economy right now is like a car. You’re driving around on a cliffside road and the Fed is driving it by looking up the rear view mirror.
Lizzie O’Leary: It’s sort of hard, I think, from a general audience standpoint to figure out like, is he right?
Dana Hull: Correct. And it’s unusual, I think, for the CEO of a publicly traded company, as well as two private ones, to be so openly critical of the Fed and of like external factors, because it’s kind of seems like passing the buck. Like if you’re a CEO, you have to manage in good times and bad. Clearly, he thinks that we’re heading for a recession. He thinks the Fed has raised interest rates too high. He has a lot of a lot of issues. You know, 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 is all being kind of like factors that are making it very difficult for him to do his business right now. And, you know, and I think he is right to sort of 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, like tweeting about it on the platform that he now owns.
Lizzie O’Leary: Which is kind of bringing me to the other part of this, which is, okay, what’s inside of his control, If we want to say the January 2023 is like maybe not the greatest time that Tesla.
Dana Hull: So I think what’s in his control is the narrative. And I think what’s sort of fascinating is that for a long time, you know, Elon was very shrewd and deft at kind of controlling the narrative of what Tesla was as a company. And now like he’s kind of lost control of the narrative a little bit because the sentiment is negative and he’s still trying to be very positive. And the smart thing to do would have been on the last earnings call. He could have been very subdued. He could have said, listen, I’ve got visibility into the end of the year. It’s not looking good. Consumers are starting to pull back spending. This isn’t something that Tesla alone is struggling with all automakers are struggling with. As a result, we’re going to lower our guidance. But he didn’t do that.
Martin Viecha: So a years ago, I said I thought it was possible for Tesla to be worth more than Apple. And now you have the opinion that we can far exceed Apple’s current market cap. In fact, I see a potential path which has to be worth more than Apple. And Saudi Aramco combined.
Dana Hull: The guidance stayed very bullish when the reality was a little bit more bearish. And so you’re seeing like a little bit of a mismatch there. And so what’s in control is really, you know, giving investors, employees, customers, Wall Street, the market as a whole, like a better sense of what, you know, what is the guidance going forward. And so we’re all very eager to see what he says on the next earnings call, which is January 25th.
Lizzie O’Leary: But the elephant in the room or the bird in the room, I’m so sorry is Twitter. Since October 27th, when he formally took over the company, a seemingly endless laundry list of Twitter related things seems to have occupied Musk. Whether that’s laying off employees, being sued by former employees or vendors or his near-constant tweeting, all things Twitter are seem, at least from the outside, like they are living in Elon Musk’s mind. Rent free. I think when you look at the coverage and maybe the chatter surrounding Tesla and Elon Musk, a simple and maybe too simplistic explanation is that since he bought Twitter, Elon Musk has been focused on it to the detriment of Tesla. And I wonder what you think of that. Do you think that’s correct, or do you think that’s missing some other important factors?
Dana Hull: I think that that’s correct. I think you’re seeing some long time Tesla customers and shareholders be very critical of him now on Twitter in a way that they weren’t before. You have Ross Gerber wanting to run for the Tesla board. You have people like Gary Black being critical. And I don’t think that the criticism would be as high if things were going well. Like if if the Tesla share price was still great, you probably wouldn’t hear nearly as much.
Dana Hull: But it seems sort of like, okay, we’ve always known that Elon Musk is a part time CEO at Tesla. He’s also runs basics, 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. And, you know, the people who track his plane, I mean, he’s back and forth between Texas and the Bay Area and like, what is his where is it like how he multitask to the degree that he does? It’s kind of amazing to have someone running not not two, but three companies simultaneously. And, you know, time is very valuable. And I guess a glass half full perspective as well.
Dana Hull: Things at Tesla must be going well if he feels like he can focus on Twitter. You know, he’s not sleeping at the factory at Tesla anymore. So things are going great. And I mean, they do have, you know, a lot of dedicated executives at Tesla who have been at the company for a very long time. So, you know, in in some sense, perhaps things are going okay there. But fundamentally, so much of what people get excited about is the share price. People have put their life savings into this company and they’re upset. They want to know when things are going to turn around.
Lizzie O’Leary: As a beat reporter. Is this the sort of thing that you hear mutterings about either from from inside the company or from investors as sort of like, oh, man, he’s distracted by Twitter?
Dana Hull: Oh, yeah, absolutely. I mean, and the other thing that’s happening is that so, you know, there are there is a group of activist shareholders that are ESG investors. They care a great deal about corporate governance, you know, environmental issues. They want to see more transparent.
Lizzie O’Leary: Sustainability about the.
Dana Hull: Ability of supply chain racism at the factory. They want more clarity about how much money Tesla spends on arbitration and solving legal suits. And, you know, like last year at the shareholder meeting, there were eight resolutions that were all ESG related that were brought before shareholders. As is typical, they all I think all but one failed because Tesla’s board was opposed to them all.
Dana Hull: And this whole group of shareholders were strategizing, okay, what are we going to bring before the board this year? And then Tesla very quietly kind of 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 16th. 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 Iceland, Reykjavik, Iceland. And her proposal, she wants she wants Tesla’s board to prepare a Ackman risk report or a key person risk report because she wants to know that there is a succession plan if Elon should ever leave.
Lizzie O’Leary: Well, that’s one of the things I wanted to ask you about, because this is something that has kind of come up before the board before, which is, okay, what would you guys do without Elon Musk? What would you do after Elon Musk? Do they have a plan? And I guess as a part of of that question, is the board concerned about what’s been happening lately?
Dana Hull: So if they have a plan, which I would hope that they would, they have not shared that plan with investors. And if you look at their filings and if you look at their website, they only have three named executive officers. It’s Elon Musk. It’s Zachary Kirkhorn, who’s the CFO. And it’s true McLean, who’s the SVP of Engineering and the de facto CTO. So that’s the only three people for a company have over 100,000 employees globally. In their filings, they always talk about how they are highly dependent on Elon, but they have not spelled out any kind of succession planning.
Dana Hull: And then the board, I mean, we have very little insight into the board. As a beat reporter, I have very little insight into the board. I mean, no one on the board returns calls, Nobody talks. They are very close to Elon personally, and it’s kind of like a lock box system. The brand is very much intertwined with him. I think that was very much by design, but it comes with risks because he is such so much a part of the company culture that it’s 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 in this big company, it would probably behoove them to kind of try to separate Elon and the brand. But to do that would require like, you know, they need to have a real reckoning, like what does this company look like if and when he steps aside?
Lizzie O’Leary: But it’s not just the Tesla and Elon brands that are intertwined, but also their finances. The vast majority of Elon Musk’s wealth is tied up in Tesla stock, and when he has sold that stock, as he’s done over the past year, the company’s share price goes down.
Dana Hull: Well, that’s the other reason why investors are upset. So he has unloaded $40 billion worth of Tesla stock this year. 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. He has recently said that his other Twitter spaces that he was done selling for. Now.
Martin Viecha: I really think there’s a huge community of people who just want to know, like, what’s the next move? Like, how long is this going to be like, How much more stock are you going to sell? These are basic questions that I think are fair to ask. Yeah, I’m not selling any stock for, I don’t know, a quarter minimum 18 to 24 months. So you can count on me like most stock sales till probably out of 25, 25 or something.
Dana Hull: That is a big concern. And then what’s interesting is that because he has sold he owns less of a stake in Tesla than he used to. There’s more shares that are now on the public market. So if there was ever a year when investors could actually, like 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. So it’s all very interesting.
Lizzie O’Leary: That is not the sort of thing that makes, you know, corporate governance types happy.
Dana Hull: No. And to be fair, I mean, Elon Musk himself has said quite publicly that he thinks ESG is a scam. No, I think there is a view in some quarters of the ESG corporate governance types are kind of like, you know, school these schoolmarm who don’t really know the. Company. But that said, there they are, investors. And it’s like it’s not. It’s not the best look to kind of ghost your investors in this way or to not have kind of outbound like, hey, heads up like the shareholder meeting is going to be in May. The filing deadline is December 22nd. I mean there just doesn’t seem to be much give and take back and forth between the I r team at Tesla and the investor community, unless you’re a big holder.
Lizzie O’Leary: I also really want to know like how much of this, for lack of a better term, is just about the shit posting Like is it is it the money and the divided attention? Or is it that he just can’t seem to stop himself from tweeting really questionable things?
Dana Hull: Ian is a Gen Xer who very shrewdly figured out how social media works way before any other corporate CEO. And I think what’s what’s amazing about him is that, you know, for a decade, you know, Tesla has never spent any money on traditional advertising. They do have like a marketing budget for their event where you.
Lizzie O’Leary: Don’t need it for you have that.
Dana Hull: Guy. But. But they spent zero on traditional advertising. No, no magazine spreads, no television ads, no radio ads. You just had Ellen was the brand and the pitch person. And they basically use Twitter as like a free advertising vehicle. Now he owns Twitter, so he’s he could do that even more. And I think he knows that, like, you know, being in the conversation is better than not. So his profile is high.
Dana Hull: Now, his profile might be high because he’s doing things like, you know, bashing Dr. Fauci or like, you know, embracing sort of, you know, conspiracy theories that have been thoroughly debunked about Paul Pelosi. But, I mean, regardless, he’s still in the conversation. And whether he’s doing that by design or because he can’t help himself or because he’s sort of really pivoted to the right wing, I think part of it is like in order to grow, Republicans buy cars to it’s not just wealthy liberals in California who buy cars. So in some ways, he’s trying to expand his audience or expand Tesla’s audience, but at the same time, he risks kind of alienating the die hards who were the first among the first.
Martin Viecha: To.
Dana Hull: To embrace him.
Lizzie O’Leary: When we come back, does Tesla just need to make some new stuff? The other reputational risk question I have is, you know, there are sort of a bunch of lawsuits and investigations that are all lurking out there. You’ve got a class action suit from customers who bought self-driving mode. You’ve got a shareholder suit about the 2018 tweet when he said he was taking Tesla private, he had funding secured. He did not. And then you’ve got a federal probe into autopilot mode. And I wonder when you look at these things, whether individually or as a group, like how much do they weigh on the company? Do they matter if you are an investor, a shareholder or a Wall Street analyst who’s thinking like, yeah, this is where I think the stock should be priced.
Dana Hull: I think that those are all risks, but they don’t seem to be huge risks at the moment, if only because, like, you know, I mean, at one point Musk was sued for securities fraud by the SEC and the penalty was $20 million. And then and then in the wake of that whole thing, in the wake of the whole 2018 go private fiasco, the company hit $1,000,000,000,000 valuation.
Dana Hull: Now, obviously, it’s come quite back down to earth. But, you know, the regulatory agency is like, what are they really going to do? I just don’t think that our regulatory regime as a whole has managed to keep up with the pace of technical, technological innovation. And this isn’t just Tesla. It’s, you know, it’s everything. I mean, Sam Bankman-fried is living is like living with his parents while he’s waiting to trial. So, you know, 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. So I just don’t really know what the what the outcome is. And it’s not like I mean, every agency that is investigating Tesla, whether it’s, you know, NYT’s or the EEOC, they have their own processes that are just often very slow moving. And, and they tend to try to settle before before because, you know, no federal agency really wants to go to court with this guy.
Lizzie O’Leary: Yeah. I mean, all of these things in the past have ended up feeling like blips or non events. And I guess the only question I have is whether a slightly weaker Tesla makes the playing field different now or whether they’re still going to be blips.
Dana Hull: Yeah, that’s a really good question. It could and it could make it a slightly, slightly better playing field. I think it’s also interesting that Musk has kind of embraced this anti-government narrative at a time when there are government investigations and you have the whole thing here in California where like the state itself sued Tesla for anti-black racism at the Fremont plant. You and I talked about that the last time I was on this show.
Lizzie O’Leary: We had you on the show.
Dana Hull: Spent almost a year. Now that litigation is ongoing. And yet Tesla has been very public, like they recently put out a blog post reminding everyone that they have 47,000 employees in the state and we need to remain committed to California. So, you know, I mean, Tesla now has a lot of operations in California and Texas and Buffalo, New York. They have a supply chain sort of across the country. You know, they they they are a fairly big company. I mean, so I think the idea of a regulatory agency really taking them down or out in a big way, it would there would be blowback and there would be political blowback.
Lizzie O’Leary: We have talked a little bit about the macroeconomic trends in 2023 and why that is not a great year to be a carmaker in general. I wonder if there are things that are specific to Tesla, like not not just that it’s more expensive to buy a car in general, but I just think about kind of where the EV. Landscape is now versus where it was a few years ago. It just seems like there are a lot of other options now.
Dana Hull: Yeah, I mean, for a long time we kept hearing the competition is coming, the competition is coming. And it was like sort of B.S. because there really was no competition. And now actually, like, it is true, like Rivian does make an electric truck and Hyundai does make the electric Kona. And like, you know, 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, you know, they are no longer the only game in town.
Lizzie O’Leary: 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.
Dana Hull: I mean, Tesla sells four cars right now, the S, the X, the three in the Y, the three and the Y, and make up like 95% of their sales. And they’re fundamentally like the same cars. The software gets better, the apps get better. There’s always over-the-air updates. So like you, you might be able to like stream something that you weren’t before. But like fundamentally, like the car looks the same and a lot of traditional automakers have like a cycle refresh for like every 5 to 7 years. You like, do like a big refresh of the model. It’s just I haven’t really done that. I mean, I still think that the model Y is relatively new and people seem very excited about the Y. But yeah, I mean there there isn’t like a new car in the lineup that could be waiting on them also.
Lizzie O’Leary: Tesla did make a big splash when it unveiled the Cybertruck.
Martin Viecha: Trucks have been the same for a very long time. To solve sustainable energy, we have to have a pickup truck. So I present to you the Cybertruck.
Lizzie O’Leary: But that was back in 2019. Since then, production has been pushed back several times and it’s unclear when the cybertruck will be on the market.
Dana Hull: Cybertruck is still in process. I mean, they just started delivering the semi truck, which they first unveiled five years ago, but then when they announced their fourth quarter deliveries, they didn’t have anything about the semi on that release. So I don’t really know how many they’ve actually delivered. It could be just that because the semi is not a passenger car, they’re not planning to disclose that. But it was still an interesting it was an interesting omission.
Lizzie O’Leary: You know, in in trying to think about how to. Place this as a as a sort of moment in time for the company. I was struck by something that the journalist Patrick George said to a colleague of mine, basically making the argument that this is less an existential crisis or a sort of Elon crisis and more a company growing up and facing like a normal, boring, grown up company stuff. And I was wondering what you thought of that.
Dana Hull: Yeah, I think that that’s true. I mean, Tesla is no longer a scrappy startup. It is like 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. And, you know, Musk, you know, kind of went through the last recession of 2008, 2000, nine, 2010, when government support was very helpful. And now he’s sort of facing it down again. But, yeah, I mean, being a mature car company comes with comes with a lot of you know, it comes with sort of comes with the territory. And you see all automakers kind of talking about, you know, everyone’s trying to forecast for 2023 is going to look like in terms of volume.
Dana Hull: I think what’s interesting about Tesla is that like typically you make a decision, you either chase volume or you chase profit margins. And I think Musk has said publicly, I think I said it on Twitter spaces recently that he’s going to continue to chase volume. So he’s willing to sacrifice profit. You know, the gross margin profit in order to continue growing that market share and and kind of continuing with the with the brand dominance. And so that’s that’s just an interesting thing that’ll be interesting to look at. Like how much of a profit do they take?
Lizzie O’Leary: Well, that’s kind of fascinating, too, to contrast with something that you wrote in in your newsletter, because you talked about this sort of burst of, you know, for years the free publicity of the high stock price, that it was all propelled in a lot of ways by Elon. But if you have this moment where maybe they’re chasing volume and they have under delivered to customers, like it feels like there’s less runway to play with there if if the stock price isn’t what it used to be.
Dana Hull: Right. And customers are no longer as forgiving I mean, because so many customers are also shareholders, they’re no longer as forgiving. So the things that people have complained about for a long time, like the fact that customer service is still frankly pretty lousy given their size, that like if you have a problem with your car, I mean, if it’s a small problem, the mobile service team will come fix it. That’s great. But if it’s a bigger problem, like you’re often waiting for weeks for parts or like you get the runaround or like, you know, today I saw someone like, wanted to buy a solar roof. And on the day of the installation, Tesla backed out, was like, Your roof isn’t strong enough or your roof isn’t good enough. Or, you know, it’s like the customer, like the customer service complaints or people have always kind of complained about the fit and finish and the stitching and the leather and like those things start to become more of a deal, you know, when you’re not delivering on the other promises.
Lizzie O’Leary: The next announcement is, is January 25th. And then there will be the Investor Day one in March.
Dana Hull: March 1st? Yep.
Lizzie O’Leary: What are you going to be watching?
Dana Hull: I think Tesla said in its release about the Investor Day that they’re going to be talking about the next vehicle in their lineup, which is, I believe, supposed to be cheaper than the Model three, like the Gen two or the Gen three platform and capacity expansion because, you know, 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 and stock price aside. Financially, they’re in actually pretty good shape. I mean, if we are heading into a recession, they’ve got billions of dollars on their balance sheet. They don’t have a lot of debt. They’ve paid down a lot of debt. They still have a very loyal customer base like. So they’re not like completely going off the rails.
Lizzie O’Leary: Unless Elon sells a lot more stock.
Dana Hull: Unless he wants a lot more stock. But I just think what’s wild is just, you know, if you had told me in January 2022 that the big story of the year was that Yuan was going to buy Twitter and that the company was going to lose 65% of its value, I would have been like, no way. Like, no, because that was not what I was forecasting. This year was all going to be about Dana Hull.
Lizzie O’Leary: Thank you so much for your time and for talking with me.
Dana Hull: My pleasure, as always, Lizzie.
Lizzie O’Leary: Dana Hull is a reporter at Bloomberg covering Tesla. And that is it for our show today. What next? TBD is produced by Evan Campbell. Our show is edited by Jonathan fisher.
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