Investors swooned for Tesla last night (Aug. 1). Yes, the electric carmaker announced it had burned through $740 million over the three months ending in June, but showed signs it could slow those losses down from the $1 billion spent in previous quarters. Auto revenue was up almost 50% over the same period last year to $3.4 billion. Tesla reassured investors it would grow production levels beyond 7,000 cars per week over 2018, ensuring the electric carmaker would be “sustainably profitable for the first time in our history” (pdf). CEO Elon Musk was confident this was just the beginning: “We believe we can be sustainably profitable from Q3 onwards,” he said during the call to discuss the second quarter results. The stock soared in after-hours trading and is up about 11% over yesterday’s close at the time of this writing.
But the earnings call itself? It was an encapsulation of what’s wrong with the coverage of Tesla, both on Wall Street and in the media. As I wrote this week, Tesla is almost a religion. There are heretics, true believers, and the rest of us. The stock has traded on faith rather than fundamentals. Before the earnings call, analysts were all over the map, with their latest recommendations split between 10 buys, 11 holds and 11 sells.
Several people used the earnings call as an opportunity to offer pet theories about Tesla’s products or cheerlead for their side, rather than seek useful answers for either their investor clients or their publication’s readers.
In a break from recent months, Musk was the one who came across as comparatively restrained and dignified. The contrite chief executive apologized twice for his behavior during Tesla’s last quarterly earnings call on May 2. He had berated analysts for asking “boring, bonehead questions,” dismissing inquiries about the company’s finances and the Model 3. The stock tanked, and he later called the outburst “foolish.” But it only preceded a worrying string of tirades and insults on Twitter, including baselessly calling a British diver in the Thai cave rescue a “pedo” in July. An open letter from Tesla investors demanded Musk apologize.
Musk opened the earnings call by acknowledging his behavior. “I’d like to apologize for being impolite on the prior call,” he said. “There’s no excuse for bad manners. There are reasons for it: I’ve gotten no sleep and I’m working 110, 120 hour weeks. Still there’s no excuse for being impolite.” He later spoke directly to Joseph Robert Spak of RBC Capital. “I would also like to apologize for being impolite on the last call with you,” Musk said. “That was not right. I hope you accept my apologies.” Spak managed to get out a quiet, “thanks,” before the conversation moved on.
Yet Musk’s inquisitors did not hold the high ground. After a few questions about Tesla’s margins and the cost of future factories, Adam Jonas of Morgan Stanley led the conversation off the rails about 44 minutes into the call. ”First, there’s so much love and respect for colleagues and Wall Street analysts on this call, it’s almost lifting my spirits,” Jonas said, according to a recording of the call. “What can I say?” leading to an awkward pause.
Jonas compared the artificial intelligence in Tesla’s cars to Terminator, asking if such “weapons-grade” technology would be restricted by governments in the future. “There’s an argument that a fully autonomous car is essentially like a Terminator, that is programmed to save lives in highly complex terrestrial environments,” he continued. “And that this same technology with a few tweaks have [sic] some pretty obvious military capability. Do you see any risk that U.S. companies will ultimately not be allowed to operate weapons grade AI-based technology in a market like China and vice versa?”
Musk seemed taken aback. “I wouldn’t call it weapons grade,” he said, hesitating for a moment. “It’s just like the car is trying to drive. And if anything, the autonomous cars will be pretty easy to bully because they’ll be optimizing so much for avoiding collisions. … But we have not encountered anything of the nature of what you’re saying.”
Tesla’s executives then took questions from several more analysts before turning to the Wall Street Journal’s Tim Higgins. He asked several incisive questions about Tesla’s goal of producing 1 million vehicles in 2020 (Musk hedged, saying 700,000 was more realistic). Things fell apart again when Zachary Shahan, editor in chief of CleanTechnica, joined in. The site bills itself as the “most indispensable website on the planet for cleantech news and commentary,” but Shahan wasted no time in pumping up Musk with praise, and then a bizarre pep talk.
“Thanks for the recent retweet, Elon,” Shahan said. “I was really, really impressed with the Model 3 after owning a Model S, so I’m really impressed how much you’ve developed since the early days.” Musk returned the praise after a brief question. “What I really love about your writing is that you really care about getting the details right and you really understand things well,” Musk said, “which is awesome.”
Shahan then launched into a appeal for the Tesla CEO. “I think, the whole community has a little request,” he said. “Don’t let the trolls get you down. Don’t feed the trolls too much. But we do like it when you tease the trolls a bit. So use your judgment, but thanks a lot for what you’re doing.” Even Musk didn’t have much to say to that.
When it comes to Tesla and Musk, emotions and agendas have overwhelmed many’s better judgement. The earnings call is just the latest stage for all this to play out.