Wall Street is listening to Elon Musk’s “internal” Tesla goals and ignoring history

Got your numbers right here.
Got your numbers right here.
Image: REUTERS/Eduardo Munoz
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Tesla dispatched a booming quarter, delivering 97,000 vehicles to customers, about 2% more than Wall Street analysts had been expecting, according to FactSet. It was a feat. Tesla had to work hard to grow sales of its popular Model 3 amid shrinking tax breaks in the US, an ever-expanding global logistics puzzle, and a raging trade war. Over the same period, other automakers saw their sales collapse.

Tesla’s success in the quarter, unveiled Oct. 2, put it within reach—just barely—of hitting the low-end of CEO Elon Musk’s production target for the year of 360,00 to 400,000 deliveries. That should all be good news, but Tesla’s stock price fell by about 4% in after-hours trading. What happened?

Tesla has always said it has two goals. One is set internally for employees lying just within (or beyond) employees’ abilities to deliver (and woe be to anyone working for Musk who says something is “impossible“). The second, more realistic, goal is for the world. Investors are now just listening to the first. It’s one Tesla rarely hits without an asterisk or exhausting all-hands dash to the finish line often leaving executives stumbling for the exit.

But those “stretch goals,” using the most generous possible interpretation of that phrase, is how Tesla has survived ordeal after ordeal, most recently its hellish production ramp of the Model 3. After launching the Model 3 in 2016, Musk moved up its production date to meet unexpected demand—although Tesla ended up hitting its production targets more than a year late. A series of missteps from an over-automated factory, to logistical bottlenecks, left the company “single-digit weeks away” of bankruptcy, saved only by an all-out effort from Tesla employees to deliver as many cars as possible, with Musk regularly emailing employees to boost production.

More pedestrian examples of such “stretch” goals abound.  In June, Musk told investors Tesla was on track to double its energy storage over 2018. But “internally, we have a bigger goal than that,” he said according to a transcript of the call from Sentieo. Musk took the same tack when estimating the cost of Tesla’s new factory in China. “We’re confident that our cap-ex per unit of production for Shanghai factory and for Model Y will be less than half of what we did for Model 3,” he told analysts in January on an earnings call. “Internally, we think it might be a quarter but that’s probably too good to believe, but it’s definitely less than half.”

Now investors only seem to be listening to those “internal” goals. This month, Wall Street was primed by whispers, rumors, and a leak from Tesla CEO Elon Musk to expect 100,000 vehicles. A email published Sept. 26 by the electric-vehicle news site Electrek quoted Musk as telling employees, “we have a shot at achieving our first 100,000 vehicle delivery quarter, which is an incredibly exciting milestone for our company!”

FactSet put analysts’ consensus delivery expectations at 95,000, about 2% lower than what the carmaker ultimately reported. But the number of Model 3 deliveries, central to Tesla’s revenue growth, came in above consensus estimates. “This was an impressive delivery number for Tesla overall that should be viewed as a positive step in the right direction,” analysts at investment firm Wedbush emailed Tuesday. “Tesla beat the Street’s estimates in print but missed the 98k to 100k whisper expectations which will weigh on shares a bit as a knee jerk reaction.”

Tesla’s official guidance may not matter much, even when it makes its goals explicit. Tesla told investors (pdf) in its first-quarter update that “although we are driving towards higher internal goals, we reaffirm our prior guidance of 360,000 to 400,000 vehicle deliveries in 2019.”

No doubt investors will be watching for a Musk missive for the real story.