Not even the upcoming Cybertruck can save Musk from Thursday’s string of bad news, and that’s saying something.
The third-quarter earnings call was easily the worst in Tesla’s history, with the mercurial CEO coming across as sullen and irritable, expressing concern about investments without interrupting his new finance chief. to give admonishment.
That’s a far cry from the euphoria he felt this time last year, when he predicted Tesla’s market value would likely be more than double that of the world’s largest public companies.
“Sounds like there was a gloomy Elon Musk on today’s earnings call,” wrote Tesla bull Matt Smith, vice president of equity analysis at Halt Ferguson Financial, a possible reference to him Notorious mood swings.
Musk wasn’t the only one frustrated by the call. Tesla’s army of volunteer content creators, including Tesla Daily’s Rob Mauer, tried to put on a brave face by reminding viewers that Tesla should be viewed as a long-term investment . Still, one has to admit that the tone of the call was anything but reassuring about the near-term outlook.
Nor should it be. If Cybertruck production proves to be as difficult as Musk warned on Wednesday, it’s unclear how Tesla will be able to achieve around 2.35 million vehicles next year without the updated Model 3 “Highland” coming to market device capacity.
Expectations for Wednesday’s earnings report were already low after third-quarter auto sales fell well short of analysts’ expectations. The income statement is expected to be weak, across the board, with adjusted earnings per share falling to 66 cents, the lowest level since the third quarter of 2021.
“In short, we describe last night’s conference call as a ‘mini-disaster,'” Wedbush Technology analyst Dan Ives wrote. While Wall Street wanted reassurance that the string of margin-squeezing price cuts would be over, they were “instead hearing the voice of a more cautious Musk.”
While the surge in profitability at Megapack’s battery business remains a bright spot, Musk has sounded pessimistic or defensive when talking about other businesses. Not surprisingly, the stock is expected to plunge more than 7% at Thursday’s opening bell, following a 5% drop following Wednesday’s results.
Mass production of Cybertruck proves ‘extremely difficult’
News that the radically designed pickup truck will eventually go on sale by the end of November was overshadowed by comments from Musk that production would be extremely difficult and would consume a lot of cash due to its radical design and choice of stainless steel for exterior sheet metal.
He estimates that his Texas assembly plant won’t be ready to produce 250,000 vehicles a year until around mid-2025. That means it won’t be a major catalyst for sales growth next year and will likely become a burden on the income statement.
More profit-eating price cuts are likely
Musk has repeatedly spoken about the problems customers are having buying Teslas because borrowing costs are so high. Due to soaring interest rates, the monthly payment for owning a Model Y has been “virtually unchanged” despite multiple price cuts.
“We have to make our cars more affordable,” Musk said. In theory, this could be achieved by drastically cutting the cost of goods sold. But Tesla is already very streamlined, so it sounds like the next series of price discount incentives is just around the corner.
The end of 50% compound annual growth rate?
Musk seemed to muddy the waters when asked when Tesla would finally get back to meeting its long-term growth targets, after falling well short of that number for two years in a row.
In response, Musk told investors that achieving the 50% compound annual growth rate target forever was unsustainable because it would eventually exceed the mass of the known universe—instead, Tesla is growing “faster than Earth by far.” It’s much faster to get into any other car company,” he countered.
Tesla’s problem isn’t that investors cling to the illusion that this could ever exist. But they do expect that to continue into this decade, since doing so would be almost mandatory if Musk plans to hit his sales target of 20 million vehicles by 2030. His comments Wednesday suggested he may be slowly moving away from that ambitious goal.
Tesla slows construction of low-cost car factories
This coincides with news that production of the low-cost next-generation model, expected to sell millions of units per year, may be delayed.
Musk cited “post-traumatic stress disorder” following the global financial crisis, which left Tesla “hanging by a thread” in his words, with almost no paychecks over Christmas. The memory was “scorched with a soldering iron into his mind,” and he refused to “go full speed into uncertainty.”
That’s why he’s not going all-in on plans to build a fifth auto assembly plant in Mexico. However, any significant delay would make calculations to achieve the 2030 target highly unrealistic.
Musk avoids answering key questions about FSD’s responsibility
Beyond sheer sales, a key pillar of Musk’s profitable growth strategy is becoming the first automaker to solve the general self-driving problem. Presumably, the next major update to fully autonomous driving (version 12, currently in alpha testing) is entirely based on neural networks learning to make decisions on their own, rather than following a set of coded commands.
Musk did not answer the question when asked whether Tesla would ultimately be held liable if FSD caused a crash, rather than expecting customers to foot the bill.
“There is no reply to the plan to take responsibility for the system, as if it means nothing, even though it is the only real practical step towards becoming a system that works for people,” complain Electrek editor-in-chief Fred Lambert is also a shareholder.
New finance chief may actually make everything worse
Vaibhav Taneja unexpectedly took over as finance director, a move that still raises questions over the sudden departure of Zach Kirkhorn. The latter’s calm, steady and reassuring demeanor, coupled with his tight control of costs, won him praise throughout the investor community, and many were satisfied that he was solely hosting the call.
Taneja was always going to have a rough start, but he didn’t get any benefit from having to think about such a bad quarter immediately or his obvious uncertainty and respect for Musk on the call.
“After Zach left, Elon seemed to be surrounded by people who were afraid to disagree with him,” wrote Gary Black, managing partner at Futures Funds, quoted a portfolio manager he spoke to.
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