It goes without saying that taking questions from Wall Street investment analysts about company earnings ranks as the least favorite duty of many CEOs, especially when the earnings numbers are as grim as, say, Tesla's.
But Tesla Chief Executive Elon Musk's performance on his conference call with analysts Wednesday, following the release of the company's first-quarter financial results, was in a class by itself. To mention the bottom line here at the top: It was enough to make people wary of buying his stock, and could even make people wary of buying his cars.
There's already evidence of the first phenomenon: Tesla shares fell by more than 8% in early Nasdaq trading Thursday before recovering by the end of the day to close at $284.45, a loss of 5.55%. That brings the company's slump year-to-date to about 12%.
One could detect the impact of Musk's behavior even during the call itself, when the stock tanked in aftermarket trading while he was speaking.
Aficionados of weird CEO behavior will treasure the hour-and-15-minute call for years. He insulted analysts who asked pertinent (or perhaps, from his standpoint, impertinent) questions. He made unsupported claims about the safety of his cars' autonomous driving systems. He attacked the news media for reporting on accidents involving those systems. At times he seemed distracted, even confused.
Musk displayed particular contempt for analysts who dared to ask about his company's capital spending plans and the state of reservations for the mass-market Model 3 sedan. These issues aren't trivial for Tesla investors. Whether the company will need to raise capital this year has been oft-debated; it became a more critical issue after Tesla revealed that it burned through about $1 billion in cash in the first quarter. And the company's very survival depends on the Model 3, which has been plagued by production delays and quality control issues.
Yet when analyst Toni Sacconaghi of Sanford C. Bernstein & Co. asked about capital requirements, Musk cut him off. "Excuse me. Next," he said. "Boring bonehead questions are not cool." The next questioner was Joseph Spak of RBC Capital Markets, who asked about Model 3 orders. Musk gave him the cold shoulder too.
"These questions are so dry," he said. "They're killing me." Musk then cued up Galileo Russell, a Tesla fanboy who issues his sycophantic opinions on Tesla via a YouTube channel. Musk spent about 20 minutes conversing companionably with Russell — who pronounced Musk's answers "awesome" — on issues tangential, at best, to the hard quarterly numbers the company disclosed a few minutes before.
Those numbers were nothing to brag about. As my colleague Russ Mitchell reports, Tesla disclosed a quarterly net loss of $784.6 million, up substantially from the $397 million it lost in the same period last year. Backtracking from its promise to burst-build 6,000 Model 3s a week by the end of June, the company said its production pace will reach about 5,000 cars a week in about two months.
Musk isn't the first CEO to express impatience with Wall Street questions. In the 1990s, Peter Rose, co-founder chairman of the Washington logistics company Expeditors International, won fame for his tart — sometimes hilariously so — responses to analysts' queries. He delivered these once a month in public letters rather than on conference calls. ("We don't do conference calls," Rose wrote once, "and we never follow children or animal acts.")
But Rose's comments always came in the course of detailed discussions about his company's business and metrics. Moreover, he could afford to dis Wall Street because at the time his company didn't need to raise capital externally. Rose retired in 2014.
Unlike Expeditors during the Peter Rose era, Tesla has a long way to go before it can fund its capital needs from earnings, since they don't yet exist. Musk's assertion during the conference call that Tesla will "quite likely" be profitable as of the third quarter this year based on strong sales of the Model 3 sounds implausible, since Model 3 production remains a question mark.
What perhaps was most disturbing in Musk's performance Wednesday was his discussion of the safety of Tesla's cars and the company's Autopilot semiautonomous driving system. In March, the occupant of a top-of-the-line Tesla Model X with the system engaged died after the vehicle hit a highway barrier in Northern California, was hit by two other cars and caught fire. The incident revived memories of a 2016 crash when the occupant of a Tesla running on Autopilot in Florida was killed in a collision with a truck the system apparently had not spotted.
Musk seemed to think that questions about the system are inherently out of order. Observing that worldwide vehicular deaths number about 1.2 million a year, he remarked, "How many do you read about? Basically, none of them. But if it's an autonomous situation, it's headline news."
The news media, he said, "should be writing the story about how autonomous cars are really safe, but that's not the story that people want to click on. So they write inflammatory headlines that are fundamentally misleading to the readers." He concluded, "it's really incredibly irresponsible of any journalists with integrity to write an article that would lead people to believe that autonomy is less safe. Because people might actually turn [the system] off, and then die."
Let's be clear about this: Musk has no statistical grounds to state categorically that autonomous systems are safer than human-driven vehicles. That conclusion might stand to reason, since human error is blamed for most vehicular deaths and injuries, but autonomous systems might create dangerous situations we can't yet anticipate. His apparent assumption that the debate is over — "Vehicles that we're producing are capable of full autonomy," he said — is a little scary, considering how much still needs to be learned about the functioning of fully autonomous cars, and about the interaction of autonomous systems with humans in the cockpit.
Musk and other promoters of autonomous vehicles brag about racking up millions of miles in test drives, but they're well short of the 3 trillion miles a year driven on American roads alone, where the 32,800 deaths annually on U.S. roads amount to only 1.09 per 100 million miles. So far, autonomous systems in the U.S. have been connected with three deaths — two related to Tesla vehicles and a third that occurred in March when a pedestrian was struck by a car being tested by Uber.
Musk's dismissive responses to serious questions about his company's financial results suggest that he's confident that Tesla's shares, and access to the capital markets, will remain buoyed by his personal following as a technology visionary. It's true that Tesla's share price isn't based on fundamentals. It's a "story" stock, and the story is Elon Musk.
Doubts have been rising that Elon Musk has his eye on the ball at Tesla. This is a crucial moment in the company's life, given how much depends on a successful rollout of the Model 3. Yet while he should be devoting 100% of his energy to making sure that happens, he's constantly veering off on tangents, announcing electric semi trucks here, and electric sports cars there, while expressing confidence that production will go well despite Tesla's long record of production glitches.
The trading in Tesla's stock Thursday suggests that doubts about Musk's role at the company may be reaching a critical mass. The problem with story stocks is that sometimes the page turns and investors discover they're in a horror story.