Tesla Investors May Be Losing Patience

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ADELAIDE, AUSTRALIA: Elon Musk during a presentation at the Tesla Powerpack Launch Event at Hornsdale Wind Farm on September 29, 2017 in Adelaide, Australia. (Photo by Mark Brake/Getty Images)

I have covered advanced biofuel companies for more than a decade, and just about all of them made implausible claims about their technologies. They consistently overpromised and underdelivered, until they finally ran out of money and declared bankruptcy.

I am not sure that electric vehicle (EV) maker Tesla will share the same fate, but management is demonstrating the same pattern. Tesla CEO Elon Musk frequently says grandiose things to investors that ultimately fall far short of his projections. Thus far, this tactic has helped to prop up Tesla's share price.

I previously covered Tesla's second-quarter earnings in Tesla Shares Surge Following Its Largest Loss Ever. Tesla reported a record loss, but Tesla CEO Elon Musk has an uncanny way of reassuring investors that everything is just fine . As he did so in the previous earnings call, Tesla shares moved higher.

But investors may finally be running short on patience. Last week Tesla reported a new record loss of $619.4 million for the third quarter, almost double the previous quarter's record $336.4 million loss.

Things got really interesting on the earnings conference call. Musk had a difficult time reconciling optimistic statements he had made following the previous quarter.

Just to highlight one example, during the previous quarter's conference call, Musk had stated: "What people should absolutely have zero concern about, and I mean zero, is that Tesla will achieve a 10,000-unit production week by the end of next year."

Zero concern. That's a statement of absolute confidence, and Musk's credibility should be judged on such statements. But when questioned about the previous claim by analyst Ryan Brinkman from JPMorgan Chase, Musk replied that it is now "a bit too early" to make such a forecast, adding:

"But I mean, if you extrapolate from 5,000 units towards the end of Q1, we do want to call upon significant CapEx until we are confident about cash flow on Model 3, so then that's a question of how long it takes to implement. I mean, that's where you get to 10,000 units a week for Model 3, which is a number we are confident can be sustained from a demand standpoint."

So the absolute confidence about 10,000 units a week has now turned into "we need significant capital to get to 5,000 units a week." Another example of overpromising and underdelivering. This is significant because those colossal production projections are mainly what supports Tesla's lofty valuation.

ADELAIDE, AUSTRALIA: Elon Musk during a presentation at the Tesla Powerpack Launch Event at Hornsdale Wind Farm on September 29, 2017 in Adelaide, Australia. (Photo by Mark Brake/Getty Images)

I have covered advanced biofuel companies for more than a decade, and just about all of them made implausible claims about their technologies. They consistently overpromised and underdelivered, until they finally ran out of money and declared bankruptcy.

I am not sure that electric vehicle (EV) maker Tesla will share the same fate, but management is demonstrating the same pattern. Tesla CEO Elon Musk frequently says grandiose things to investors that ultimately fall far short of his projections. Thus far, this tactic has helped to prop up Tesla's share price.

I previously covered Tesla's second-quarter earnings in Tesla Shares Surge Following Its Largest Loss Ever. Tesla reported a record loss, but Tesla CEO Elon Musk has an uncanny way of reassuring investors that everything is just fine . As he did so in the previous earnings call, Tesla shares moved higher.

Things got really interesting on the earnings conference call. Musk had a difficult time reconciling optimistic statements he had made following the previous quarter.

Just to highlight one example, during the previous quarter's conference call, Musk had stated: "What people should absolutely have zero concern about, and I mean zero, is that Tesla will achieve a 10,000-unit production week by the end of next year."

Zero concern. That's a statement of absolute confidence, and Musk's credibility should be judged on such statements. But when questioned about the previous claim by analyst Ryan Brinkman from JPMorgan Chase, Musk replied that it is now "a bit too early" to make such a forecast, adding:

"But I mean, if you extrapolate from 5,000 units towards the end of Q1, we do want to call upon significant CapEx until we are confident about cash flow on Model 3, so then that's a question of how long it takes to implement. I mean, that's where you get to 10,000 units a week for Model 3, which is a number we are confident can be sustained from a demand standpoint."

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