Tesla Loses $3.7B In Market Cap After Musk's Testy Response To 70% Q1 Model 3 Production Miss

Elon Musk attends the premiere and Q&A for "Do You Trust This Computer?" at The Regency Village Theatre on April 5, 2018 in Westwood, California. (Photo by Alberto E. Rodriguez/Getty Images)

Elon Musk has a solid track record of big exaggerations -- but he has galvanized a segment of the population who don't care.

A case in point: on May 2, Tesla shares plunged 7.1% after a testy conference call that hinged on whether to believe Musk's claims that the company won't need to raise more capital in 2018.

When you can't depend on a company's CEO to provide a reliable forecast, the logical thing to do is imagine a range of scenarios and estimate the probability of each. After doing that implicitly, investors decided that Tesla was worth $3.7 billion less than before Musk' s testy conference call.

Before getting into that, let's review one of many examples of Musk making claims that are way more optimistic than what Tesla delivers.

Last summer -- between July 28 and August 2, Musk overstated the number of Model 3 reservations by a whopping 63,000 (11% of the number he claimed). How so? That Friday, "Musk said Tesla had 500,000 reservations for the Model 3 and Wednesday, he said he misspoke. Instead, the company said it had a gross figure of 518,000 reservations and a net of 455,000 orders, suggesting 63,000 cancellations," according to the Journal. According to MarketWatch, on August 2, Musk said of this change, "I don't think it really has much materiality."

Musk still talked as if he was not subject to laws regarding investor communications. As MarketWatch wrote, Musk "[admits] making inaccurate statements and flippantly [dismisses] any concerns about them. In Musk's world, mistakes like an inaccurate and potentially material statement made to journalists about the most important product launch in company history is no big deal. Instead, it was 'just a guess' and 'inconsequential,' just like all the other errors along Tesla's path."

The not so implicit message behind this and other Muskian exaggerations is that he is a great shark and investors, analysts, and journalists are annoying pilot fish seeking to feast on the tiny remains of what he does not devour.

Musk was certainly swatting away analysts during Tesla's May 2 conference call during which time he announced that the company burned through way more cash than expected -- about $1 billion after consuming a mere $277 million in the fourth quarter. Musk also claimed that Tesla will not need to raise more cash because the company will generate enough cash from operations thanks to its ability to make 5,000 Model 3s a week by the end of June 2018, according to the Wall Street Journal.

If you are not on Team Musk, you ought be skeptical of this promise. After all, Musk's goal for the first quarter -- which was revised way down after promising to make 200,000 Model 3s in the second half of 2017 -- was 2,500 per week which would have resulted in a total of 32,500 (2,500 for 13 weeks).

Tesla fell 70% below that number -- making "9,766 Model 3s during the first quarter and fell short of its goal of making 2,500 in a single week. In April, it said that it reached a rate of 2,000 in a seven-day period that included two days of the second quarter," according to the Journal.

Not surprisingly for Wall Street analysts, the notion that Tesla will meet the goal of 5,000 Model3s before the end of the quarter makes people skeptical.

During the May 2 conference call, Musk responded to Adam Jonas of Morgan Stanley who "asked whether it would be prudent for Tesla to raise more capital while it can even if it doesn’t need it" by saying, “No. I specifically don’t want to,” according to the Journal which reported that Musk, "cut off two analysts who were asking about Tesla’s business—specifically capital expenditures and Model 3 reservations—calling the questions “so dry. They’re killing me.'"

Analysts do not believe that Tesla will end the year without raising capital. As CNBC reported:

D.R. Barton, chief technical analyst at Money Morning said, "Elon Musk famously said they wouldn't need to raise money by the end of the year. I'm on record as saying I believe they definitely will. I think they're going to put it off until the last possible second. They have a large debt obligation in March of 2019 and I think they'll have to raise well before that. I'm expecting towards the end of this year. It's going to have to be north of $1 billion dollars, a billion and a half, and if they have to go to the debt markets for that — it's going to be very expensive paper."

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Elon Musk attends the premiere and Q&A for "Do You Trust This Computer?" at The Regency Village Theatre on April 5, 2018 in Westwood, California. (Photo by Alberto E. Rodriguez/Getty Images)

Elon Musk has a solid track record of big exaggerations -- but he has galvanized a segment of the population who don't care.

A case in point: on May 2, Tesla shares plunged 7.1% after a testy conference call that hinged on whether to believe Musk's claims that the company won't need to raise more capital in 2018.

When you can't depend on a company's CEO to provide a reliable forecast, the logical thing to do is imagine a range of scenarios and estimate the probability of each. After doing that implicitly, investors decided that Tesla was worth $3.7 billion less than before Musk' s testy conference call.

Before getting into that, let's review one of many examples of Musk making claims that are way more optimistic than what Tesla delivers.

Last summer -- between July 28 and August 2, Musk overstated the number of Model 3 reservations by a whopping 63,000 (11% of the number he claimed). How so? That Friday, "Musk said Tesla had 500,000 reservations for the Model 3 and Wednesday, he said he misspoke. Instead, the company said it had a gross figure of 518,000 reservations and a net of 455,000 orders, suggesting 63,000 cancellations," according to the Journal. According to MarketWatch, on August 2, Musk said of this change, "I don't think it really has much materiality."

Musk still talked as if he was not subject to laws regarding investor communications. As MarketWatch wrote, Musk "[admits] making inaccurate statements and flippantly [dismisses] any concerns about them. In Musk's world, mistakes like an inaccurate and potentially material statement made to journalists about the most important product launch in company history is no big deal. Instead, it was 'just a guess' and 'inconsequential,' just like all the other errors along Tesla's path."

The not so implicit message behind this and other Muskian exaggerations is that he is a great shark and investors, analysts, and journalists are annoying pilot fish seeking to feast on the tiny remains of what he does not devour.

Musk was certainly swatting away analysts during Tesla's May 2 conference call during which time he announced that the company burned through way more cash than expected -- about $1 billion after consuming a mere $277 million in the fourth quarter. Musk also claimed that Tesla will not need to raise more cash because the company will generate enough cash from operations thanks to its ability to make 5,000 Model 3s a week by the end of June 2018, according to the Wall Street Journal.

If you are not on Team Musk, you ought be skeptical of this promise. After all, Musk's goal for the first quarter -- which was revised way down after promising to make 200,000 Model 3s in the second half of 2017 -- was 2,500 per week which would have resulted in a total of 32,500 (2,500 for 13 weeks).

Tesla fell 70% below that number -- making "9,766 Model 3s during the first quarter and fell short of its goal of making 2,500 in a single week. In April, it said that it reached a rate of 2,000 in a seven-day period that included two days of the second quarter," according to the Journal.

Not surprisingly for Wall Street analysts, the notion that Tesla will meet the goal of 5,000 Model3s before the end of the quarter makes people skeptical.

During the May 2 conference call, Musk responded to Adam Jonas of Morgan Stanley who "asked whether it would be prudent for Tesla to raise more capital while it can even if it doesn’t need it" by saying, “No. I specifically don’t want to,” according to the Journal which reported that Musk, "cut off two analysts who were asking about Tesla’s business—specifically capital expenditures and Model 3 reservations—calling the questions “so dry. They’re killing me.'"

Analysts do not believe that Tesla will end the year without raising capital. As CNBC reported:

D.R. Barton, chief technical analyst at Money Morning said, "Elon Musk famously said they wouldn't need to raise money by the end of the year. I'm on record as saying I believe they definitely will. I think they're going to put it off until the last possible second. They have a large debt obligation in March of 2019 and I think they'll have to raise well before that. I'm expecting towards the end of this year. It's going to have to be north of $1 billion dollars, a billion and a half, and if they have to go to the debt markets for that — it's going to be very expensive paper."

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Read Again https://www.forbes.com/sites/petercohan/2018/05/03/tesla-loses-3-7b-in-market-cap-after-musks-testy-response-to-70-q1-model-3-production-miss/

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