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What If Tesla's Musk Premium Becomes A Discount?

As news of Elon Musk's bizarre tweetstorm over the weekend hit the wires, Tesla's shares fell Monday.  Of course, it's impossible to know if these two things are related.  Coincidentally, I am in Thailand now, and it is hard to conceive that someone could remove the halo from the successful rescue of the Wild Boars and their coach from the cave in Chiang Rai, but somehow Musk did with his offensive tweets.

That's the existential problem with Tesla.  The fanboys who tout the stock invariably tout Musk as the reason to own it in the face of massive cash burn--$9 billion since Tesla came public and $4.5 billion in the past year-and-a-half.  If you are going to stick with a company that is that unprofitable from operations, you had better believe in its guiding light.  That's what Tesla investors do.

CHICAGO, IL - JUNE 14: Chicago Engineer and tech entrepreneur Elon Musk of The Boring Company talks about constructing a high speed transit tunnel at Block 37 during a news conference on June 14, 2018 in Chicago, Illinois. Musk said he could create a 16-passenger vehicle to operate on a high-speed rail system that could get travelers to and from downtown Chicago and O'hare International Airport under twenty minutes, at speeds of over 100 miles per hour. (Photo by Joshua Lott/Getty Images)

How much of that Musk-love is hype versus reality is difficult to divine.  I've never been in a Tesla management meeting, so I have no way of knowing who actually drives the bus in terms of big decisions, but from the outside it appaears that would be Musk.  Tesla's most recent 10-Q included the following language:

We are highly dependent on the services of Elon Musk, our Chief Executive Officer, Chairman of our Board of Directors and largest stockholder. Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla. 

So, to use an insurance phrase, Musk is the "key man" at Tesla, but, again, it is difficult to tell how that translates into day-to-day operations.  Former Tesla employees have told me that Doug Field, the recently departed head of engineering, was Tesla's de facto head of day-to-day operations.  The circumstances of Field's departure are murky, to be sure.  Tesla's financial disclosures show that the company's important patents are owned not by the company itself, or Musk, but rather by JB Straubel, Tesla's Chief Technology Officer.  Again, though, it is difficult, from the outside, to determine Straubel's exact role in the day-to-day operations of Tesla.

From a governance perspective, Tesla's lack of a COO is a glaring weakness, especially since Musk is very involved in other ventures, notably SpaceX and the The Boring Company.  When Musk enegages in e-mail flame wars, as he did with former employee/current whistleblower Martin Tripp or goes off the deep end with his horrible, unsubstantiated accusations against Vernon Unsworth, then an unbiased observer might worry about his mental state. I certainly do.

Blind faith is not a profitable investing strategy.  As Netflix shares plummet in after-hours trading on the company's reports of weak subscriber growth, it is yet another reminder that numbers matter.  Cash flow never lies.  Tesla, as its practice, has not yet released a date for its second quarter earnings.  After the disaster of the last conference call, investors will be incredibly focused on managment's performance on this call.  He doesn't ask for my opinion, but if he did, I would advise Musk to skip the call entirely and leave those duties to CFO Deepak Ahuja.

No reasonable analyst would attribute a $60 billion enterprise value to a company with Tesla's perilous financials, but that is the current valuation, and that figure clearly includes a "Musk Premium."  If Musk continues to display behavior that could charitably be described as unhinged, however, that premium could quickly become a discount, and Tesla's shares would no doubt suffer.

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