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Elon Musk says don't buy volatile Tesla stock, investors listen

May 04 2018 09:00
Dana Hull, Molly Smith and Keith Naughton, Bloomberg

Elon Musk told investors not to buy Tesla shares if they can’t stomach volatility. They got the message.

The comments - part of a bizarre, heated conference call after the close on Wednesday - sent the electric-car maker’s stock plunging. Tesla fell as much as 8.6% on Thursday after the chief executive officer rejected analysts’ questions on another quarter in which the company burned more than $1bn in cash.

Musk, 46, may have backed Tesla into a corner. While he repeated that the carmaker won’t need more capital this year - and said he specifically doesn’t want to raise any - even Tesla bulls harbour doubts about its cash position.

The CEO demonstrated willingness to bite the hand that feeds by ridiculing representatives of Wall Street’s biggest banks, some of which have helped the company raise billions of dollars to fund his other-worldly ambitions.

“Clearly, he seems fatigued and frustrated, and this is the wrong time to lash out at the investor community,” James Albertine, an analyst with Consumers Edge Research, said on Bloomberg Television.

“It was a regrettable moment, to say the least, and the stock reflects that today.”

At the end of March, Tesla had about $2.7bn in cash on hand. The company blazed through about $3.9bn during the trailing 12 months, according to data compiled by Bloomberg. The company is going to need money to eventually build its first factory in China and to develop new vehicles, including a semi-truck and the Model Y crossover, which it now expects will arrive in early 2020 instead of late next year.

“He reiterated that he’s not going to raise cash. Now, no one believes that,” Ben Kallo, an analyst at Robert W. Baird & Co with a buy rating on Tesla shares, said of Musk on Bloomberg Television. “His approach obviously didn’t go over well.”

‘Not cool’

Before the call on Wednesday, Musk wrote to shareholders that Tesla will be able to generate cash and profit in the third and fourth quarters if it doubles weekly output of Model 3 sedans in about two months.

The stock’s initial rally petered out and turned into a rout after the CEO said an analyst was asking “boring bonehead questions” that were “not cool.”

“Investor feedback to the call was shock that a CEO would be dismissive, and the general sentiment was that the defensiveness spoke volumes,” Joseph Spak, an analyst at RBC Capital Markets, wrote in a report to clients.

Tesla shares traded down 7.8% to $277.56 as of 12 pm in New York and plummeted earlier by the most in a month. The company’s 5.3% notes due 2025 were down 1.5 cents on the dollar and were quoted at 87.5 cents, according to Trace bond-price data.

Moody’s Investors Service, which downgraded Tesla’s credit rating further into junk in March, still expects Tesla will need to raise about $2bn selling equity, convertible bonds or debt, to offset the cash it burns this year and securities maturing through early 2019.

Rattled investors

“Tesla’s results and Elon’s demeanour on the call definitely rattled investors,” said George Schultze, founder of Schultze Asset Management, which oversees about $100m and is shorting the company’s stock.

“The company’s cash position is becoming more and more tenuous.”

Albertine, who has the equivalent of a buy rating on Tesla, said Musk doesn’t need to raise capital soon but may want to think about hiring a chief operating officer. The billionaire is also the CEO of rocket company Space Exploration Technologies and founded the tunnel-digging firm Boring.

“Is he unhinged? And is our capital secure with Tesla?” Albertine said. “That’s the question people have.”  

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tesla  |  elon musk  |  companies  |  tech
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