ADVERTISEMENT

Tesla’s Normcore Earnings Meet an Abnormal Stock

Tesla’s Normcore Earnings Meet an Abnormal Stock

Tesla Inc. hosted an earnings call Wednesday evening that can only be described as normcore. With CEO Elon Musk absent — as telegraphed last time — it was left to several other executives, led by CFO Zachary Kirkhorn, to bring the sizzle.

Or rather, to studiously avoid it. The headline numbers were good anyway, providing room for a relatively humdrum event by Tesla’s standards. Rather than an exposition on manufacturing theory or a swipe at perceived adversaries, Kirkhorn led the discussion with such meme-ready stuff as “the margin of profitability of each incremental unit with higher fixed cost absorption.” There was a stilted quality to some of the proceedings, and I thought I heard the shuffle of papers at one point.

The thing is, this is how quarterly updates from autos companies tend to sound. It was bracingly boring. That isn’t why the stock didn’t react with more vim (it fell slightly overnight). The reason, as ever, is that expectations for Tesla run far ahead of the actual numbers.

At any other car company, a gross margin of around 30% would probably spur a double-digit bump to the stock. Tesla’s Shanghai factory is the likeliest reason, and this is even more impressive when you consider the supply-chain issues bedeviling the industry. The switch to a less-expensive battery technology — which Tesla now plans to roll out worldwide for standard-range cars — is paying dividends, as my colleague Anjani Trivedi notes here.

It takes a lot to impress, however, when you’re already valued at around $870 billion. Some $90 billion of that — roughly a Ford-and-a-half — was added in just the past 19 days after Tesla reported sales that beat the consensus estimate by about 20,000. So, a bit more than $4.6 million per extra vehicle for a stock that was running at more than 100x non-GAAP earnings anyway.

Keeping that sort of momentum going requires the continuous reinforcement of Tesla’s destiny. That is what Musk does, or did, on these calls. The more normalized approach has a certain strength in indicating Tesla’s positive numbers can speak for themselves. But in the context of that market cap, they still need a megaphone.

Normal companies are held to account on their guidance, and Tesla’s is fuzzy. The most important catalysts, the Cybertruck and the “4680” battery pack, remain in development. Meanwhile, Tesla says the “ramp” period for new factories in Berlin and Austin precludes definite guidance on their impact, but I’m guessing it will pull back those margins a bit in the near term. 

One refreshing aspect of the new call format was hearing from analysts who had been excommunicated. Brian Johnson from Barclays had not been called upon since May 2018, when Musk blew up at analysts for asking “boneheaded” (read: skeptical, normal) questions.

On Wednesday, Johnson took the opportunity to ask about Tesla’s Full Self Driving driver assistance system. FSD, as it’s called, offers a neat parallel to Tesla’s market cap: It too has been oversold relative to what has actually been delivered. Kirkhorn answered vaguely, although his line about it being “difficult to be specific on the timelines” inadvertently confirmed Johnson’s point, as Musk has been all too specific (and incorrect) on the timeline for robo-taxis.

This is an issue to watch, as the promise of vehicle autonomy, with its pick-a-number total addressable market, is a critical pillar for Tesla’s valuation. Signs of increased regulatory scrutiny, including the recent pick of a noted skeptic to be the National Highway Traffic Safety Administration’s senior safety advisor, has led to a sometimes ugly backlash among some Tesla fans on social media. Even the man himself felt the need to weigh in on Mary “Missy” Cummings’ appointment:

Tesla’s Normcore Earnings Meet an Abnormal Stock

This is objectively marvelous on one level. One can only hope Jack Dorsey saw this and ordered an update that will automatically insert the word at the start of every tweet. The site could use an authenticity upgrade.

More pertinent to Tesla, it just seems ill-advised for the CEO to join a social media pile-on against someone who will be scrutinizing one of the company’s most critical products. Lars Moravy, Tesla’s vice president of engineering, struck a more conciliatory tone on the call.

The rest of the autos industry now targeting some of that EV magic in earnest would no doubt quietly welcome a crackdown on Tesla over FSD. Rising competition from new EVs, in any case, presents a gathering headwind for the valuation.

Still, Tesla has taken the opportunity presented by its ballooning stock to prepare for whatever comes its way; net debt of around $8 billion at the end of 2019 has flipped to net cash of around $8 billion after several giant equity issuances. That ability to hold out its hand and have gold drop into it makes Tesla decidedly abnormal in this industry, to its continued benefit — however long it lasts.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.

©2021 Bloomberg L.P.