Seven Things Wall Street Wants to Know From Elon Musk
(Bloomberg) -- Tesla Inc. reports first-quarter earnings Wednesday after the market closes. Between now and then, investors, customers, followers and doubters will be chattering about what Chief Executive Officer Elon Musk has in store come late afternoon. Given the tumult of recent weeks, the main focus will likely be on production of the Model 3, the key to Tesla’s plan to bring electric vehicles to the masses and eventually reach profitability. But there are a lot of other questions, too.
Musk, 46, spent the last earnings call talking about how battery production at his gigafactory east of Reno, Nevada, was the “limiting factor” on Model 3 output, but we haven’t heard much about it since. The Tesla CEO has said automated assembly line components from Germany would arrive at the battery plant by March. So did they? Is the new line up and running? It’s hard to know if battery module production is still a limiting factor, or if other, unforeseen production issues have cropped up there or at Tesla’s assembly plant in Fremont, California.
Equally important is expenditures: Tesla ended 2017 with $3.4 billion in cash on hand and $9.4 billion in outstanding debt. Many analysts said Tesla will need to raise money again, despite the company’s stated position that “it does not require an equity or debt raise this year, apart from standing credit lines” when it reported delivery and production figures in early April.
While production and cash will be the main focus (Bloomberg Gadfly columnist Liam Denning addressed the cash issue here), journalists, analysts and prospective buyers will be listening for details on many other pressing issues. Here are seven of them:
Musk has promised that Tesla’s driver assistance platform, known as Autopilot, has the hardware necessary to enable fully autonomous driving. Musk once promised to showcase an autonomous cross-country drive from California to New York by the end of 2017. As with many Musk timelines, that date has slipped.
An unknown number of customers have paid $3,000 for “Full Self Driving” capability, but Tesla hasn’t released it yet. The death of Walter Huang, a 38-year-old who died in his Model X on a California highway in March, drew the attention of investigators from the U.S. National Transportation Safety Board. And turnover on Tesla’s Autopilot team has continued with the high profile departure of Jim Keller to Intel Corp.
What does Musk say about the team, the technology and the product road map from here? Musk’s Master Plan, Part Deux envisioned a Tesla Network: a shared autonomy fleet that would allow owners to put their cars to work for them when they are in the office or on vacation. Musk last described it as “a combination of Uber or Lyft and Airbnb.” But the regulatory framework for how that would all work isn’t yet in place, nor is the technology. Will a Model 3 delivered today be capable of full self-driving and able to use the Tesla Network in the future?
“Every quarter, we’re interested in any further clarity on Autopilot,” said Tasha Keeney of Ark Investment Management, which holds Tesla shares.
2. Automation for the people
Musk has said that the competitive strength of Tesla in the long-term isn’t going to be in the car but in the factory itself—the factory as a product, the machine that builds the machine. Since then, he’s admitted that “excessive automation at Tesla was a mistake. To be precise, my mistake. Humans are underrated.” Analyst Max Warburton saw this coming: He was the lead author of a Sanford C. Bernstein & Co. report warning that “automation in final assembly doesn’t work.”
In early April, Tesla said it expected the Model 3 production rate to climb rapidly in the second quarter and is targeting roughly 5,000 units per week by late June. What (or who) finally convinced Musk that more humans were going to be needed to make the Model 3? Roughly 10,000 people currently work at Tesla’s Fremont factory, and Musk plans to hire several hundred more: How much of a work force is needed to make this car, which was supposed to be DFM (designed for manufacturing)?
3. Who’s in charge?
Tesla’s corporate culture has always been aggressive and scrappy, but it isn’t a startup anymore. It’s a 15-year-old company with almost 40,000 employees, some of whom are trying to unionize. The most recent proxy names just four executive officers: CEO Musk, Chief Financial Officer Deepak Ahuja, Chief Technology Officer JB Straubel and Senior Vice President for Engineering Doug Field. In June, shareholders will vote on whether to adopt a policy that the company allow only an independent director to be chairman; that’s a role Musk has held since 2004. Tesla’s board is recommending that shareholders vote against the proposal.
Meanwhile, Tesla no longer has a head of sales and service; Musk said that he won’t replace Jon McNeil, who left to join Lyft Inc. as chief operating officer. Are there any plans to fill out Tesla’s management ranks or add a COO? Director Steve Jurvetson has been on leave since November. Is that indefinite? At what point does Tesla’s board either invite him back or replace him?
4. China, China, China
Tesla participated in the Beijing International Automotive Exhibition for the first time this year, drawing big crowds with a booth featuring a red Model 3, a white Model S and a blue Model X. The world’s largest auto market has promised to drop a long standing requirement that overseas carmakers form joint ventures with Chinese partners to make cars there, while also cutting import tariffs. That’s welcome news for Tesla, but the Palo Alto, California-based company’s executives have yet to secure a deal to open an assembly plant in China, despite negotiating with Shanghai’s government for more than a year.
That said, it might not make sense to open a second factory overseas while Model 3 production is still struggling at home. But Tesla is a global brand, and China is key to its global ambitions.
5. The $35,000 question
When Musk first unveiled the Model 3 in March 2016, he described it as a $35,000 car—before options or incentives. But Tesla isn’t making that version yet; more recently, it’s referred to that price point as a “variant” instead of a “base.” So, given the number of Model 3 deliveries to date, what is the average transaction price? Some customers have canceled reservations while others have joined the queue. How many Model 3 reservations does Tesla currently have on the books? Are customers that cancel getting refunds in a timely fashion?
When does the company expect to hit the 200,000 mark in domestic car sales? That milestone is key, because many cost-conscious consumers who put down $1,000 deposits hoped to qualify for the full $7,500 federal tax credit—which will begin to phase out when the magic number is reached.
6. Service complaints
Tesla is under the gun not just to pump out the Model 3 but to do so with consistently high quality and service. Tesla Motors Club forums contain some reports from customers who had a less-than-stellar experience with such issues as paint. Munro & Associates, a small Detroit company that disassembles new cars, praised the Model 3 for the battery packs and electronics but knocked it for build quality and inconsistent gaps between body panels. What kind of service issues are most common for Tesla? What percentage of Model 3s delivered so far have already gone in to the shop?
7. Whither the Model Y?
Tesla has indicated that it’s working on a Tesla Semi, the next generation Roadster and a new crossover called the Model Y. We saw the Semi and the Roadster at the big reveal party in November; when will Musk unveil the Model Y? Tesla parties are unique events that attract the faithful, many of whom plunk down deposits on the spot. Tesla’s Model S remains more popular than its Model X, but rivals such as Ford Motor Co. are turning their focus to pickup trucks and more lucrative SUVs. How does Musk view the mix of sedans and SUVs going forward? And given that the Fremont factory is bursting at the seams, where will the Model Y be built?
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