Tesla’s Surprise CFO Exit May Add Fuel to ‘Conspiracy Theories’

(Bloomberg) -- The bull vs bear debate is heating up again following Tesla Inc.’s fourth-quarter results Wednesday post-market.

While the results were a mixed bag, the surprise exit of the longtime finance chief will possibly fire up the “conspiracy theories” around the company, Evercore ISI said, while Deutsche Bank was ``very encouraged'' by the strong results and gross margin and cash flow outlook. RBC Capital Markets, however, pointed out that the focus is now increasingly on how effectively Tesla can lower its costs and start producing the Model 3 cars at or near the advertised $35,000 price.

Tesla shares fell 0.5 percent at 11:20 a.m. in New York, after paring earlier losses of as much as 4.8 percent and briefly turning positive.

Here’s a round up of the analyst commentaries after the earnings report and call.

Morgan Stanley, Adam Jonas

“The 2019 outlook was a mixed bag with lower than expected unit volume, a target for improved margins, restructuring-led cost savings, and lower capex.”

“We believe fourth-quarter results and the 2019 outlook give something for bulls and bears to exercise their imaginations. We don’t expect consensus expectations to change significantly and don’t see how the core narratives around either the bull case or bear case are significantly altered.”

Rates equal-weight, price target $291.

Evercore ISI, Arndt Ellinghorst

“Today, the bull/bear debate will be over the ‘19 outlook/cash generation while Twitter will be mad with conspiracy theories over the CFO retiring. We would expect this tug of war to be won by the bears this time and Tesla down on the open.”

Rates in line, price target $330.

Deutsche Bank, Emmanuel Rosner

“While the market is busy focusing on Tesla’s CFO retirement, which we view as unremarkable, we were very encouraged by Tesla’s solid fourth-quarter print and its 2019 outlook calling for strong gross margins and cash flow, despite conservative deliveries assumptions.”

“If management can execute on producing its mass market vehicle profitably, we see considerable upside to earnings and free cash flow, and investor concerns about demand would be largely off the table.”

“But with first-quarter expected to be an ‘air pocket’ for Tesla, we see no rush in getting involved, and will continue monitoring demand and margin dynamics.”

Rates hold, price target $345.

Goldman Sachs, David Tamberrino

“The pull-forward from the phase out of the U.S. Tax Credit and likely air pocket of demand beginning in first quarter was apparent in the company’s 2019 full year vehicle guidance —which at the low end assumes no improvement from fourth-quarter’s delivery rate, as well as softer comments on Model S/X volumes heading into 2019.”

“We believe the (CFO) changeover may cause some uncertainty for investors as Tesla just saw two consecutive quarters of profitability and positive cash flow, and we see potential for a less stable path forward due to a sequential step-down in deliveries, working capital headwinds and convertible debt payment.”

Rates sell, price target $210.

JPMorgan, Ryan Brinkman

“The real surprise in fourth quarter” was the free cash flow, which tracked a much stronger $910 million vs JPMorgan’s $349 million and consensus $412 million.

“We expect investors to react negatively to the replacement of Deepak Ahuja as CFO with Zach Kirkhorn, Tesla’s current VP of Finance, given Mr. Ahuja’s long automotive industry experience and 11-year tenure as the firm’s CFO, during which he provided relative stability to the firm’s finance staff that has otherwise seen a great deal of churn.”

Rates underweight, price target $230 from $220.

RBC Capital Markets, Joseph Spak

“Fourth-quarter results fine, but between softer first-quarter guide, lower S/X demand, cautious economic tone, and CFO departure, probably more negatives than positives.”

“In 2019 and maybe for longer, Tesla isn’t about growth so much as cost cutting. If it doesn’t improve efficiency and continue to realize lower battery costs, then the demand point is moot.”

Rates underperform, price target $245.

To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Steven Fromm

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