Gartner L2’s Scott Galloway on Tesla’s Wild Ride

It Sucks to Be a Grownup

4 May 2018 The auto firm beat earnings; however, emotion, or more specifically Elon’s lack of control of his emotions, took the stock down 7%.

In response to questions about the possible need for a capital infusion, the Thomas Edison of our generation responded, “Boring, bonehead questions are not cool. Next.”

He then spent most of the remainder of the call responding to multiple questions from a YouTube fanboy. This was eerily reminiscent of the CEO of Enron calling a fund manager an “asshole” in an earnings call. (Note: I’m not suggesting Tesla has done anything illegal.)

Tesla shareholders have been hit with a $3.5B business immaturity tax. Bottom line: everyone has a boss; Elon’s are his investors, and he needs to put on his best dress and answer the question.

This is supposed to be the part of the movie where the chair of the board calls Elon and tells him to get his shit together.

However, Elon, in addition to putting a man on Mars, is also the chairman of Tesla. Maybe we can get his brother, who serves on the board, to sit him down.

Tesla has an amazing product but has been mistaken by investors as an internet firm.

Tesla lacks the frictionless networking effects of a Google or Facebook and doesn’t have the Hermés-like margins of an Apple.

Yet, it’s trading at a valuation more reflective of a firm that can scale like a Facebook or generate the profits of an Apple.

In addition, Main Street and Madison Avenue both had it coming. Mercedes and Ford? Not so much.

This is a hugely competitive, relatively efficient sector that has kept prices in check with inflation.

An auto manufacturer should have approximately 20% of production volume ($25B for Tesla) in cash on hand (so $5B). Tesla has $2.7B. This means by the end of the year Tesla analysts will begin wringing their hands over liquidity concerns and dilution.

This fear, coupled with rising interest rates, could spook bondholders and result in the equity being the tail of the whip as enterprise value drops.

Source: Gartner L2

Lastest News: Tesla has surged more than 20% since Elon Musk warned of the 'short burn of the century' (TSLA)

Video

(00:18) Source: “Tesla’s Elon Musk Mocks Analysts During Conference Call,” Fox Business, May 2018.

(01:03) Source: Clip from “Enron: The Smartest Guys in the Room,” 2005.

(01:19) Source: Yahoo Finance.

(01:46) Source: Courtesy of Jim Chanos.

(03:08) Source: Yahoo Finance.

(03:30) Source: Yahoo Finance.

Related Leadership Article: How Advancing Technologies Challenge the Position of a Company Chief Executive Officer

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