Tesla CEO Elon Musk Fights Perceptions as Stock Drops
Taxpayer-supported Tesla, recipient of a $465 million stimulus loan guarantee to produce yet another electric toy car (the Model S) for rich people, reported its 4th quarter earnings last week. The word from billionaire CEO Elon Musk (Flickr photo: Jurvetson) was, “we’ll do better next quarter – promise.”
That’s a paraphrase, but nonetheless Tesla’s announcement fell short of most Wall Street analysts’ expectations. The company lost $90 million for the quarter as it ramped up production to fill pre-orders, paying workers to put in an average of 68 hours per week in December. On Thursday the company suffered the biggest one-day drop in its stock price – tumbling nearly 10 percent – in more than a year. Shares fell to $35.16 before recovering slightly on Friday, but were at $34.38 for Tuesday morning's opening.
Unlike its counterpart Fisker, Musk and Tesla have enjoyed comparatively better media coverage – until lately. Two weeks ago the New York Times published its now-famous account of reporter John Broder’s drive from Washington, D.C. to Connecticut in a Model S, which featured plenty of white-knuckle range anxiety, freezing feet and ended with a tow-away. As Tesla shares fell in response, Musk responded bombastically with accusations that the report was “faked” and that Broder took detours and failed to charge the electric car properly. The test was intended to show that Tesla’s battery could survive a range of 200-plus miles before recharging is needed.
But the real question Wall Street appears to be trying to answer is whether the early interest in Tesla has been from “early-adopters” or “only-adopters.” In other words, is there sustainability in the market for the Model S (and possible successors) because Musk is doing things better where other electric vehicle producers such as General Motors, Ford, Nissan, Fisker and others have failed?
Musk is doing his best to maintain that impression. In recent weeks he has boasted about the fact that Tesla has never had fires with its lithium ion batteries, unlike many competitors, and he very publicly reached out to Boeing to show how he could help with the technology in their troubled Dreamliner jumbo jets. And despite the disappointing 4th quarter results, Musk assured investors that the current quarter would show a profit.
“This is the first quarter that we have been at our target production rate,” he said in last week’s earnings call. “We’re going to be profitable, and I think that’s a pretty big deal. It took us an enormous amount of blood, sweat and tears to get there.”
The positive rhetoric comes at a critical time, as Tesla plans to produce vehicles at a far greater pace – 20,000 cars for 2013 – than it has been. Before even the New York Times article hit there were 1,500 order cancellations in the 4th quarter (although it added 6,000 new orders), which left it at 15,000 standing orders at the end of 2012.
But in an interview with Bloomberg, Musk said the Times review took its toll. He said the company suffered a “few hundred” cancellations of orders, and that it may have cost Tesla as much as $100 million in the valuation of the company.
“Lots of people said it doesn’t matter if you’re right or wrong; you don’t battle the New York Times,” Musk said. “And it’s like, ‘the hell with that.’ I’d rather tell the truth and suffer the consequences, even if they’re negative….I do think (Broder) fudged an article.”
Bloomberg reporter Betty Liu also asked Musk how much effect on demand for the Model S would be different without the U.S. government’s $7,500-per-vehicle tax credit it offers for electric cars. He estimated that demand could be as much as 20 percent less without the incentive. And asked of his impressions about dealing with Washington, Musk responded, “It’s much less corrupt than people think it is.”
That’s amusing. Some may quibble about what kind of inside-the-Beltway behavior rises to the level of “corrupt,” but that doesn’t mean that plenty of other activity doesn’t qualify as distasteful or even objectionable. For example, that the high-powered law firms that were tasked with evaluation and documentation of the Department of Energy’s loan guarantees (including Tesla’s) were major donors to Democrats, which assured the passage of the stimulus and President Obama’s green agenda, doesn’t pass the smell test.
Musk is also chairman of SolarCity and CEO of SpaceX, and in the Bloomberg interview he estimated he’s visited Washington about 200 times, visiting dozens of Senators and at least 150 Congressmen. According to the Center for Responsive Politics, SolarCity spent $535,000 in 2009 and 2010 to lobby Congress and the Department of Energy on climate legislation, the Recovery Act, “green workforce training and development,” and provisions in various legislation “relevant to solar development.” SolarCity has sought to extend a program, due to expire at the end of 2012, that delivers to manufacturers an upfront cash grant in lieu of a 30 percent Investment Tax Credit (called the Section 1603 grant program). According to DOE reports, SolarCity received more than $66 million from that program.
The company also won a partial guarantee from DOE of a $344 million loan that will place up to 160,000 rooftop solar installations on military housing across the country.
Similarly, Tesla spent $480,000 from 2007 to 2011 to lobby Congress, the White House, EPA and DOE on climate and energy issues, the Advanced Technology Vehicles Manufacturing loan program, the Promoting Electric Vehicles Act, and the Recovery Act. As mentioned earlier, Tesla received a $465 million loan guarantee from DOE’s ATVM program.
Musk is also a generous political donor, mostly to Democrats, although his investments and giving are equally diverse. He gave $290,000 to political candidates and the major parties from 2008 through 2012, which included $66,200 to the Democratic National Committee, $34,400 to the Democratic Senatorial Campaign Committee, and $63,500 to the National Republican Congressional Committee. His presidential candidate was Barack Obama, giving $2,300 for his 2008 campaign and $5,000 for the 2012 cycle. Besides Musk, a former Tesla director, Steve Westly, raised hundreds of thousands of dollars for both of President Obama’s campaigns as a bundler.
In the end, when you review the news about Musk and his enterprise, there’s a lot of quibbling over matters of degrees. Is his political activity just redistributionist corporate cronyism or actual corruption? Is he telling the truth or is the New York Times, or is it somewhere in-between? Can his electric cars really travel over 200 miles on a charge only to require at least an hour to fully recharge (on the fastest, and rarest, chargers), or don’t they?
These would be stupid questions that almost no one would care about if the government didn’t gamble public money by giving billionaire Musk – who just bought a $17 million mansion in Bel Air – the huge loan. While taxpayers subsidize the foolishness of rich people taking at least an hour (and usually longer) to repower their cars, the rest of us struggle to get by in the real world where we can refuel our vehicles in five minutes and be on our way.
Musk has said he has been paying principal and interest on the loan, on time, which is comparatively commendable when you consider the failures of Solyndra, A123 Systems, Fisker and others. But in the big picture, why should taxpayer money be risked for any of these shenanigans – at all?
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.