During Thursday, March 16, in the middle of the trading day, information started appearing on my desk suggesting that Tesla (NASDAQ:TSLA) was on an investor call talking about important things. I quickly jumped to Tesla's Investor Relations web page, but there was nothing there.
First, there was the Twitter feed from @WallStCynic. This person claims to be on the call and is live-tweeting it.
Look at not only just the original Tweets, but also at "tweets and replies" for numerous indications that material items were discussed by Tesla's management on the call. Here is a good example. However, if you scroll up and down, you will find numerous others of equally good value, with the commentary flowing well into March 17.
Quoting from that Twitter feed, here are a couple of the bullet points discussed:
"Model 3 production could be lower than expected due to a 'force majeure event'"
"It actually sounded to us that there may not be ANY Model 3 in 2017."
Any ONE of those things would be material. All of them combined? Slam dunk.
Further bolstering the record of what transpired on the call, just look at this Reddit feed by someone who looks to have been taking notes during the call.
As you can see in the comments to that Reddit feed, multiple people are complaining about not having access to that selective investor call. In addition, as to the substance of what was said on the call, this is an example of a pointed comment: "Or 'going straight to release candidate' means we ran out of time, and customers are going to drive beta cars."
If it's true, as all of these multiple sources report, that Tesla now says it will go directly from Alpha Prototype to "Release Candidate" (apparently skipping the Beta Prototype stage), that would be kind of a big deal - and completely contradict the language of the 10-K that TSLA filed on March 1:
"We expect that the next performance milestone to be achieved will be the successful completion of the Model 3 Beta Prototype, which would be achieved upon the determination by our Board of Directors that an eligible prototype has been completed. Candidates for such prototype are among the vehicles that we are currently building as part of our ongoing testing of our Model 3 vehicle design and manufacturing processes." (page 42 of the 10-K)
What the company allegedly signaled on this secret investor call would appear to be a change to this plan - forget that Beta Prototype idea we wrote about in the 10-K little over a couple of weeks ago!
But wait, there is more.
First, we have this article from Electrek.
You really have to read that entire article, at which point you will immediately realize that all of the things reportedly discussed on that call were of material importance to all investors. It's about the Model 3 development and production plan, which is the single most important thing of importance to investors right now. This really ought to be obvious - it's the subject of almost every other Tesla article here on Seeking Alpha, for example.
Commenting on the nature of the call, the article states "Tesla CEO Elon Musk made the comment during a conference call with a select few investors earlier today," and "the call wasn't made public, but an investor who participated gave Electrek a breakdown of the main points brought up by the two executives during the call."
Again, how is Tesla allowed to discuss these material concerns with only a subset of specially-invited investors? How about having the next quarterly earnings call with only the same secret group of investors too?
A few hours after that article, this one appeared.
Here is how it describes how it found out about it: "...the automaker held an investor-only conference call, which we're just now getting some information flowing in from. …According to an individual on the call, a few of the highlights relate to the Tesla Model 3."
The article then goes on to suggest that what Tesla said on that call is that it will go quickly to actual consumer mass production from the cars that are in the process of being built right now, and should be finished in the next week or two. In other words, not a whole lot of testing that is customary in the automotive business - like a year's worth at a minimum.
This appears to contradict the recent 10-K which states that there are Beta Prototype cars that are going to be made. Now Tesla says - allegedly, on this call - that it's skipping the Beta Prototype stage and going directly to "release candidates." If that's not a material change, I don't know what is.
You can read the whole article and judge for yourselves, but it certainly seems to me like what was discussed on this secret investor call was highly material to all investors.
I therefore ask again: If Tesla is allowed to conduct these kinds of secret investor calls with only a few select investors, discussing what appears to be the most important subjects it could possibly touch - the development and production ramp of its most important product-to-be - then why not also go ahead and make every quarterly conference call a complete secret away from the public as well? Just have an investment bank of choice, invite its favored institutional clients and be done with it.
Bull or bear alike, any investor not invited to participate in these secret investor calls where material things are allegedly discussed should be very unhappy with what happened. Wasn't SEC's Reg FD established in order to make sure that selective dissemination of material facts should not be allowed to occur?
If your argument is that what was allegedly said on this secret investor call is not material, ask yourselves: Why was it the source of all this debate on Twitter and the other articles I cited above, as they appear to be reporting it as containing material news? You can't have it both ways: Either there was no material news there, or it was worth reporting on. And people reported on it with great gusto.
About that Model 3 testing...
So we are now getting contradictory messages from Tesla regarding the Model 3's development program. The 10-K talks about a Beta Prototype being completed in the very near future. However, on the secret investor call 15 days after the 10-K filing, Tesla allegedly speaks of skipping the Beta Prototype stage and going directly to "release candidate."
What does this mean? For how long will the Model 3 be tested on public roads, torture-tested in all climates from the coldest to the warmest, in all elevations and weather conditions? Automakers normally take much more than a year to do this, before selling the final car to civilians.
As if on cue, Volkswagen (OTCPK:VLKAY) (OTCPK:VLKAF) (OTCPK:VLKPY) published this video less than 24 hours after Tesla's secret investor call, in which the company shows parts of its extensive testing procedure of the Atlas SUV, which will be arriving in U.S. dealerships in the second quarter of 2017
Or direct link to YouTube here.
The Volkswagen Atlas has been tested for years in all climates - the coldest winters, the hottest summers, in snow, rain, ice, deserts, extreme heat and sunshine, and beyond - all by Volkswagen's internal development staff. Not by "Signature" customers or other forms of early customers or other civilians.
This is important because Tesla will undoubtedly "deliver" a handful of cars to "someone" relatively close to July 1, 2017. However, that does not in any way correspond to the first customer delivery of a new car by a normal automaker.
A normal automaker spends considerably more time testing their new car models first. When Tesla delivers the Model 3 sometime close to July 1 this year, it will not count the same as when Volkswagen delivers the first Atlas approximately around May 1 this year. If Volkswagen had wanted to, it too could have delivered some sort of "release candidate" to a few customers in May 2016. However, a few hundred cars need to first be tested around the world, which means that deliveries of this all-new Volkswagen SUV won't start until close to May 1, 2017 - one year later.
Of course, if Tesla is lucky, only very few problems will be found, and it could be in volume production by December 2017 - thousands of cars sold to non-employees or people other than those "close" to the company and its management. However, if issues are found, the Model 3 production ramp will either be (1) slower/later, or (2) fraught with quality issues.
How this develops is a material risk to bulls and bears alike. And any management discussion on this subject to investors is of material value. It should not be conducted in secret with a select group of investors.
Disclosure: I am/we are short TSLA.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: At the time of submitting this article for publication, the author was short TSLA. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.