Tesla: Does Musk's Job Rely On Model 3?

| About: Tesla, Inc. (TSLA)
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Summary

What truly measures a company's performance?

Management team has been consistently wrong.

Are the goalposts moving forward again?

When examining a company's performance, what do you like to look at? If you took a peak at the two charts below, you would think that one has nothing to do with the other. Well, this is what happens when we look at Tesla (NASDAQ:TSLA). While the stock has raced to all-time highs, the business itself has been a terrible performer. That leads me to ask a very important question: Is Elon Musk's job on the line when it comes to the Model 3?

(Source: Yahoo Finance and Tesla 10-K filings)

First of all, you could argue that the company really needs a new CEO anyway, given all of Musk's other ventures. The firm's leader spends a bunch of time as CEO of his other company, SpaceX, and is also working on "The Boring Company" that is digging a bunch of tunnels for the future of transportation. There's also plenty else going on for Musk, so he's not going to be 100% focused on Tesla at any point. I've talked in the past of him remaining on as Executive Chairman, while bringing in someone to oversee the company on a daily basis. That's a separate argument for now.

I bring up actual business performance because Tesla has missed several dozens of its own guidance points, targets, etc. In fact, I've made a partial list of them here, and this is only from blog posts, investor letters, and conference calls. Just take a look at perhaps the most infamous quote ever from Elon Musk:

"Well, I feel confident saying that Tesla does not need to ever raise another financing round."

That quote came on February 16, 2012, and can be found in the company's Q4 2011 conference call transcript. Since then, Tesla has had five major equity sales, detailed in the chart below, taken from its SEC filings linked above. May 2013 is listed as separate parts because the smaller sale was to Musk, listed in a separate piece of the filings. Adding these all up give you 25 million plus shares sold, raising almost $3.5 billion. This doesn't even take into account any of the company's convertible debt, asset lines, or other funding sources that Tesla has tapped.

Now I could go back to my list and talk about all of the profitability, cash flow, delivery, and other target misses that Tesla has seen, but that would be overkill. Some might point to the scaling of the energy storage business as a big flop, perhaps the worst-performing part of Tesla in recent years. Take a look at what was said just a few years ago about its potential:

"I mean if you just take the reservations that have been made thus far, it's well over $1 billion worth of Powerpacks and Powerwalls.

So were looking at maybe, again, just to preface with meaningful uncertainty, $40 million to $45 million in stationary storage in Q4 (2015) and maybe as much as 10 times that number in for next year (2016). So it's $40 million to $50 million that this year and 10x of that next year. And I mean that growth rate is probably going to just, keep going at quite a nutty level. It's probably at least a few billion dollars in 2017, somewhat speculative at this point, but I think that's likely.

A fair amount of these misses relate to perhaps Musk's biggest failure so far, and that was the Model X. Tesla's SUV was supposed to come out in the middle of 2014, and we all know how that happened. In fact, Musk also said on that Q1 2012 call that the Model 3 launch: "2016 is probably most likely." Nearly all reservation holders, those that aren't employees of Tesla/SolarCity/SpaceX, aren't going to see their Model 3 until 2018 at the earliest.

We all know about the 373,000 reservation count on the Model 3, the latest figure released by Tesla in May 2016. While Musk says the figure is rising by the week, we haven't gotten any official update, and as I showed in the blog above, Musk's already made plenty of incorrect statements regarding the vehicle. The Model 3 is supposed to be the electric vehicle that not only transforms Tesla, but changes the entire automobile industry as well. That might seem like a lot to achieve, but now Musk already is saying that the future Model Y should sell even better than the Model 3.

Does that mean that everyone should forget about the 3 because it's now all about the Y? If so, you're just constantly moving the goalposts forward, perhaps an effort to lower the bar in case the 3 does not do as well as hoped. If the Model 3 starts to fall short, will everyone instead focus on the Tesla semi-truck, or the mobility service that's soon to be launched, or the solar roof? Keep in mind that SolarCity continued to lower its business guidance even after Tesla announced its acquisition intent, and fellow contributor Montana Skeptic just penned a strong piece about that failure.

So as we sit here today and analyze a company with a $60 billion plus market cap (after considering all dilution by the end of Q2), should we consider Musk's job is reliant on the Model 3? A lot of the bull theory moving forward is based on this vehicle helping to turn the company into a profitability monster and provide rivers of cash flow that will support the next set of ventures. However, Musk and the management team have failed several times already, and yet everyone still believes in them. If we're sitting here this time next year and Tesla isn't even sniffing 200,000 Model 3 deliveries, then perhaps calls for Musk to go will be quite louder.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.

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