Musk's U-Turn: Back In Production Hell And Sleeping On Factory Floor

Summary

• Elon sends out bullish email to employees talking about Model 3 production hitting 2,000 per week and sounding very bullish about Model 3 production.
• Hours later, the VP of Engineering is out of supervising production, and Musk installs himself as production boss.
• Minutes thereafter, Musk engages the reporter who broke the production management reorganization story on Twitter and says the most surprising thing.
• That thing is that only 11 hours after the morning’s bullish Model 3 production email, he's back in “hell” and sleeping at the factory.
• This is a total U-turn. First, Model 3 production is finally fine.  Then, the guy who oversees the production is out, and production is back in “hell” and sleeping on floor.  Which is it?

Phew, that didn't take long! What am I talking about? In internal emails and Elon's tweets, a major contradiction surfaced around the time the market closed on Monday, and it's one with severe investment implications for investors.

But first, let's backtrack to last Thursday, just before the long weekend started, in order to set the stage for what transpired on Monday. Mind you, this was only four days prior.

On Thursday, Doug Field, who is VP of Engineering but for some reason also was overseeing and/or working with the VP of Production Peter Hochholdinger, sent out an internal email in which he announced actions that would allow the company to hit its goal of producing 2,500 Model 3 units per week, before the end of the March quarter: Tesla pushing hard to hit Model 3 target.

Resources were taken from Model S and X production in order for the Model 3 to get closer to meeting the 2,500 per week goal. Seeing as Tesla makes frequent use of the word "extrapolation" we also can use it for the Model S and X: Extrapolating this action of taking people away from their assembly line, the Model S and X will be zero going forward. And those are the only Tesla cars with positive gross margin. So that's the other side of the Model 3 resource equation.

Based on this, you saw the stock make a major recovery on Thursday, from being down to closing up 3.3%. Then, over the weekend, the 123,000 car recall (Tesla recalls 123K Model S cars over potential power steering failure) and an admission that the fatal Model X accident on March 23 had involved Autopilot: Tesla acknowledges use of Autopilot ahead of fatal crash.

Regarding that March 23 Tesla Autopilot accident, let me digress for a moment. One owner ("Matt in New York") had called into a leading Tesla enthusiast podcast (see reference below) seemingly prior to March 23 and left a warning that the latest Model X Autopilot software update could cause it to drive straight into a median like that. It had happened to him multiple times, and he had managed to avert an accident. But he felt so strongly about it that he had to warn his fellow Tesla owners.

Well, that warning which had been left days earlier ended up being published two days too late, on March 25. You can listen to it here, starting at the 7:40 mark and it takes approximately 90 seconds: Episode 138: Model 3's First New Option Is...

It's pretty chilling, isn't it? This Model X owner basically predicts what ended up happening on March 23. It's been over a week since this warning and subsequent fatality, and has Tesla taken corrective action? Has it disabled Autopilot or fixed the bug? You tell me. I even published a piece about it on March 29: Another Warning About Tesla Autopilot Misbehaving At Exit Ramps, Relevant To The March 23 Accident?

Then came Monday Morning. At 3:02am, CEO Elon Musk sends out an email to all employees, which just like the email from Thursday was obviously going to get leaked sooner rather than later: Tesla sees hitting 2K Model 3 production pace today.

Suddenly, Model 3 production is all sweetness, light and jingles. The 2,000 per week production goal (never mind that it was really 2,500) has been reached - or was in the process of being reached, right after the quarter ended - and things couldn't have sounded more optimistic. Production looked on a path go quadruple, from some definition in the timeline. Bottom line, Model 3 production finally sounded great.

As the market got wind of this Elon email leak, Tesla stock rallied intra-day from around $245 to $260. Clearly, this constituted partial relief. Tesla may still miss the Q1 unit sales number, but at least the Model 3 production seemed to have been brought under control and was meeting internal targets. Phew!

You would have thought that was enough excitement for the day, but no. Right before the market closed, Amir Efrati at The Information broke the news that Tesla's Doug Field had been pushed to the side, in order for Elon Musk himself to take over production: Musk reportedly to take over Model 3 ramp.

No sooner did this get published, Elon Musk started to pick on this reporter, questioning why he's writing this story (but seemingly confirming its substance): Amir Efrati on Twitter.

Here's where it gets really interesting. Remember that it was only at 3:02 a.m. "the same day" that Musk sent out the email saying that Tesla was hitting Model 3 production targets (2,000 per week) and was looking to do much better from here. Basically, things were finally great.

One hour after the market closed, right after having engaged The Information reporter, Elon Musk tweets this, which really deserves a place of its own in Tesla analytical history: Elon Musk on Twitter.

"I'm back to sleeping at factory. Car biz is hell …"

Wow, that was almost exactly to the minute 11 hours after his email, in which he proclaimed Model 3 production to have hit the 2,000 a week target in some form, in the most bullish of ways. In the subsequent 1 hours, he then got rid of the guy who was overseeing the VP of Production, installed himself into micro-managing mode, and said that he's back in production "hell" and sleeping in the factory (just like spring of 2016 and fall of 2017).

So, which one is it? Is Model 3 production fine, or is it "hell?"

But wait, there's more! On the subject of Tesla's executives who are swimming below the C-suite, but of course who are nevertheless important, we found among others Matt Renna: here. He was the Model S and S Program Manager for the last two years, having previously been the Model 3 Project Manager (2015-2016).

Considering Elon Musk's bullish description of Tesla's position as it enters 2Q 2018, he would be just the guy who would stay at Tesla and ride the this improving wave upwards, right? Well, apparently not. Less than 24 hours after Elon's management reshuffle, Volkswagen (VLKAY) announced that it hired Mr Renna and made him the head of Volkswagen's U.S. electric vehicle business: Announcement.

Conclusion: Is Tesla attracting management talent, or losing it?

Shareholders should study these erratic moves in terms of saying production is good, and then seeming doing something contradictory the very same day. Also, shareholders should study whether management talent is leaving the company more than it is joining. Those are often very important signs as to the health of a company's business and culture.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Analyst’s 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.

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.