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It's All About A Capital Raise For Tesla

May 04, 2018 10:46 AM ETTesla, Inc. (TSLA)300 Comments
Kwan-Chen Ma profile picture
Kwan-Chen Ma


  • Tesla lost more than 2 Billion during a 75-minute conference call.
  • The media blamed Tesla's loss in share value on Elon Musk's loss in temper.
  • In realty, it's investor concern over Tesla's capital requirement.

By K C Ma and Zachary Gunn

Right after 4:00 pm., May 25, Tesla (NASDAQ: NASDAQ:TSLA) released its Q1 2018 earnings report, beating both revenue, EPS, and margin estimates. The stock responded with a 2.2% increase before going into the company conference call. By the end of the call, the stock was down -4.5%.

For an otherwise positive earnings report, the media has attributed Tesla’s 2 billion loss in stock value during the 75-minute conference call to Elon Musk’s loss in temper.

Bloomberg TV even compared Musk’s conference call (Figure 2) to Jeff Skilling's (of Enron) infamous "Meltdown" conference call eight months before its demise (Figure 1). This was during the second quarter of 2001 when Skilling used profanity directed toward an analyst during an earnings call when the stock was at $55 and by the end of the year it was $9. CNBC also spent the first 30 minutes of Squawk Box replaying Musk’s emotional responses to analysts’ questions.

However, it is our contention that the -7% post-ER drop in Tesla stock price is a result of investor worry over Tesla’s cash burn and its imminent need for a capital raise. In Figure 2, it is clear that the major slide in Tesla prices during the conference call started from Point B and Point C on. The following is the actual Q&A transcript at Points B and C:

Point B:

Adam Michael Jonas - Morgan Stanley & Co. LLC

Thanks. Elon, so you repeatedly said I think in recent weeks that you do not need to issue equity capital at Tesla, and I think many investors on this call would say it's better to raise capital when you don't need to. So I guess the first question is...

Elon Reeve Musk - Tesla, Inc.

I disagree.

Adam Michael Jonas - Morgan

This article was written by

Kwan-Chen Ma profile picture
K C Ma, Ph.D, CFA, is the Eminent Scholar and the Mary Ball Washington/Switzer Brothers Endowed Chair of Finance at University of West Florida. I am the Director of Argo Investments Institute which enables college students to manage real money stock, bond, and option funds. I manage market-neutral institutional hedge funds in KCM Asset Management. I write about stocks, bonds, and derivative strategies, long or short, based on our quantitative processes.

Analyst’s 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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