“Melancholic” Elon Musk dashes hopes for Tesla in 2024

The third-quarter earnings call could easily rank among the worst in Tesla’s history, with the mercurial CEO this time coming across as somber and irritable, lecturing investors when he wasn’t interrupting his new finance chief. 

It’s a far cry from his giddy mood this time last year when he predicted Tesla could very well become more valuable than the world’s largest listed company two times over.

“Sounds like we’ve got melancholic Elon Musk on today’s earnings call,” wrote Tesla bull Matt Smith, vice president of equity analysis at Halter Ferguson Financial, in a likely reference to his notorious mood swings. 

Musk wasn’t the only one brought down by the call. Tesla’s army of volunteer content creators including Rob Mauer of the Tesla Daily, attempted to put a brave face by reminding their audience Tesla should be viewed as a long-term investment. Nevertheless, there was no getting around an acknowledgement that the the tone of the call was anything but reassuring for the near-term outlook. 

Nor should it be. If Cybertruck production proves as difficult as Musk warned on Wednesday, it’s unclear how Tesla can grow enough to reach its installed capacity of roughly 2.35 million vehicles next year without the refreshed Model 3 “Highland” hitting it out of the park.

Expectations going into Wednesday’s earnings were already low after Q3 vehicle sales fell far short of analyst consensus. The income statement was expected to be weak—and it was across the board, with adjusted earnings falling to 66 cents per share, their lowest since the third quarter of 2021.. 

“In a nutshell we would characterize last night’s conference call as a ‘mini disaster’,” wrote Wedbush tech analyst Dan Ives. While Wall Street wanted reassurance that the string of margin-compressing price cuts would come to an end, they “instead heard a much more cautious Musk.”

While surging profitability at its Megapack storage battery business remained a bright spot, Musk otherwise sounded downbeat or defensive when it came to the rest of his business. It is little surprise that the stock is expected to tumble over 7% at the open Thursday after a 5% drop on Wednesday going into results.

Cybertruck proving ‘extremely difficult’ to mass produce

News that the radically-designed pickup would finally arrive at the end of November was overshadowed by comments from Musk that the production ramp would be extremely difficult and burn a lot of cash due to its radical design and choice of stainless steel as its exterior sheet metal.

He estimated it would be around mid-2025 before his Texas assembly plant could build at an annualized rate of 250,000 units. That means it will not be a major catalyst for sales growth next year and may very well be a burden on the income statement.

More profit-eroding price cuts likely

With borrowing costs so high, Musk repeatedly spoke about the problems customers were having affording a Tesla. Thanks to soaring interest rates, the monthly payment to own a Model Y is “almost unchanged” despite numerous price cuts. 

“We have to make our cars more affordable,” said Musk. In theory this could be achieved through steep cuts in the cost of its goods sold. But Tesla is already very lean, so it sounds as if the next series of price discount incentives is just around the corner. 

The end of 50% compound annual growth?

Musk seemed to muddy the waters when quizzed on when Tesla would finally return to hitting its long-term growth target after what will be two straight years well below this figure. 

In response, Musk lectured investors that hitting the 50% compound annual growth target forever was not sustainable as it would eventually exceed the mass of the known universe—instead Tesla would grow “much faster than any other car company on Earth, by far”, he countered.

The problem for Tesla isn’t that investors labored under the illusion this was possible in perpetuity. But they did expect it to last for the duration of this decade since doing so is all but mandatory if Musk plans to reach his 20 million vehicle sales goal by 2030. His comments on Wednesday suggest he may be slowly walking back this aspirational target.

Tesla slows down construction of low-cost car plant

Dovetailing with this came news that the low-cost, next-generation model expected to sell in the millions of units every year could see delays to its start of production. 

Musk cited his “PTSD” following the global financial crisis when Tesla in his words was “hanging by a thread” and barely made payroll one Christmas. With this memory “seared into his mind with a branding iron”, he refused “to be going full speed into uncertainty”. 

That’s why he’s taking his foot off the gas when it comes to building his fifth vehicle assembly plant slated for Mexico. Any appreciable delay would however make the math on reaching his 2030 goal exceedingly unrealistic.

Musk skirts answer on key issue of FSD liability

A key pillar of Musk’s earnings growth strategy alongside sheer volume is becoming the first carmaker to solve general autonomy. Supposedly the next major update to Full Self-Driving, version 12 currently in alpha testing, is entirely based on neural nets learning to make decisions on their own rather than follow a coded set of commands. 

Asked if Tesla would then finally accept liability in the event FSD causes a crash rather than expect his customers to foot the bill, Musk avoided answering the question.

“No answer on a plan to take liability for the system as if it was meaningless even though that’s the only real practical step to be a useful system for people,” grumbled Electrek editor-in-chief Fred Lambert, who is also a shareholder.

The new CFO may have actually made everything worse

Vaibhav Taneja took over as finance chief in a surprise move that still today leaves questions surrounding the abrupt departure of Zach Kirkhorn. The latter’s calm, steady and reassuring demeanor, matched with his iron grip over costs, earned him praise throughout the investor community and many felt comfortable with him helming the call alone.

Taneja was always going to have a tough start, but he was not done any favor by immediately having to account for such a poor quarter or by his notable uncertainty and deference to Musk on the call. 

“With Zach gone, Elon seems surrounded by people who are afraid to disagree with him,” wrote Futures Fund managing partner Gary Black, citing the words of a portfolio manager with whom he spoke.