AP
After he apologized to an analyst on Wednesday, investors seemed ready to cheer Tesla CEO Elon Musk again.
- Investors bid up Tesla's stock Wednesday after it reported its second-quarter results.
- At least on the surface, there didn't seem to be much to cheer, given its large loss and big cash outflow.
- But Elon Musk apologized on the company's earnings call, and investors seemed to lap that up.
- The move seemed to restore the faith of investors and fans in Elon Musk - and faith is what Tesla lives on.
All seems to be well again with the Elon Musk personality cult.
Tesla's stock is soaring once more. And all it seemed to take was an apology from Musk.
The company's shares were up a bit after it reported its second quarter results, but they really took off after Musk apologized to analyst Toni Sacconaghi at the start of Tesla's conference call. That seemed to assure investors and fans alike that Musk was sane, stable, and back in charge.
"There's no excuse for bad manners, and I was kind of violating my own rule in that regard," Musk said, blaming lack of sleep and 120-hour work weeks for his transgression.
Since Musk took over control of the company, Tesla's success has relied in large part on investors' and customers' faith in him. They've been able to overlook all kinds of things that would have sunk just about any other tech company - the massive ongoing losses, the recurring need to return to the capital markets to raise more capital, the repeated production problems and shortfalls - just because of their belief in Musk.
But that faith seemed to be shaken in recent months. Even as Tesla was struggling to ramp up production of its Model 3 vehicle, Musk was acting more and more erratically. He lashed out at Sacconaghi and another financial analyst, journalists - including my colleague Linette Lopez, a whistleblower, and even a cave diver who helped rescue trapped children in Thailand.
Meanwhile, when some might rightly have expected him to be focused on fixing the bottlenecks at his factory, he vowed to help out with that cave rescue, as well as to help solve the water crisis in Flint, Michigan.
Amid growing concern about Musk's behavior and the ability of Tesla to ramp up production of the Model 3, the company stock sank, falling as much as 20%.
But the stock rebounded on Wednesday. In after-hours trading it was up as much as 11% before settling in with about a 9% gain.
There didn't seem to be much to cheer about in Tesla's results
Other than Musk's apology, there didn't seem to be much for Tesla investors to cheer about.
Tesla reported yet another huge quarterly loss for the second quarter - one that was bigger than expected - and saw another massive outflow of cash in the period. Despite crowing that the company finally hit its 5,000 car a week production target for the Model 3 at the end of the quarter, the numbers released Wednesday made clear that it averaged far less than that - its pace for the quarter was little better than 6,000 per month. What's more, the company made clear that it couldn't maintain that 5,000 car-a-week pace on an ongoing basis in July.
That figure is all-important, because Tesla has said that it needs to be making 5,000 Model 3s a week to break even on the vehicle.
But there was more to worry investors who could get past Musk's apology. The company acknowledged it would have to seek financing to build a planned new factory in China, despite the fact that Musk has repeatedly dismissed the idea that the company would need to raise more funds. Musk also warned that Tesla might not meet its previous production target of 1 million cars a year in 2020.
Even the positive notes in the report came with caveats
To be sure, there were some other positive notes in Tesla's report and the earnings call besides Musk's apology. But if you weren't wowed by his reality distortion field, you would have noticed that they came with significant caveats.
Take Musk's promise that Tesla will be profitable and generating operating cash flow on a quarterly basis going forward. Assuming the company's able to hit those targets, those would be notable achievements. But they come with a big caveat - they're unlikely to help its dwindling cash supply.
That's because Tesla's capital expenditures are likely to far outpace whatever operating cash it can generate for the foreseeable future. As Tesla indicated on the call, it plans to spend around $1.24 billion on such investments in just the next two quarters. And it expects the factory in China to cost it another $2 billion in capital expenditures - likely next year.
And then there was the tales Musk told about how the company quickly set up a new production line in the second quarter to expand production of the Model 3 and about how the company is constantly discovering new ways to make the car more efficiently. Thanks to the latter, Tesla expects its gross profit margin on the vehicle - the difference between what it charges customers for the car and what it costs to make - to go from small single digits, percentage-wise in the second quarter to 15% in the third.
For Musk, the tales were ones of triumph over adversity.
Tesla's tales made it seem unprepared for making the Model 3
Seen in a more skeptical light, they illustrate just how unprepared Tesla was to become a mass-market car maker. As company executives acknowledged on the call, Tesla built its new manufacturing line, for example, out of parts it discarded previously because it couldn't figure out how to get them to work on another of its lines. Those discarded machines cost the company money and time while they remained idle.
And while it's great that Tesla is ringing efficiencies out of the Model 3, one would think that with better design and planning, it would have been able to make the car at much better margins from the beginning. It's hard to believe a traditional car company such as Ford or GM would have had such a struggle getting one new car model into production.
But, hey, Elon apologized for being rude. All is forgiven. No need to look any farther. Our real-life Tony Stark has overcome his demons and is ready to power up Tesla to the next level.
As long as investors and fans believe, that's all the really matters, right?
Get the latest Tesla stock price here.