A kinder, conciliatory Elon Musk made amends with Wall Street on Wednesday for Tesla Inc.’s disastrous conference call last quarter.
Now, Musk must exorcise Tesla’s biggest demon: An inability to reach his fantastical forecasts
Tesla’s chief executive again made plenty of promises Wednesday, and they made investors pretty giddy, along with news that Tesla is developing its own self-driving-car chips. Tesla TSLA, +0.91% shares surged 9% higher in after-hours trading, despite the report that showed the Silicon Valley car maker has lost about $1.5 billion so far this year.
Read: MarketWatch’s live blog coverage of Tesla earnings
The key for Wall Street, beyond Musk’s personal apologies to analysts he insulted on Tesla’s bizarre May earnings call, is all the promises Musk made for a profitable future. Musk’s promises include a reiterated call for GAAP profitability in the third and fourth quarters, and he took that even farther by saying, “our goal is to be profitable and cash-flow positive for every quarter going forward.”
Three months after that truly bizarre performance, the Musk who spoke Wednesday was much more measured and respectful to all. Even when reverting to his habit of grand projections, he added caveats that he seemed to skip over before — in his letter to shareholders and the conference call, Musk used the term “force majeure” about a half-dozen times in qualifying his promises.
“First of all, I’d like to apologize for being impolite on the prior call. Honestly, I think there’s really no excuse for bad manners,” Musk said after the first question was asked by Bernstein Research analyst Toni Sacconaghi, who famously bore the brunt of Musk’s impatience in May.
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Musk said he was sleep-deprived, working 110- and 120-hour weeks,“but, nonetheless, there’s still no excuse. My apologies for not being polite on the prior call.”
Sacconaghi reacted in the same way as most Tesla investors and observers Wednesday: Thanks, and now let’s talk money. He wanted to know how Tesla is going to be able to lower its costs and reach profitability as it ramps up its production of Model 3 sedans, and continues to make its other higher-priced cars.
Musk said once Tesla’s manufacturing lines are running smoothly, profitability will follow.
“It just needs to kind of lurch into a high pace and there’s a lot of lurching, which is very inefficient. So you end up having super high labor costs per car and it just takes time to build up this giant machine,” Musk said. “So, as we address those slow parts and as we improve efficiency, then GAAP gross margin and profitability per car just improves dramatically.”
The improvements Tesla made in its manufacturing process of the Model S came by building a tent at its Fremont plant, with a straight manufacturing line that was easy for employees to get around. Musk said that the tent was permanent, and stressed that it was not a tent that you would buy at REI for camping.
“It’s a giant thing that is very commonly used as a permanent structure and we just had to come up with a creative solution."
Analysts also asked how Tesla plans to pay for its proposed gigafactory in Shanghai without going to the capital markets for funding. Musk said he has no plans to go to the capital markets and plans instead to get loans from local banks in China and fund the factory with local debt. He also pointed out that the factory should cost about half of what Tesla’s first gigafactory cost.
“We’re confident that we can do the gigafactory in China for a lot less,” Musk said. “I think it’s probably closer to — this is just a guess, but probably closer to $2 billion, and that would be sort of at the 250,000 vehicle-per-year rate.”
For Musk, projections like those are pretty standard, but at least they came without a side of vitriol on Wednesday. Now, all he has to do is live up to his word and produce cars profitably and even faster, which is a lot harder than being nice.
Tesla bulls had an afternoon in the sun Wednesday, and may very well have a good day on Thursday. Tesla’s stock is so far down 3.4% for the year, compared to a 5.2% jump in the S&P 500 index SPX, -0.10% .
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