Sanford Bernstein’s Toni Sacconaghi wanted to know about the company’s capital requirements. “Boring, bonehead questions are not cool. Next?” Musk responded, cutting him off.
Another analyst, RBC’s Joseph Spak, wanted to know why the Model 3 had a slower-than-anticipated rollout during the quarter. He was also cut off. “These questions are so dry. They’re killing me,” Musk said in response to Spak’s question.
Morgan Stanley’s Adam Jonas described the conference call as “the most unusual call I have experienced in 20 years on the sell-side.”
Musk’s behavior didn’t do much to placate growing concerns about Tesla’s future at the time. The company had reported a $700 million loss in the previous quarter and analysts were worried about the firm’s cash flow and debt burden. Meanwhile, its stock price was volatile and the company’s rollout of its latest model had been delayed.
Turns out these concerns were justified. Musk admitted in 2020 over Twitter that ramping up production of the Model 3 was “production & logistics hell” and “extreme stress & pain for a long time — from mid 2017 to mid 2019.” He said the company was about a month away from bankruptcy at one point. Musk also apologized to the analysts during the following earning's call. He said, “Obviously I think there’s really no excuse for bad manners and I was violating my own rule in that regard. There are reasons for it, I got no sleep, 120 hour weeks, but nonetheless, there is still no excuse, so my apologies for not being polite on the prior call."
Fortunately, bankruptcy was avoided and Tesla grew rapidly in the years that followed. The stock is up 1,065% since that bizarre May 2018 conference call. Tesla is now one of the 10 largest companies on the S&P 500 with a market cap of over $743 billion. It’s also profitable, reporting $1.9 billion in net income on $23.4 billion in revenue during the third quarter of 2023.
Tesla’s sudden turnaround not only shocked Wall Street but also Musk himself. “I didn’t expect the stock to rise so much so soon,” he said in a tweet in November 2020.
Retail investors can probably take away a few lessons from this ordeal. The future is unpredictable, even for professional analysts and investors. To make good decisions, investors should tune out the noise from all the headlines they read. Instead, focusing on the long term and independent research and forecasts are probably better.
The same goes for market sentiment. In fact, legendary investor Warren Buffett prefers a contrarian approach. “Be fearful when others are greedy and greedy when others are fearful,” he once said.
Tesla investors who ignored all the fear surrounding the company’s prospects in 2018 are probably sitting on sizable profits right now.
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