Tesla May Be in Bigger Trouble Than We Thought
If there was one question I could ask on Tesla’s conference call with investors it would be this. What is the July average weekly order rate for cars? And I’d specifically ask the CFO, not Elon Musk.
Why this question? Well, Elon Musk on July 19 tweeted that Tesla received net orders for 7,000 new vehicles. However, he was careful to give the rate for only the single week and not July month-to-date.
I’ve been in the manufacturing world in a financial analysis capacity for well over 20 years. And there is a certain phenomenon related to holidays that generally cuts across all industries. You always get a spike in order activity the week after a big holiday.
Independence Day, Thanksgiving, and Christmas all trigger slowdowns for whatever reason. Customers are traveling on vacation, customer service representatives are out of the office so it’s harder to place an order, Truckers have gone fishing so it’s harder to get loads shipped out on holiday weeks, etc. All the various reasons combine to cause a swing downwards that swings back like a pendulum in the following week. This means that the week after the 4th of July is always extremely busy. Customers are placing orders, front office people are back and working overtime to process paper work, truckers are again picking up loads and so on. And guess what the single week that Elon Musk crowed about was? Yup, the week after the 4th of July holiday.
So when all the news started hitting the financial press that it appears Tesla may be having a demand problem, Elon Musk couldn’t help share the news of that order spike in the 2nd week of July. But that was a grave mistake. It was a mistake because once you open up that kind of information, if you don’t provide it in the future, everyone assumes it’s because the news is negative. When questioned about specific time periods, Musk can’t say “We don’t provide order information for one-week time periods”. The financial press will quickly remind him that he has in the past so why won’t he today?
Further, Musk couched his tweet with the disclaimer “don’t know about the future”. He knew full well that this was an abnormal holiday spike. So he had to throw in some CYA lest any investors use this tweet in a future lawsuit to say he mislead investors with an overly rosy picture of the sales rate.
If I’m correct and his 7,000 number is actually the result of a holiday spike, than Tesla is actually in bigger trouble than I thought. Judging from my past experience with holiday order swings that means Tesla’s combined average weekly new orders could be well under 5,000 cars for all models combined. That would be catastrophic if true. That is why someone needs to ask Tesla’s CFO what the average weekly rate for the month of July is as opposed to simply the 2nd week alone that Musk tweeted about.
Musk threw out that 7,000 order number in the midst of a stock price drop. It was act of desperation as he watched his stock price decline. He knew that his friendly press would run with it and he hoped everyone would jump to the conclusion that his order rate remained healthy. However, this was an extremely reckless act perpetrated by an unstable CEO.
I mentioned earlier that would specifically ask my question to the CFO. That’s because based on the last earnings conference call Musk has demonstrated that he won’t answer tough questions that reveal too much bad news. After the flak he took for ending questions from real analysts and fielding soft balls from a YouTuber I don’t think he would make that mistake again. However, I think he may be less than truthful with Wall Street if he’s the one who is asked about the July order rate. Musk has a history of saying the easy thing in the moment rather than divulge the hard truth.
I’ve been in the manufacturing world in a financial analysis capacity for well over 20 years. And there is a certain phenomenon related to holidays that generally cuts across all industries. You always get a spike in order activity the week after a big holiday.
Independence Day, Thanksgiving, and Christmas all trigger slowdowns for whatever reason. Customers are traveling on vacation, customer service representatives are out of the office so it’s harder to place an order, Truckers have gone fishing so it’s harder to get loads shipped out on holiday weeks, etc. All the various reasons combine to cause a swing downwards that swings back like a pendulum in the following week. This means that the week after the 4th of July is always extremely busy. Customers are placing orders, front office people are back and working overtime to process paper work, truckers are again picking up loads and so on. And guess what the single week that Elon Musk crowed about was? Yup, the week after the 4th of July holiday.
So when all the news started hitting the financial press that it appears Tesla may be having a demand problem, Elon Musk couldn’t help share the news of that order spike in the 2nd week of July. But that was a grave mistake. It was a mistake because once you open up that kind of information, if you don’t provide it in the future, everyone assumes it’s because the news is negative. When questioned about specific time periods, Musk can’t say “We don’t provide order information for one-week time periods”. The financial press will quickly remind him that he has in the past so why won’t he today?
Further, Musk couched his tweet with the disclaimer “don’t know about the future”. He knew full well that this was an abnormal holiday spike. So he had to throw in some CYA lest any investors use this tweet in a future lawsuit to say he mislead investors with an overly rosy picture of the sales rate.
If I’m correct and his 7,000 number is actually the result of a holiday spike, than Tesla is actually in bigger trouble than I thought. Judging from my past experience with holiday order swings that means Tesla’s combined average weekly new orders could be well under 5,000 cars for all models combined. That would be catastrophic if true. That is why someone needs to ask Tesla’s CFO what the average weekly rate for the month of July is as opposed to simply the 2nd week alone that Musk tweeted about.
Musk threw out that 7,000 order number in the midst of a stock price drop. It was act of desperation as he watched his stock price decline. He knew that his friendly press would run with it and he hoped everyone would jump to the conclusion that his order rate remained healthy. However, this was an extremely reckless act perpetrated by an unstable CEO.
I mentioned earlier that would specifically ask my question to the CFO. That’s because based on the last earnings conference call Musk has demonstrated that he won’t answer tough questions that reveal too much bad news. After the flak he took for ending questions from real analysts and fielding soft balls from a YouTuber I don’t think he would make that mistake again. However, I think he may be less than truthful with Wall Street if he’s the one who is asked about the July order rate. Musk has a history of saying the easy thing in the moment rather than divulge the hard truth.
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