There isn’t a more divisive stock in the market right now than Tesla (NASDAQ:TSLA), and there isn’t a more divisive CEO than Elon Musk. To Tesla stock bulls, Musk is not just a man who has created a company with a $51 billion market capitalization and huge returns for his shareholders. He’s a visionary whose goal is to dramatically improve the lives of every single person on Earth.
To Tesla stock bears, Musk is something more akin to a snake oil salesman. Musk and Tesla have a long list of broken promises. He’s attacked the media. But that’s the same media that made Musk one of the most famous CEOs in the country.
Musk has put his credibility on the line with promises for profits and cash flow in Q3 and Q4, and Tesla shorts are betting that he will once again fall short.
The problem at the moment is that Elon Musk is giving those shorts more and more ammunition – for no good reason. And with the CEO once again shooting himself on the foot in Twitter, Musk’s inability to focus is starting to have an impact on Tesla stock.
Last month (though it seems like eons ago in TeslaWorld), Musk offered to send a submarine to help a group of boys trapped in a Thai cave. The reaction was predictably split. Supporters saw it as another magnanimous gesture from a man concerned with others’ welfare; skeptics saw it as yet another publicity stunt with no real-world impact.
One of those skeptics was a British diver involved in the rescue, who criticized Musk’s efforts. On Twitter, Musk called him a “pedo guy” (short for pedophile). Musk apologized and deleted the tweet.
The apology apparently wasn’t all that sincere:
You don’t think it’s strange he hasn’t sued me? He was offered free legal services. And you call yourself @yoda …
— Elon Musk (@elonmusk) August 28, 2018
On Tuesday, Musk re-opened a can of worms that had been closed. Soon after, the diver’s lawyer told reporters that he was “finalizing the libel complaint.” And so now Musk, who by his own account is working 120 hours a week and sleeping in Tesla’s factory, has added yet another item to his list of responsibilities.
The Straw that Breaks the Camel’s Back
Simply put, it has to stop at least for the sake of Tesla stock. Musk already embarrassed himself with the “funding secured” debacle. It was clear at the time that Musk’s promise to bring individual investors along was never going to be kept.
The claim (again via Twitter) that the “only reason why [a buyout] is not certain is that it’s contingent on a shareholder vote” was a huge stretch at best and has invited SEC scrutiny as well.
Meanwhile, Tesla stock has dropped 18% from June highs. And while Tesla bulls holler about shorts driving the stock down, the recent declines are self-inflicted.
Tesla does not have a COO (chief operating officer). Musk looks increasingly erratic. The company’s cash position is questionable: $2.4 billion in cash (including restricted cash) at the end of Q2, and $3 billion in accounts payable, with over $1 billion in convertible debt maturing within the next seven months.
Investors are getting scared off, simply put. And Musk is fighting battles he doesn’t need to fight. His focus on short sellers is irrational at this point. Any investor who believes that TSLA will be an enormous success should want the stock cheaper right now, not more expensive.
That should include Musk. The shorts will be handled by ramping Model 3 production not through tweets about the “short burn of the century.”
Yes, It Matters
Take a step back from the drama and consider what Tesla is trying to do. The Model 3, remember, is just the beginning of Tesla’s efforts. The company still has hopes for growth in its solar business. It’s trying to dramatically improve energy storage. The endgame here is not Tesla being a successful car company. The endgame is Tesla remaking the way the world uses energy.
It is a Herculean task, but it starts with the step of getting the company profitable and establishing its bona fides in the automotive space. It has to not just ramp the Model 3. From there, it has to hold off competition from Toyota (NYSE:TM), Honda (NYSE:HMC), BMW (OTCMKTS:BMWYY), General Motors (NYSE:GM), and so many others.
And that has to happen with a CEO who appears exhausted. Musk has no “number two” and in fact has few top executives who have been with the company for more than two years.
Musk needs to be focused on the Model 3 and that’s it. He is not now, and he won’t be going forward, either. Adding SEC investigations and libel suits only stretches him thinner. And the inability to ignore the slightest insult raises questions about how Musk handles bad news from within his company.
It all has to stop. But Musk himself told the New York Times that it wouldn’t and that he had no reason to apologize. That’s a bad sign for Tesla stock and a key reason why I took a bearish option position in TSLA last week.
Quite simply, Elon Musk no longer can be trusted.
As of this writing, Vince Martin has a bearish option position in TSLA.