It’s nearly time for Tesla’s board to move on Elon Musk

Via Marketwatch

Click to visit the TBP Store for Great TBP Merchandise

What’s wrong with Elon Musk?

And where is Tesla’s board of directors, as the antics of its CEO escalate, as Tesla’s stock price falls, and as the progress of the company’s efforts to manufacture more than a few of the 400,000-plus Model 3 electric cars that customers have ordered ebbs and flows?

We know where Musk is. The going gets tough, and he goes to get tough — on Twitter TWTR, +0.30%

Musk has always been … different. But since Tesla’s TSLA, +0.21%  first-quarter conference call, where he dismissed “boring” questions about operations and capital requirements, it has gone to another level. Most recently, his Twitter feed has looked worthy of Silicon Valley whipping boy Donald Trump, with a half-baked distraction about creating a Web site to rate media outlets.

“Anytime anyone criticizes the media, the media shrieks ‘You’re just like Trump!,’ ” Musk tweets, complete with Trumpian grammar.

“Why do you think he got elected in the first place? Because no ones believes you any more.”

That’s nice, Elon. How did that tweet help you make cars?

-----------------------------------------------------
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal

-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)

Constant antics

Musk’s acceleration into Bonkersland obscures, anew, what an easy task arresting Tesla’s recent decline ought to be — and that Musk’s constant antics make it harder. Getting executives to stop doing dumb, destructive stuff is certainly part of a minimally effective corporate board’s job description. This has been going on for a long time with Musk — unkept or delayed promises, and pointless eccentricities, to put it mildly, when there is work to be done to make the cars Tesla has promised and deliver the profits shareholders expect.

And that’s the task Tesla’s board has to confront — now.

The big argument now is about how much more money Tesla will need to raise in order to fund its expansion plans, and whether the markets will trust the multi-tasking Musk with that cash. Sometimes that even spills into Wall Street analysts.

Do your job

The problem with these analyses is that they assume Tesla never gets its act together, never begins hitting production targets like the 5,000 cars per week Tesla has promised to be building by June, or the 10,000 per week it has targeted for later.

If Tesla doesn’t make cars, and keeps spending on new factories that also don’t make cars, it’s elementary that it will keep losing money and burn through the billions on its balance sheet. Your kid knows that; pointing it out adds little value.

But let’s talk about numbers if our man Elon shuts up and make cars, at his board’s insistence or otherwise. Let’s say a Tesla adult decides to take away half-thought-out arguments by putting numbers on the board. (This is the only way to deal with short-sellers, Musk’s recent bete noire, that works.)

For all the talk of Tesla burning cash, it doesn’t burn much, so the job is easier than it looks. Operating cash-flow losses last year were only $60 million. Tesla spooks bond bears because it put $2.9 billion into capital expenditures, mostly for the Gigafactory battery plant in Nevada and to prepare an assembly line for the Model 3 rollout. The small operating loss means there’s no serious risk that bond investors will decide Tesla is intrinsically unprofitable. There’s just the risk that it will spend itself into the ground before reaching its destination, spending money for factories two and three before its main car plant runs correctly, with no one confident the new plants will run better.

Capital requirements

At Goldman Sachs GS, -0.72% which is bearish on Tesla stock, analyst David Tamberrino says operating cash flow will reach $536 million this year and $1.8 billion next year, as sales jump from 2017’s $11.8 billion to $24.3 billion in 2019. That’s why Tamberrino actually does like Tesla’s convertible bonds.

But the real eye-opener is Tamberrino’s view of how much capital Tesla will need by 2020 if it does — and if it doesn’t — meet current production targets for the Model 3.

If it hits, Tamberrino says Tesla will need only $5 billion from bond investors by 2020 to refinance maturing debt, build a plant for the Model Y small SUV in the U.S. and erect its first big factory in China. If not, it will need $10 billion (raised while probably still losing money). Even Tamberrino is bullish on much of Tesla’s debt, especially bonds convertible into stock. Because the numbers work.

If Musk shuts up and makes cars, that is.

Hero or goat?

The even-bigger difference is the contrast in tone if Tesla returns to bond markets as a confident, profitable growth company that needs $5 billion to finance expansions that will work (just as, in this hypothetical, Model 3 will have worked), versus the tone if Musk trots out more dog-ate-my-homework excuses for Model 3 production shortfalls this quarter and next.

In one scenario, he’s a great American entrepreneur. In the other, he talks big on Twitter. And needs twice as much money.

Who gets the loan?

I’ve written that Tesla needs a chief operating officer. Handily, there’s a COO on Tesla’s board in Robyn Denholm, a former chief financial and operations officer at Juniper Networks.

Ultimatum

If I, rather than Murdoch family scion James Murdoch, were on Tesla’s board, Musk would be on notice the board will install Denholm or another COO if second-quarter production isn’t on point. If Musk resists, his job as CEO should be at stake. (Disclosure: The Murdoch family controls News Corp., which owns MarketWatch.)

Because it’s time to shut up and make cars. And there’s no real evidence this is Musk’s unique skill set or his passion. If it were, he’d spend less time at conferences talking about Mars or going to New York society parties. And none at all kvetching about short-sellers or reporters.

It’s not easy to fire someone like Musk. He’s built $47 billion of shareholder value at Tesla alone. He’s the visionary who made electric vehicles happen after decades of talk.

Apple AAPL, +0.02%  fired Steve Jobs once, and spent years in the wilderness. I know.

But billions must be raised soon, and the question is whom the market will trust when operating tasks dominate Tesla’s agenda. Musk has been failing at those, even as he sustains years of breakthrough success in setting vision and creating and dominating new markets. He needs to succeed at operations or let someone do what he can’t.

Really, the argument for a “COO and a threat” solution is simple.

The short-seller case on Tesla is no more nor less than the assumption that the bond market will cut off Tesla if Musk keeps embarrassing himself, stranding investment in the equity before the company scales into consistent profits. Because everyone serious knows the numbers work if Tesla makes cars.

So, board members, make Musk shut up and make cars. Whether he likes it or not.