Why Elon Musk Changed Tesla Settings

Why Elon Musk Changed Tesla Settings

Elon Musk

There was a stark difference in tone on Tesla’s third-quarter earnings call compared to the company’s second-quarter call.

Following a strong earnings beat for the second quarter of the year, Elon Musk and other Tesla (TSLA) – Get Free Report executives sat down for the company’s quarterly conference call in July. And while Musk certainly took note of macroeconomic headwinds, both his tone and message were markedly positive.

He noted at the time that rising interest rates essentially result in giving all cars a bigger price tag. The solution at the time — and one Tesla has maintained — revolved around reducing the price of the car to compensate.

But even with that cautious macroeconomic perspective, Musk’s stance on Tesla remained quite strong.

“I have very high confidence in the long-term value of Tesla, I see it, I really see a path to a 10x, maybe call it a 5x increase in the value of the company,” Musk said. “Maybe a 10x. Where things go along the way, the trials and tribulations and the mood of the markets, one cannot predict.”

He went on to dismiss the “short-term variances in gross margin and profitability,” calling them “minor” compared to Tesla’s long-term picture.

“Autonomy will make all of these numbers look silly,” Musk said. “I strongly believe Tesla is an epic long-term investment, and don’t sweat it when things go up and down. I feel confident we’ll deliver over the long term but can’t control the short term.”

Then came the third quarter misses

Tesla’s third-quarter conference call was decidedly somber in comparison.

The theme of the call was one of tempered expectations in the face of inflation as Musk expressed extreme concern over the current macroeconomic environment. Beyond informing investors that the Cybertruck — which will begin deliveries in November — will take 12 to 18 months to become a “significant positive cashflow contributor,” Musk’s July confidence in the company’s long-term strength seemed mostly depleted.

“I’m not saying things will be bad. I’m just saying they might be,” Musk said. “Tesla is an incredibly capable ship. But if the macroeconomic conditions are stormy, even the best ship is still going to have tough times.”

Weaker ships, he said, will sink. Tesla is “not going to sink.”

“But even a great ship in a storm has challenges.”

The reason for Musk’s pessimism is at least in part due to high interest rates, which he said have and will continue to impact the affordability of cars.

“I keep harping on this interest thing, but I mean, it just raises the cost of the car,” Musk said, citing an internal report which found that, even after price cuts, the monthly price of the Model Y after inflation was almost unchanged.

“The interest rates have to come down,” Musk said. “I just don’t have the visibility. I don’t want to be going top speed into uncertainty.”

The other reason for the billionaire’s self-described paranoia around the macroeconomic environment has to do with his “PTSD from 2009.”

“People hesitate to buy a new car if there’s uncertainty in the economy,” Musk said, seemingly answering the question of whether Tesla is a car company or a tech company. “Car companies do very well in good economic times and they don’t do as well in tough economic times.”

Analysts, even Tesla bulls like Wedbush’s Dan Ives, largely cut their price targets in the wake of the earnings report and call. Ives referred to the earnings as the dictionary definition of a “disaster.”

Shares of Tesla plummeted more than 10% the day after the report. The stock fell nearly 16% this past week and are off 29% from their 52-week high.

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