Did Elon Musk Mislead Fox About Problems At Tesla?

A couple of weeks ago, Fox Business anchor Liz Claman made her annual visit to Silicon Valley to interview local CEOs. One of the exclusives she scored was an interview with Tesla co-founder Elon Musk.

In listening to that interview, it would be easy to conclude that everything at Tesla was hunky dory. In fact, better than that. Musk said they were doubling production from 40 to 80 cars per week. That they were hiring like crazy. And he even discussed the growing short position on Tesla and its stock, insisting:

“It’s doing pretty well actually given that we’re such a huge short position. In fact I think the short position may be as high as one can actually go. They literally hit the ceiling on the short position. The shorts are in it to the hills. I think it is very unwise to be shorting Tesla, it’s very unwise. There is a tsunami of hurt coming for the short.”

Tough talk. But it’s also an outlook that seems hard to square with revelations this week that Tesla has hit some serious bumps in the road. According to this story about a startling securities filing from Tesla, Dana Hull reports:

Tesla Motors (TSLA) on Tuesday quietly cut its revenue forecast for 2012 and admitted that production of its all-electric Model S sedan is ‘slower than we had earlier anticipated.’ “

Of course, that news sent Tesla’s stock spiraling down this week, from $30.66 to $27.54 on Wednesday. (Though it’s recovered a bit Thursday). Still, it seems the shorts were right, and Musk was wrong.

But how could he be wrong? Did Musk not know, just two weeks ago that things at Tesla were getting seriously off track? Or did the problems not become clear until just this week, forcing the company to make the disclosure?

It’s hard to believe the problem just popped up. Hull writes:

“Tesla had previously vowed to make 5,000 cars by the end of this year. But in its latest filing with the Securities and Exchange Commission, it revealed it is “four to five weeks behind our previously announced Model S delivery goals” due to delays by suppliers and the need to continue to train employees. The company now says it expects to deliver 200 to 225 Model S vehicles to customers in the third quarter and 2,500 to 3,000 Model S vehicles in the fourth quarter.”

Musk didn’t address the 5,000 car goal in the interview, and Claman didn’t ask about it specifically. But the 80 cars per week that Musk referenced means that the company would be on track to build 960 cars in the last 12 weeks of the year. To hit the 2,500 mark, the company would have to more than double that rate to at least 200 cars per week.

Is that realistic? Actually, it’s even tougher than that. Because Tesla can’t get to 200 right away, it will have to produce many, many more more by the end of the quarter to hit that mark. Hull writes:

“It said it produced 77 cars in the week ending Sept. 23 but needs to ramp up to 400 cars per week before the end of 2012.”

To deal with the issue, the company said it is working with suppliers to get more timely deliveries of parts. It’s hiring like crazy, but of course, training takes time. And the company now says it will need to issue more stock to increase its cash cushion.

But perhaps the part that makes me the most nervous is that the company is having to renegotiate its payment schedule with the U.S. Department of Energy on its loan.

So, did Musk mislead Claman in that interview? His rosy view certainly seems at odds with what we now know. Perhaps, one could argue, she just didn’t ask the right, specific questions. Perhaps, he masterfully spun what was a deteriorating picture.

At the same time, the company made a big announcement this week about the Supercharger stations it was rolling out. And then very quietly the next day filed that document revealing its challenges with the U.S. Securities and Exchange Commission.

Whatever the case, I’m willing to bet there are a lot of shareholder lawyers out there sharpening their pens, and parsing his words very, very closely.

Here, by the way, is the clip:




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  • BYoung001

    If they didn’t have over 10,000 reservations with a break even point set at 8,000 cars, I would be worried.

    Right now it seems like they will be fine with time and the only negative speculation is how quickly investors will get a return. JP Morgan actually boosted their value of the Tesla because of these delays, indicating that a slow and steady approach would mean better quality control.

  • Tesla Management wasn’t transparent about manufacturing issues even though they knew there was a problem. This trust failure is probably the biggest issue.

  • John

    What did Musk lie about? As far as I know Tesla is still hiring tons of people. From July to now they have ramped production from 3 cars a week to 77 cars a week. All and all they are building cars and increasing their numbers. The auto maker is 4 weeks behind and now its destined for failure? Give me a break….

    Production set backs happen to the best companies. Why don’t you spend less time writing useless articles and do something that matters.

    • I’m not saying he lied. But he gave a pretty bullish forecast in that clip. That stuff matters to investors, and is governed by fairly strict disclosure requirements by the SEC. In the end, I’m rooting to Tesla to make all of this work. But you can’t get up in front of a camera and mislead investors about the state of a publicly traded company.

      • Nicu

        He said a tsunami of hurt is coming, but did not specified a two weeks time frame. Why not wait for the end of the year to see if they get to 400 cars / week, well above their break-even point?

      • Porfirio

        Of course, Elan was making a general statement of optimism and his commitment to work to make shareholders profitable, like any CEO would, and not intending to mislead investors, as the article suggests.

        He did not say anything that thousands of CEOs, from Lee Iacocca to Donald Trump, say in TV commercials and shareholders meetings all the time.

        Being wrong is one thing, being misleading is something much different. It implies that Elan Musk knows something that he is not disclosing publicly, which is obviously not the case as the article itself reported, contradicting its own point.

  • Rob D

    This article doesn’t make sense. Tesla was trading at about $30/share before the disclosures and traded yesterday at about $30/share *after* the share count was diluted by 7%. That means the value of Tesla actually went up by roughly that amount and Musk was right to be bullish. Not yet a “Tsunami of Hurt” for shorts, but it will be if the stock keeps rising like it did yesterday.

  • Thomas

    I’m a bit late reading this article, but its just ridiculous.

    Chris O’Brien – Elon Musk mislead investors by telling us that Tesla is probably going to produce 80 cars this week. Because this convinced me that Tesla is going to produce 5,000 cars in the next 12 weeks investors should sue him.

    Chris O’Brien v2.0 “I’m not saying he lied. But he gave a pretty bullish forecast in that clip.”

    Article title – “Did Elon Musk Mislead Fox About Problems At Tesla?”

    Definition of “mislead” – To lead into error of thought or action, especially by intentionally deceiving.

    Definition of “lie” – something intended or serving to convey a false impression.

    “lie” is a synonym for “mislead”.

    Definition of “synonym” – A word or phrase that means exactly or nearly the same as another word or phrase

    Chris O’Brien v2.0 “I’m not saying he lied.” Yes, actually you did. Or at least you misled us into thinking he did.

    That aside, the whole premise of the article represents poor thinking and ignorance. “Seriously off track.” Really? A company develops a product that receives exceptional reviews and is struggling to satisfy strong consumer demand and reduce their year long waiting list and that’s “seriously off track”?

    Tesla has two, related problems. A shortage of cash, and difficulty ramping up production. Even if production was ramping according to their schedule they still would have had a shortage of cash, and speculation has been rampant that they would need to issue a secondary to raise capital.

    The production “problem” is only a critical issue in the context of needing immediate cash flow to alleviate the cash crunch. Tesla is succeeding in increasing production week by week, they are just not ramping up quick enough to solve their short term cash problems.

    The secondary solves their cash problems and time will solve the production problems, which leaves them the problem of satisfying the strong and increasing demand for their product even as they expand their operations and develop new products.

    In the meantime the focus on quality as opposed to quantity will pay off in the coming months and years.

  • Bob

    I was going to buy one but probably not now given all the weird articles I have read lately about the company. Not sure if they’ll be in business in 5 years. Gonna go for the Beemer 535i….looks cooler, better performance and decent gas mileage. Also, BMW will most certainly be in business for many many years and they include all maintenance for 4 years, 50K miles!