As Tesla (TSLA) shares crash through $300 in today's trading during an otherwise buoyant day for the markets, I am reminded of a comment a U.S.-based Daimler exec made to me during the disastrous reign of Juergen Schrempp in the early days of the merged DaimlerChrysler: this company needs some adult supervision. Daimler went through no small amount of trauma but eventually found its adult in Dieter Zetsche - Dr. Z from the old Chrysler commercials - and he continues to run the Chrysler-free Daimler to this day.
With Tesla, of course, it is always going to be Elon's show. There was no more clear evidence of that than last night's hastily arranged announcement and selected media-only conference call to announce the roll-out of the $35,000 Model 3 and the shuttering of Tesla's retail stores. Tesla's brand was cultivated by its showroom model, which - instead of serving as a glorified parking lot as Big Three dealerships do--included knowledgeable salespeople who operated those locations as galleries, a sales model used by high-end carmakers such as Ferrari (RACE) and Aston Martin.
According to Musk, those locations will be jettisoned and while at first blush that might have seemed like yet another headcount reduction from Tesla, Musk's insistence that the company would greatly bulk up its force of service technicians made those two moves seem like a net zero from a cost perspective.
As someone who has followed autos for more than a quarter century, I tend to focus more on the bottom line than the hype. Musk's revelation during last night's call that Tesla was "unlikely" to make a profit in the first quarter and only "likely" to do so in the second - he has used much forceful language in the past - had to have been chilling for Tesla bulls.
The two greatest fears of Tesla bears are coming true: demand for the Model 3 has dissipated after the initial reduction in the federal tax credit (it fell from $7,500 to $3,750 on January 1, and will fall to $1,875 and $0, respectively on July 1 and January 1, 2020) and Tesla cannot make a profit on a Model 3 sold for the much-hyped $35,000 base price. Yes, those are inferences, as I don't have access to Tesla's internal data, but the writing on the wall on both counts was quite clear from Musk's comments last night.
Tesla's valuation has been bolstered by white-whale-like hopes for huge demand for a $35,000 Model 3, but last night's call seemed to disprove the existence of such a demand bank. There is ample evidence that Tesla is neither an efficient manufacturer nor deliverer of automobiles, so when Musk promised 2-4 week delivery on new Model 3 orders, that indicated the lack of a material domestic backlog for the Model 3. Again, though, soon-to-depart Tesla CFO Deepak Ahuja bizarrely commented on Tesla's fourth quarter earnings call that reservation figures are "irrelevant" - after senior management hyped those figures for years - and that should have been a signal to analysts that pent-up demand for the Model 3 in the U.S. had diminished greatly.
So we'll see how an online-only sales model works for Tesla, but the dream of upselling consumers into a fully green setup - a house with a SolarCity solar roof attached to a Powerwall storage battery used to power the electricity to charge a Model 3 - has clearly been abandoned. If Musk's plans are realized Tesla won't have the knowledgeable salespeople to perform such a task and Tesla's brand will be further hollowed out until it becomes...Shock!..Horror!..a car company.
That's the downside here. With Musk seemingly running this company by the seat of his pants, he is strategically taking this company where no Silicon Valley investor could ever want to go: Detroit Rock City and its rock bottom multiples.
GM (GM) shares' recent run of strong performance has pushed the company's P/E multiple to a gargantuan 6.2x 2019 consensus EPS of $6.48. Even after today's plummet Tesla shares are trading at 167x 2019 consensus EPS of $1.79. I am not sure adult supervision is required to calculate the difference between a 6x multiple and a 167x multiple, but if you own Tesla shares you should be frightened by that math.