More Smoke And Mirrors Coming From Tesla

Tesla Inc.’s surprise earnings announcement is yet another sign of a company that lacks real leadership and anything resembling a long-term strategy.

Elon Musk, chief executive officer of Telsa Inc., is seen on a television on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Sept. 7, 2018. U.S. technology stocks rebounded from a three-day selloff as Broadcom results topped estimates and the Trump administration so far restrained from escalating the trade war with China. Photographer: Michael Nagle/Bloomberg

While the company has not explained its decision to pull ahead its third-quarter earnings, there’s been plenty of speculation online as to the reasoning behind it. Some are guessing that Tesla’s numbers are going to be even more disappointing than usual, suggesting the company wants to get the bad news behind it. But most believe it is because Tesla is finally going to post a profit for the first time since 2013, and they say CEO Elon Musk wants to make sure the good news is not eclipsed by the U.S. midterm elections.

I think the bulls are right, but that doesn’t mean that Tesla has turned the corner. And Tesla’s rush to trumpet its good news is yet another sign that this a company driven by short-term thinking.

Reading the tea leaves

Musk promised third-quarter profits and positive cash flow, and Tesla has gone out of its way to make good on his pledge — but not by addressing the company's underlying issues.

“Like the shenanigans in the second quarter to produce 5,000 Model 3s for one week in June, in the third quarter production builds were biased to high revenue models and car deliveries were manipulated. So, we fully expect that Tesla has found a way to show a profit for the third quarter and would be very surprised if they don't, given the hoops they jumped through to do so,” said analyst David Kudla, chief investment strategist at Mainstay Capital Management, in a note Tuesday morning. “Just as Elon Musk used customers as beta testers on Tesla’s Auto Pilot, he used customers’ deposits and full payments to fatten revenue on vehicles in which deliveries were being delayed.”

Achieving profitability and positive cash flow are the least of Tesla’s worries. The real challenges it faces are on the production front.

The company is still struggling to deliver even a few thousand cars a week — compared to the tens of thousands that even smaller automakers manage without a perceptible hiccup.

Moreover, the cars Tesla does manage to deliver are still not ready for prime-time. Kudla says that over half of Tesla’s Model S owners had their cars in the shop for at least a week, noting that in Teslas score worst among newer hybrids and electric vehicles when it comes to reliability.

Real leaders lead

A real leader would address these problems head-on. He or she would not blame them on a lack of car carriers or the surprise discovery that their company lacks nationwide service coverage. Nor would they indulge in inebriated online rants or potentially criminal market manipulation.

Rather, a real leader would take responsibility for letting customers down and outline a clear plan for addressing the company’s challenges. Then, they would make darn sure their company delivered on those promises — and on its vehicle orders. I mean really deliver on them by addressing the underlying problems, not by toying with the production schedule or banking customer deposits to achieve short-term wins.

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