Finance

Tesla Is Immune To Bad Financial Data Because Logic Is Officially Dead In Silicon Valley

Who needs financial metrics when tech companies can offer you faith?

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Elon Musk (by Heisenberg Media)

Late yesterday, Tesla Motors reported that it did not produce even close to the number of Model 3 cars that it predicted it would in the third fiscal quarter of 2017.

That is objectively not good news for Tesla. The company has put a staggeringly high amount of pressure on itself to increase production on the Model 3 with a speed that is literally unprecedented in the history of manufacturing. Essentially, Elon Musk has staked the future of his car company on the notion that he can make one million cars a year by 2020. Tesla made 83,922 in 2016… total.

So in the cutthroat world of public market trading it stands to reason that Elon cannot afford even the merest suggestion of a hiccup in a manufacturing ramp-up plan that he has actually referred to as “Production Hell.”

Cue yesterday:

The automaker built only 260 Model 3s during the quarter ended in September, less than a fifth of its 1,500-unit forecast. Output of the sedan that starts at $35,000 — roughly half the cost of the least expensive Model S — was lower than expected because of unspecified “bottlenecks,” according to the company.

Ah, so more a production “shart” than a “hiccup.”

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A major miss on production goes to the heart of Tesla’s notional value. If it can’t come close to delivering on its primary goal, logic holds that Tesla cannot survive. Therefore trading on Tesla stock must have been disastrous today, right?

SO WRONG!

Wondering where this thought experiment lost its way? We’ll give you a hint: it was somewhere between “Elon” and “Musk.”

See, Tesla is not so much a car company as it is a cult of personality mixed with a quasi-religious belief in the disruptive superiority of Silicon Valley. In the eyes of Tesla believers, Elon Musk is a prophet and Tesla is his church. Tesla’s stock doesn’t trade on data, it trades on the current of faith and doubt among the Tesla faithful.

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Like all public companies, Tesla has to deal with financial projections on a quarterly basis, but unlike almost any other public company, it has gamed the system so that Elon always revels in the accretive bigotry of low expectations. Just last week, Morgan Stanley analyst Adam Jonas wrote a note on Tesla that was more of a Tesla fanboy Reddit post than it was flinty-eyed financial analysis. Tesla’s results today fly in the face of Jonas’s predictions. We can guarantee you that his faith is not shaken.

But even if it were, it would not matter to Tesla investors. Just listen to these guys talk about Elon’s major whiff on Model 3 production:

“I would be surprised if anyone was surprised that they came up short,” said Sam Korus, an analyst at Ark Investment Management in New York, which holds Tesla shares. “When Musk gives a prediction, you know it’s an extraordinarily ambitious goal.”

Hahaha! Yeah, Elon is kind of full of shit… and yes, we are invested in him.

“Elon’s never made a number, ever,” said Ross Gerber, chief executive officer of Gerber Kawasaki Wealth & Investment Management, which holds Tesla shares. “Coming up short is what we expect of him.”

Find a hedge fund saying this about literally any other company ever… We’ll wait.

And while we wait, let Gerber finish that thought:

“This guy has figured out how to land a rocket on a ship,” he said. “Whatever it is, he’ll get it sorted out.”

This is all you need to know about Tesla. Investors have a messianic belief in the man behind the curtain because he is a visionary who is building the future via a solar panel empire (which has literally already damaged Tesla stock), a high-speed train company, and a $21 billion attempt to privatize space travel. And it never seems to factor into Tesla investor thinking that Elon might be negatively distracted by these other pursuits.

But what is truly insane about the religiosity surrounding Tesla is that it’s spreading. In fact, the same day that Tesla stock bounced on news that should have crashed it, WeWork founder and CEO Adam Neumann justified his company’s new $20 billion to Forbes thusly:

“No one is investing in a co-working company worth $20 billion. That doesn’t exist,” Neumann says. “Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue.”

Even Erlich Bachman thinks this quote is Silicon Valley horseshit of the dankest vintage.

But Neumann is actually onto something. WeWork is at its core a real estate arbitrage play with techie bells and whistles that manages to incorporate persistently high costs with an unreliable revenue model. Is that worth $20 billion without people buying into what WeWork represents?

Just kidding, WeWork isn’t worth anywhere near $20 billion. But the fact we’re having this conversation is ridiculous.

Tesla and WeWork are just bald-faced symptoms of a disease that is spreading throughout tech. Snap, Etsy, Blue Apron, MongoDB, and sundry others have gone public with valuations that don’t factor in the small detail of being profitable. And we are about to enter the heady days of watching Lyft and Uber rideshare their race to an IPO.

This era of counterfactual thinking has now spread into almost every nook and cranny of our shared American brain, but if we’re going to start putting our money into it, Tesla can stop worrying about making more cars because there will be no one left who can afford them.

Tesla Falters With Model 3 as Initial Output Trails Forecast [Bloomberg]
WeWork’s $20 Billion Office Party: The Crazy Bet That Could Change How The World Does Business [Forbes]

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