After strong earnings in the second quarter of the year, Elon Musk and other Tesla (TSLA) – Get a free report Executives sat down for the company’s quarterly conference call in July. And while Musk certainly took note of the macroeconomic headwinds, both his tone and message were markedly positive.
He noted at the time that rising interest rates essentially result in all cars being priced higher. The solution at the time – and one that Tesla has maintained – revolved around reducing the price of the car to compensate.
But even with that cautious macroeconomic outlook, Musk’s stance on Tesla remained quite strong.
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“I’m very confident in the long-term value of Tesla, I see it, I really see a path to a 10x, maybe let’s call it 5x, increase in the value of the company,” Musk said. “Maybe 10x. You can’t predict where things are going, the trials and tribulations and the mood of the markets.”
He went on to dismiss “short-term variations in gross margin and profitability,” calling them “minor” compared to Tesla’s long-term outlook.
“Autonomy will make all these numbers look silly,” Musk said. “I firmly believe that Tesla is an epic long-term investment, and I don’t worry when things go up and down. I’m confident we will deliver in the long term, but we can’t control the short term.”
Then came the failures of the third quarter.
By comparison, Tesla’s third-quarter conference call was decidedly gloomy.
The topic of the call was moderate inflation expectations, as Musk expressed extreme concern about the current macroeconomic environment. Beyond informing investors that the Cybertruck, which will begin delivery in November, will take 12 to 18 months to become a “significant positive cash flow contributor,” Musk’s confidence in July in the long-term strength of the company seemed practically exhausted.
“I’m not saying things are going to be bad. I’m just saying they could be,” Musk said. “Tesla is an incredibly capable ship. But if macroeconomic conditions are stormy, even the best ship will continue to hit hard times.”
Weaker ships, he claimed, will sink. Tesla “is not going to sink.”
“But even a big ship in a storm has challenges.”
The reason for Musk’s pessimism is due, at least in part, to high interest rates, which he says have and will continue to impact the affordability of cars.
“I keep harping on this interest thing, but I mean, it just increases the cost of the car,” Musk said, citing an internal report that found that even after price cuts, the monthly price of the Model Y after the Inflation was almost unchanged.
“Interest rates have to go down,” Musk said. “I just don’t have visibility. I don’t want to go full speed ahead into uncertainty.”
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The other reason for the billionaire’s self-proclaimed paranoia about the macroeconomic environment has to do with his “2009 PTSD.”
“People are hesitant to buy a new car if there is uncertainty in the economy,” Musk said, apparently responding to the question of whether Tesla is a car company or a technology company. “Automotive companies do very well in good economic times and they don’t do so well in difficult economic times.”
Analysts, including Tesla bulls like Wedbush’s Dan Ives, greatly reduced their price targets in the wake of the earnings report and call. Ives referred to the profits as the dictionary definition of “disaster.”
Tesla shares plunged more than 10% the day after the report. Shares fell nearly 16% last week and are 29% below their 52-week high.
