Tesla Inc. (TSLA, Financial) CEO Elon Musk’s hype machine was out in force over the past couple days.
Evidently, Musk has been trying to extend the stock price gains that came on the news that the Securities and Exchange Commission’s settlement agreement with Musk and Tesla received official approval from the presiding federal judge. From talk of new self-driving computer chips to an ambitious expansion of Tesla’s service center network, Musk tried to reinvigorate the growth narrative that has been dented in recent months.
Unfortunately for Musk, the market appears to have been unimpressed with his latest hype effort. Indeed, shares actually closed slightly lower on Oct. 17, despite his best efforts.
Let’s take a look at Musk’s latest attempts to pump Tesla up, and why they seem to have failed.
Next generation chips and full self-driving
With the ink barely dry on his settlement agreement with SEC, Musk is already back at the forefront with a raft of Tesla hype. Taking to Twitter late on Oct. 15, Musk bragged at length about forthcoming Tesla-designed microchips that will supposedly enable full self-driving (FSD) capabilities:
“To be clear, actual NN [neural net] improvement is significantly overestimated in this article. V9.0 vs V8.1 is more like a ~400% increase in useful ops/sec due to enabling integrated GPU & better use of discrete GPU...Somewhere between 500% & 2000%.
“~6 months before it is in all new production cars. No change to sensors. This is simple replacement of the Autopilot computer. Will be done free of charge for those who ordered full self-driving.”
The new chip received a great deal of attention during the last earnings call, with Musk claiming they would be an order of magnitude better than the Nvidia chips currently used in Tesla hardware. That claim received considerable flak from chip industry experts, and from Nvidia itself, which pointed out that Musk was comparing his new chip to older model Nvidia chips that have since seen significant improvement.
The Oct. 15 tweets were little more than a rehash of that previous pump. It also opened the door to considerable further criticism. Chief among these is the fact that, since 2016, Tesla has been selling FSD to customers for $3,000 and has repeatedly stated that all the necessary hardware was already in place. The need to replace the old hardware across the board is clear evidence that those prior claims were false. It also raises the question of cost of replacement, both in terms of the hardware itself and the man-hours required to replace computers in thousands of vehicles.
Service center expansion for total geographic coverage
After the stock market closed on Oct. 16, Musk took to Twitter with a second pump effort. This time, he decided to talk about expanding the Tesla service center network:
“Just reviewed Tesla’s service locations in North America & realized we have major gaps in geographic coverage! Sorry for this foolish oversight. Tesla will aim to cover all regions of NA (not just big cities) within 3 to 6 months.”
Apparently, Musk thought it would buoy the stock if people heard that the service center network would be getting wider coverage. Unfortunately, the claims of the tweet make little sense. For one thing, it is quite strange that this “foolish oversight” would only be addressed now. If it was genuinely an oversight, that shows a disconcerting gap in strategic planning. If it was not an oversight, it is still demonstrative of poor forward planning as the company’s vehicle fleet expand by the thousands each week.
Indeed, Tesla has been slashing capex for a while now in its quixotic effort to post a one-off profit, as well as to preserve much-needed cash. In the second quarter of 2018, fewer sales and service centers were opened than in any of the preceding four quarters. It is thus reasonable to ask how exactly dozens more service centers will be built and opened in the span of a few months, given capital constraints, construction timelines and subsequent hiring and training requirements. Musk loves his forward projections, but rarely offers much in the way of explanation of the intermediate steps necessary to achieve them.
Verdict
What is most interesting about this whole affair is the fact that a concerted hype effort from Musk could fail to buoy the stock. We were certainly surprised by the price action on Oct. 17. Even as more voices are raised in criticism of Musk and his company, the public perception remains optimistic. The share price certainly still assumes green fields and blue skies ahead.
Yet, we may be seeing the first glimmers of the market waking up to Musk’s game. The promises of “3 months maybe, 6 months definitely” are getting tired as Tesla consistently fails to deliver.
We may not be at the point where the market actually values Tesla based on execution rather than promises, but it looks like we are getting closer.
Disclosure: Short Tesla via long dated put options.
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