Tesla CEO Elon Musk Under Scrutiny after Conference Call

Tesla Chief Executive Officer Elon Musk’s conference call has raised questions about his relationship with the investors that have purchased equity from Tesla year after year. These investors include those who think the automaker may need to return to markets in the near future.

On the call, Musk emphasized that he has no plans to raise capital soon. Tesla was not available for comments on the matter.

However, Wall Street participants claim that Musk’s insistence does not quite align with what they see in Tesla’s finances.

Efraim Levy, a CFRA analyst, said that he thinks that the automobile giant may have to raise some funds again before the end of the first quarter of 2019. This can be done either through selling equity or debt.

“I would expect it to be equity rather than debt, because it is cheaper and you don’t have to pay it back,” Levy said. He added that the problem with this is that selling more equity will have a “dilutive effect on existing shareholders.”

Typically, the questions asked in such conference calls help the research that large institutional shareholders rely on. Such shareholders already own significant stakes in the company.

“Irrespective of the Tesla CEO’s annoyance with the genre of questions he was receiving from the analyst community, we note than an important part of Tesla’s success has been its relationship with the capital markets in funding its ambitious plans,” said Adam Jonas from Morgan Stanley in a note after the call.

“The analysts on the call represent the providers of capital that Tesla has throughout its history depended upon,” he added.

Jonas also said that even if Musk tags the questions asked to him as “dry,” they are still “extremely important for a highly levered and cash hungry company.”

“As we have highlighted in our previous research, even the short-term cadence of Model 3 production can significantly impact cash levels, liquidity, and financial credit worthiness,” he said.

Around 61 percent of Tesla is collectively owned by the 10 biggest institutions. Musk owns 23 percent of the company, and behind him, Fidelity investment owns 11 percent of the share. Baillie Gifford has 9 percent of the share, while T. Rowe Price has 7 percent of the share.

“It’s ironic that they’ve had at least one capital raise per year every year since going public and now he is combative with the Street,” said Dave Whiston, a Morningstar analyst. “He’s either just very much out of patience or plans to never need to raise capital again.”

Whiston also said in an interview that it was bizarre that the Tesla CEO granted so much time to Tesla shareholder Gali Russell, who asked several crowdsourced questions. This happened in spite of the fact that the automaker normally just permits analysts to ask one question and one follow-up. All this, plus the fact that Musk interrupted analysts and called their questions about the company’s finances as “boring.”

“That is another sign that Elon had had enough of the norm, but when you are public these are the types of questions you get asked. If you don’t like it, go private and stop relying on other people’s money,” said Whiston.

Meanwhile, Yale leadership studies senior associate dean Jeffrey Sonnenfeld, stated that other business leaders have avoided public markets or made their companies private so they can decide and run their companies differently from the way they might have to do it if they were public.

Sonnenfeld also claimed that Tesla’s CEO’s behavior appeared like an emotional outburst that raises concerns about the balance between creative volatility, which makes Musk great, versus his openness to criticisms and scrutiny, which can derail his business.

“He has made his fortune on other people’s money, and he needs to be accountable,” Sonnenfeld said.

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