When Will Wall Street Wake Up to Elon Musk’s Broken Promises?

When Will Wall Street Wake Up to Elon Musk's Broken Promises?Recent news reports indicated that Elon Musk, CEO of Tesla (NASDAQ:TSLA), traveled to Israel to discuss collaborative efforts on self-driving car technologies with Cortica, an artificial intelligence firm headquartered in Tel Aviv. Cortica’s AI technology would reportedly improve the ability of autonomous vehicles to identify moving objects within an environment and predict changes in the vehicle’s surroundings. The development of environment-recognition technologies for self-driving cars will be crucial to their adoption in the mass market, as was recently highlighted by the recent fatality involving an Arizona resident who was hit by an Uber car driving in an autonomous mode.

Reports about Musk’s talks with Cortica comes one day after Goldman Sachs analyst David Tamberrino affirmed his sell rating for Tesla stock on his expectation that Tesla stock would drop by 30 percent over the next six months because of production issues. Specifically, Tamberrino cited the investment firm’s belief that Tesla is tracking below its guidance on 2018 production levels for Model S/X vehicles and the expectation that Tesla would fail to keep up with consensus estimates on deliveries on Model 3 cars. Goldman Sachs has a $205-per-share six-month price target on Tesla stock; shares of Tesla were trading around $312-per-share on March 20th.

Beliefs that Tesla would miss its own guidance on production schedules are certainly not unfounded. This January, Musk announced that Tesla was pushing back production of Model 3 vehicles and wouldn’t reach 2,500 units per week until the end of March; the company had originally said it would reach production levels of 5,000 Model 3 units by the end of 2017. Production deadlines given by Tesla for the battery to be used in Model 3 vehicles have also been pushed back multiple times. And when Tesla misses, it’s missing at a pretty wide margin. Last October, The Wall Street Journal reported that Tesla only produced 260 Model 3 vehicles during the third quarter of 2017, well under the earlier stated production guidance of 1,500 Model 3 cars for the quarter.

On the same day that Goldman Sachs reaffirmed its sell rating on Tesla stock, Musk posted a video to Instagram, which is emblematic of the CEO’s Alfred E. Neuman-esque style of response to any perceived corporate turbulence. The video shows Musk in a bar in Jerusalem pouring flaming absinthe. Musk’s Instagram declaration that “Everything’s better with fire …” smacks of the same “What, me worry?” attitude that has allowed him to navigate uncertainty in meeting production goals without eroding shareholder confidence.

The last 12 months has featured a couple of examples of the demise of corporate executives whose personalities have typically outshined their business acumen. Last June, Travis Kalanick stepped down as CEO of Uber, the ride-hailing company he co-founded, after shareholder reaction to reports that Kalanick’s brash personality helped to create an abusive workplace culture. A few weeks ago, the U.S. Securities and Exchange Commission filed a complaint in the Northern District of California alleging claims of securities fraud against Elizabeth Holmes, the CEO of blood testing firm Theranos. Holmes helped raise $700 million for Theranos in recent years while keeping major technological issues affecting the company secret from investors. While Facebook CEO Mark Zuckerberg’s greatest personality trait seems to be his inherent lack of one, his lack of public response on issues has reportedly rankled top executives within the social media giant, especially in the wake of the Cambridge Analytica data scandal.

For his part, Musk continues to embark on his futuristic vision of a world which probably won’t arrive on his own stated timeline. In the middle of March, Musk made comments during a question-and-answer session at the annual South by Southwest (SXSW) tech and culture conference in Austin, TX, in which he stated that SpaceX craft being designed for trips to Mars could start making short flights in 2019. He reportedly even joked about his inability to meet his own stated production deadlines in those comments. Days after those comments, news reports indicated that secondary offerings of SpaceX shares by investors could raise $500 million for the company in the coming weeks.

Elon Musk is no Elizabeth Holmes but he is dyed in a similar type of bombastic wool which supporters and shareholders alike have no issue holding firmly against their own eyes. But there is a duplicity between the statements and actions of Elon Musk which extends far beyond company production schedules. In a June 2014 blog post on Tesla’s website, Musk said that he would open-source the patents held by Tesla and not pursuing infringement suits on anyone using the technologies “in good faith,” and even went so far as to say that he has personally avoided patents in his business endeavors ever since leaving Zip2, his first company. That’s categorically false. SolarCity, a company chaired by Musk, continued to obtain patents in the year after Musk called patents essentially “a lottery ticket to a lawsuit.” Last May, we reported on electric vehicle battery patents that continue to be obtained by Tesla. So Musk is either diverting shareholder funds to an activity which he believes is a legal liability, a potential breach of his fiduciary duty to shareholders, or he lied about his views on patents. It can’t be both ways.

In fact, the recent news about Cortica only further proves that Musk understands the importance of acquiring or at least working with companies holding strong patent portfolios. A report on patent portfolio analysis in the artificial intelligence sector released by data analytics firm CB Insights last April showed that Cortica is one of the top holders of U.S. patents related to AI technologies, especially in the field of image processing. If Musk truly wanted to avoid patents, which he has publicly called a legal liability, he could be collaborating with any of the 89 percent of the 1,150 AI firms surveyed by CB Insights which hadn’t been granted a single patent. Instead, it looks like Musk is choosing to work with a top patent owner in the sector.

At least where it comes to patents, Elon Musk seems to be telling the world, “Do as I say, not as I do.” That’s bad enough on its own, but he also gets away with breaking promises on production deadlines, deadlines which presumably have engendered at least some interest from current shareholders. It will be interesting to see how long his bluster allows him to maintain his persona as a luminary in the Silicon Valley scene or if investors ever tire of sold on promises which don’t materialize.


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2 comments so far.

  • [Avatar for Benny]
    March 29, 2018 05:40 am

    “Facebook CEO Mark Zuckerberg’s greatest personality trait seems to be his inherent lack of one”

    Brilliant put-down !

  • [Avatar for Bemused]
    March 28, 2018 08:28 pm

    I could never figure out why Wall Street and the main stream media were in love with this guy.

    The former administration with its love affair with everything “green” gave his companies nearly $5 billion of our tax dollars in the form of grants, tax credits, loans, and environmental credits (that Tesla then sold).

    But as regards actually making money with Tesla, Solar City, etc – this “visionary” has utterly and spectacularly failed.

    Alfred E. Neuman-esque indeed, Mr. Brachmann.