What is Tesla worth?
Our look at Tesla represents the fourth and final installment of our series on IR Value, which started by looking at six-month reporting cycles, the 12 scenarios of IRs greatest value, and how market cap impacts investor relations.
Either you are a dyed in the wool believer of the Tesla (TSLA) story, or you think the company represents a complete fraud. Tesla epitomizes a battle ground stock.
Recently, Cathie Wood of ARK Invest penned a well-thought, and thoroughly researched letter to Tesla in response to CEO Elon Musk’s Tweet to take the company private. She makes a compelling argument that Tesla could be worth $4,000 a share in the future.
The Problem: Tesla in its current form will never be worth $4,000 a share.
Why: Tesla fails at Investor Relations.
Explain.
Once a company goes public, management needs to be more than innovative and smart.
A long executive tenure is built on being innovative and smart, but becomes entrenched via execution and personal stability / reputation.
When Executive personality trumps the personality of the underlying business, credibility goes out the window.
Such situations call for a strong in-house IRO that can clearly and confidently present the company through the necessary investor materials. The IRO and IR program needs to operate in a way to help neutralize the impacts of the overly dominant personality.
Tesla’s Ferris Bueller Problem of Investor Relations
Tesla currently suffers from the Ferris Bueller Problem of Investor Relations. The company fails to run an investor relations website/program that projects the market cap and stature of the company to investors.
Anyone that owns a Tesla or is familiar with the car believes it to be an amazing product. I have spoken with Tesla owners, who also worked with Steve Jobs. They think that Elon Musk exhibits many of the traits that made Steve Jobs successful with Apple. These cars are quite prevalent in Northern Virginia and Data Center Alley.
The company suffers from the Ferris Bueller Problem, despite having a great product. The company’s website and investor materials fail to project the market cap and stature of the company.
Where are the key performance indicator stats on the IR home page?
Where is the investor deck to educate new investors about the business model?
Where is the earnings deck to illustrate the change in KPIs over time?
Management cession of control of the earnings call to non-professional investors in 1Q18 represents a major reputational error. See the 1Q18 transcript. The company should have reached out to a key buy-sider like Cathie Wood at ARK-Invest and asked her to take the lead on asking what the company deemed more relevant questions.
Finally, the CEO’s large than life web personality has trumped the story and personality of the actual business.
Tesla Does Have Size and Liquidity
Despite the Ferris Bueller Problem, Tesla does seem to benefit from strong investor awareness and investor engagement (link to article). The CEO has developed a cult following among technologists, and being in the news seemingly every day helps provide visibility.
The company’s $53B market cap certainly provides a size and liquidity advantage. Tesla’s ETF exposure crosses roughly 126 ETFs, we will use ETF exposure as a proxy for index membership. There are 17 ETFs where Tesla represents a top 15 holding. Given the quirky collateral rules of ETFs, it should be no surprise that Tesla can generate interest without much work. The problem is that the ETF exposure combined with the zaniness of its CEO create massive volatility in the shares.
Destroying Tesla’s Awareness and Engagement Competitive Advantage
In our last article, we discussed how size and liquidity are a competitive advantage. Market cap plus index membership yields this size and liquidity advantage. Tesla is both large and exposed to a plethora of ETFs. The company benefits from an awareness and engagement advantage.
The easiest way to erode the Awareness and Engagement advantage comes from a lack of credibility. Once the executive’s personality trumps that of the underlying business, awareness and engagement can become a negative. The advantage can be eroded not only through words, but also actions.
Past Experience
My past experience as a sell-side analyst covers many colorful CEOs. For the most part, the most colorful CEOs all suffer from a lack of credibility among investors. Typically, these colorful CEOs are quite successful and capable businessmen and businesswomen. These executives typically have a great read on their business and where the industry may go in the future. The problem is that their personalities become the focal point, and investors discount the executive’s foresight.
Whether a public or private executive, once the story begins to focus on the colorful personality rather than the business, Investors will look to:
Push the eject button on that executive
Withhold investment funding until a change occurs
When the executive personality outweighs the company personality, the IRO must double-down and get to work. In this scenario, it becomes imperative the IR program develop and present the requisite materials for investors so that they can engage the story on their terms.
Innovative tech founders should resist the temptation to allow their personality to trump that of their creation. When this imbalance occurs or is at risk of occurring, the company needs to hire a strong in-house IRO. In other words, an active IRO, that outworks the analysts, and provides advice and counsel to management, which in turn allows management to focus on building and running a business.
