During its brief history, Tesla (NASDAQ:TSLA) has missed many self-imposed deadlines to bring products to market. It has also routinely fallen short of its annual production goals. These shortcomings have created a credibility problem for Elon Musk and the rest of the company.
On the other hand, from a high-level perspective, the electric-car pioneer has made steady progress along Musk's "secret" road map since 2006. That's why Tesla stock has risen more than 2,000% since its 2010 IPO.
But Musk hurts his cause in two ways. First, he has a tendency to shoot from the hip and make bold declarations that he later needs to walk back. Second, Musk and his lieutenants like to play things close to the vest -- so it often looks as if they're hiding something. In reality, Tesla has a lot to be proud of, and management should be more forthright about its challenges as well as its accomplishments.
Is Tesla just being "stupid"?
Early in Tesla's second-quarter conference call last week, Musk essentially admitted that the company has often missed its goals in the past. However, he attributed it to bad planning rather than any effort to pull the wool over investors' eyes:
I mean, I do want to emphasize ... a lot of this is actually very hard for us to know. When we make mistakes, it's because we're stupid, not because we're trying to mislead anyone. I just want to emphasize ... we aspire to be less dumb over time.
There are some obvious examples of "stupid" actions from Tesla in the past few years. For example, management eventually admitted to "hubris" in including too much complex technology in the Model X, leading to numerous delays in the design and production process.
But it stretches credibility to blame ignorance for all of Tesla's missed targets over the years.
Playing fast and loose with words
One recurring issue is that Musk seems to have trouble staying on script. At the Model 3 launch event in late July, he stated that Tesla already had more than 500,000 reservations for the newest and most affordable Tesla model.
Technically, that's true. However, on the recent earnings call, Musk noted that while there have been 518,000 gross reservations, after accounting for cancellations there were only 455,000 net reservations. Furthermore, more than 10,000 of those reservations came after the launch event.
From a practical perspective, this revised figure doesn't change the fact that Tesla is experiencing very high demand for the Model 3. The issue is that if Musk is in the habit of making bold statements without all of the facts in hand, investors can't be sure about when to believe him.
Half of the truth
A second issue is that Tesla executives sometimes appear to be telling only part of the truth. In the company's Q2 earnings report issued last week, Tesla stated that its cash on hand provided enough liquidity to get through the rest of 2017. On the subsequent earnings call, Musk ruled out issuing more stock this year but said the company was "thinking" about issuing more debt.
On Monday -- just three business days later -- Tesla announced that it would issue $1.5 billion of debt to fund its expansion. It seems pretty clear that the company was already planning this move before the earnings report. So why didn't management just state upfront that Tesla would probably raise more debt financing soon?
Looking ahead, investors might wonder about how well Model S and Model X demand will hold up as production of the much cheaper Model 3 ramps up.
Tesla's management noted on the recent earnings call that order volume for the Model S and Model X had increased in the past few months as the Model 3 launch neared. Yet that doesn't answer the underlying question. After all, Musk stated later, in a different context, that looking at a single month or a single quarter of data usually isn't meaningful.
It's possible that excitement about all things Tesla -- driven by the beginning of Model 3 production -- will lead to a sustained boost in Model S and Model X sales. However, it's also possible that Tesla benefited from an unusual amount of hype in the past few months. The Model 3's novelty will wear off over the next year, which will lead to less media attention and perhaps less demand for Tesla's more expensive models.
Even if there are some weak links in the Tesla story, they are far outweighed by the company's successes thus far. There's really no need for Musk and his lieutenants to "spin" or avoid the truth. Let's hope they understand that honesty is the best policy.