Elon Musk’s conference call antics last week do a huge disservice to investors who might be turning to the PayPal founder for insight, says Dennis Mitchell of Starlight Capital, who claims that Musk is simply out to lunch on the role that innovation plays in business.
News broke last week about the Tesla CEO’s behaviour on an earnings conference call where Musk cut off questions from analysts concerning Tesla’s capital expenditures and requirements, calling the line of questioning “boneheaded” and “not cool.”
Wall Street’s response was to drop Tesla’s stock five per cent by the next day.
And while Musk has since apologized for his self-described “foolish” disregard for the questions, the billionaire has since picked another fight, this time with legendary investor Warren Buffett, by dissing Buffett’s well-known maxim, “Invest in businesses that have a wide, sustainable moat around them,” which is another way of describing companies that have competitive advantage through mechanisms such as pricing power and brand reputation. Musk’s comment was, “I think ‘moats’ are lame,” arguing that innovation is the far more crucial business tool.
“Nothing could be further from the truth,” says Mitchell, in conversation with BNN Bloomberg. “This idea that innovation is all that matters —innovation comes with a cost. I have yet to see a business that didn’t invest for innovation, (but) if you constantly have to invest in the innovation of this business, such that it can stay at the forefront of its industry, then you’re never able to extract any cash flow and the business is worthless.”
“I look at Tesla and say there’s no way that this is a business that can be worth more than GM,” he says. “First off, GM makes more cars and they make money making cars.”
While Musk has recently denied that Tesla will be looking to raise more capital in the near future, others seem to disagree, pointing to the high rate at which the company is burning through money to meet its production deadlines.
The snit between Musk and Buffett has continued this week, as, first, Buffett responded by saying at his annual shareholders meeting over the weekend, “I don’t think [Musk] would want to take us on in candy,” in reference to Berkshire Hathaway’s See’s Candies division.
Musk’s reply was to cheekily claim that not only would he start his own candy company (“and it’s going to be amazing”) but that he’d “build a moat and fill it with candy.”
But Mitchell says that Musk’s superstar antics are troubling, as millions of aspiring businesspeople look to investors and entrepreneurs like Buffett and Musk for guidance.
“These sorts of assaults on the tenets and fundamentals of investing long-term really frustrate me,” he says. “I feel it does a huge disservice to new investors who enter the space and admire someone like an Elon Musk.”
“Let’s be real, he’s an entrepreneur and he has created a wonderful industry and he has innovated a lot, more so than I ever have or ever will, but when it comes to being a steward of capital and investing money and generating returns for people, you know, I’ll happily invest in my funds over Tesla’s stock,” he says.