Tesla’s (Quote, Chart NASDAQ:TSLA) share price may be in a major funk this past month but don’t give up on the company just yet, says Avenue Investment’s Paul Harris, who claims that what the auto maker really needs is a competent Number Two of the Tim Cook variety.
August has been a wild ride for auto maker Tesla, a month which began promisingly as investors reacted positively to both the company’s second quarter earnings report and then to CEO Elon Musk’s now-famous tweet where he stated his intentions to take Tesla private. A hair above the $300 mark on August 1, the stock jumped almost 29 per cent to a high of $387.46 by August 7. (All figures in US dollars.)
Then came Act Two, featuring in no particular order: a New York Times interview wherein Musk broke down and spoke of the stresses of his job and an admission of drug use to help him cope, reports that the US Securities and Exchange Commission was investigating the CEO’s ‘go-private’ comments, JP Morgan’s cutting of its price target on the stock and worries from Tesla suppliers that they might not get paid. All told, the impact on Tesla’s share price has been palpable, as the stock is now once again dipping below the $300 mark in trading on Friday.
Tesla short-sellers may be grinning from ear to ear but shareholders shouldn’t throw in the towel just yet, says Harris, portfolio manager for Avenue Investment, who claims that just as Steve Jobs during Apple’s heydays of the early 2000s needed a good operations guy like Tim Cook to handle the execution side of the business, so does Musk require an effective Number Two.
“The problem with the car industry is that it’s a manufacturing industry,” says Harris, in conversation with BNN Bloomberg. “Steve Jobs was a great, brilliant man but he needed Tim Cook to run the manufacturing for them and put in a supply chain and all those things. Tesla needs to have something like that to execute better.”
“[Elon Musk] has constantly overpromised and underdelivered. At some point in time, that becomes very difficult for the market to comprehend,” says Harris. “They make beautiful cars, I’m not disagreeing with any of those things. I think that execution has been a very difficult thing for them.”
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Tesla’s Q2 report on August 1 featured the largest quarterly loss in the company’s history at $717.5 million. The company nevertheless beat the consensus on revenue, hitting $4.0 billion versus the expected $3.79 billion, while its earnings per share missed at a loss of $3.06 versus the expected $2.90 per share. Management guidance stated that in July the car company reach a production target of 5,000 Model 3 vehicles per week and that by the end of August they’d be hitting 6,000 per week.
“Arguably, they’re well ahead of a lot of people on making a great car,” says Harris. “They just haven’t been able to deliver. [Musk] is burning so much cash and I don’t think he can go to the debt market as easily as he could a while ago. And the equity market are going to get tired of him constantly coming there. So I think you really have to think about the business and how you grow your business and I think that’s the trouble he’s having