Tesla [TSLA] Retail Investors Have An Advantage — Here’s Why (Part 3)


As Tesla stock has rocketed off the past few years, a lot of people have been trying to figure out why so many analysts got the stock picture with Tesla so wrong … and so have I! I’m digging into some of my past experiences to see how Tesla did things differently from everyone else, and why that gives retail investors an advantage.

In part one, I discussed how closely Tesla follows its mission, whereas analysts are used to companies that use mostly meaningless mission statements.

In part two, I discussed how Tesla’s corporate culture isn’t what analysts are used to in legacy auto, and why that made them predisposed to believe that Tesla couldn’t compete.

I sort of made a part 2.5, explaining how important efficiency is*.

Tesla’s Approach to Financial Media

Ever since Tesla was founded, Elon Musk has treated regular people as an important piece of the Tesla puzzle. He has published some of the largest ideas about Tesla so that everyone could see. In 2006, Musk published the Tesla Motors Master Plan, detailing what the hope was to grow Tesla from a niche specialty automaker into a mass production automaker. He followed this up in 2016 with Tesla Master Plan, Part Deux, again clearly sharing what the plan was to move Tesla forward as a company.

This is not how things have traditionally worked, and it’s skewed everything.

I’m going to go back to the company that I described working for in part 2, but this time from the standpoint of how we deal with the media, and financial media in particular. If you haven’t read that article or don’t remember, the important background you’ll need to know from it is simply that the company was losing money and had been for a while, so I was brought in to find efficiencies to help the company start to turn a profit.

But there was one other really important piece of the pie — during the turnaround, we had to continue to present the company in a positive light in the financial media. The concern was a drop in stock price could lead to further erosion in our ability to get new loans, which could start a destructive cycle very quickly ending in our bankruptcy.

The company that I worked for had regular press releases, but they never once mentioned the team that I was on or the work we were doing to increase productivity and therefore revenue. Instead, the press releases always focused on flashy additions to the company which would be promoted heavily to the media, even though these additions did not by themselves change the long-term vision or financial stability of the company at all — in fact, some of them did the opposite.

Being a numbers-driven person, I couldn’t understand why we were touting changes and additions that were ultimately immaterial to the business itself, while the improvements that we were making to the core product were completely overlooked. Note that it wasn’t just me responsible for the savings. I worked with others at our location to analyze each piece of the business, make recommendations, and track how those changes worked, so it was a whole team effort. The location I worked at alone was able to trace more than a million dollars of savings to my program in the first year. If the company could continue to find savings like this and my program was rolled out to all locations (we started it at about 1/3rd of our locations to see how it would work), the company would have become profitable for the first time in almost 10 years since the ill-fated merger that put them in such a hole.

There was a group of consultants who I would … consult with every so often who were responsible for starting the program, and I expressed my bewilderment about our stock strategy to the one who I worked with the most. Wouldn’t it make more sense to explain the way we were handling our core product to increase efficiency, revenue, and customer satisfaction? Or maybe we could explain that too?

His response? Wall Street analysts wouldn’t understand what we were doing, so it was important to get new flashy things they could point at as the drivers of the business, because those events would get people to overlook issues for the short term and keep the stock price at a level to help us remain solvent.

The role that I was playing was limited to a sentence or two in the quarterly earnings calls where the heads of the company would basically just say that between the new additions as well as efficiencies we found in old operations, the company got closer to profitable for the year.

We were trying to convince shareholders and analysts that the new stuff was turning around the company.

How to drive that home even more? Make our media days super exciting! We’d pay a ton of money to host celebrities, do large stage shows and sometimes even have pyrotechnic displays, put out huge spreads of fancy food and open bars, and then when it was time to leave, give people swag bags with hundreds of dollars worth of cool stuff in them.

And it worked! Analysts loved those days. I was on hand for a number of these days — only to ferry people from place to place, and told to never answer questions. And the questions. … These people would never ask questions like, “What sort of impact do you think this addition will have on the financial stability of the company?” Instead, they asked questions like “Why did you want to come out today?” to whatever celebrities we had on hand.

And man, you get a lot of positive press for good swag bags.

There was another secret here. We’d send enough information about what we were going to reveal to the press and analysts we invited to allow them to write their articles in advance, usually with n embargo regarding when their article could come out that coincided with the press day. It was expected they would write about how great whatever we were doing was, and if they didn’t, it was understood that we wouldn’t need to invite them back for the next one. No hanging out with celebrities. No open bar. No hundreds of dollars of stuff in a swag bag.

I can’t say with any certainty exactly how common these sorts of press events are for other companies, but from what I’ve seen covering other automakers over the past few years … that method is alive and well! Let’s be honest, Idris Elba is a really talented person, but I don’t expect that he’s going to break down efficiency advancements that Ford may have made to squeeze a few more miles of efficiency out of the Mustang Mach-E. Margot Robbie has become a Hollywood force, but I don’t think that she is who I’d want to ask to tell me why Nissan put off any form of battery management system for so long.

If you’ve got some time, it might be worth reading my analysis of the Ford Mustang Mach-E reveal. Some of my notes were that you could see Idris Elba “interviewing” Bill Ford, both reading off a script, there were a lot of hype videos, and even the Detroit Youth Choir. It was an impressive event, but the word I used in that review that was my takeaway was “showy,” and I still remember that. It didn’t hit me until later that I had seen this game before. The Leaf reveal, which I watched but didn’t write on, was similar. And while I haven’t attended any of these events in person, I have heard from some others about the sweet swag they got. [Editor’s note: I’m not aware of any notable swag from these events, some of which we’ve had journalists cover, but they are certainly flashy and showy and sometimes fun. The biggest appeal for us has been the opportunities to interview company presidents and other execs as well as to see the brand new vehicles in person. —Zach]

Image courtesy of Tesla

In contrast, we’ve got Tesla for Battery Day, that sets up a plain stage with a projector and proceeds to have the actual people working on the team up on stage and answering questions from the audience and from people online, something that all these other events have missed. After it was over, I heard some reporters complaining that if Tesla didn’t like the coverage, it should give the press the information beforehand so they can just hit “go” on their reports.

Tesla Autonomy Day was a similar event. We had extremely technical deep dives into the autonomous hardware and software that Tesla has been working on, led by the people who are leading the teams and doing the work.

Before I go on, it isn’t that Tesla doesn’t do showy too. The Cybertruck unveil didn’t feature any celebrities but did feature fire, a holographic Cybergirl, cool movie cars, and Franz von Holzhausen breaking the windows with a steel ball. The event was still uniquely Tesla, but it was closer to what a “standard” product reveal might be — just with far more “retail investor” involvement.

But the existence of Battery Day and Autonomy Day at all are what’s notable here. Tesla isn’t just there to unveil the next big thing in a superficial way. Tesla wants to unveil how it is solving the biggest issues facing the company, and are inviting everyone to question them in real time about those advancements.

Image courtesy of Tesla

In both cases, analysts seemed to be a bit baffled by these events. To understand what Tesla is unveiling, you need to have a whole variety of backgrounds that a single analyst would rarely have. Those analysts are expected to quickly share their thoughts, so to be fair to them, their hot takes are expected immediately after the event, when no one has had time to truly digest everything that Tesla has just put out. I’ve seen analysts complain that Tesla doesn’t give them the information early, making it impossible to write good articles. And there is probably some truth to this — once an article has been written, they need to move on to the next thing they’re expected to cover, so we tend to get hot takes instead of in-depth analysis.

At least, not from traditional financial analysts. Retail investors generally don’t move on instantly, instead breaking down the announcements in different ways. The most important metric to me, for instance, is estimating an approximate battery efficiency metric. I spent a lot of time breaking down the approximate battery size and cost for the Mustang Mach-E, Nissan Ariya, and Tesla Cybertruck. The results? I determined that Tesla vehicle efficiency was leaps and bounds ahead of its competitors’ vehicle efficiencies. In fact, my Cybertruck battery deep dives is what convinced me to scrape together all my spare money and buy as many more shares of Tesla as I could — I felt I had found a significant advantage that traditional financial media had overlooked.

And … let’s just say that decision has turned out alright for me. I wish I had more spare money at the time!

The point, though, is that by not giving everyone information at roughly the same time, and by not trying to cover up the fascinating details by coating them with celebrities and performances, Tesla is giving us the steak with the sizzle. Retail investors are allowed to dig into the same numbers that everyone gets. We get the majority of the information at the same time. And I really feel that we get all of the information.

Conclusion

This — as well as the two earlier articles I wrote — are three huge ways that Tesla has put retail investors on the same footing as institutional investors, and I think it’s paid off hugely for the company. As I noted in my GameStonk article, by being as transparent as Tesla has been, the company opened the door for us to not trust these financial analysts who may or may not have our best interests in mind. In return, as many financial analysts and hedge funds decided that the world didn’t need a new automotive company, and shorting them and publicly disparaging them would be better than actually trying to understand what was going on, it allowed retail to really step in and rebut many of the arguments these analysts and hedge funds were making, using Tesla’s actual numbers.

I mean, heck, let’s look at Adam Jonas back in September 2020. He’s one of the financial analysts that shows up regularly in my articles because I’m constantly baffled by why so much attention is given to him. For context, he’s the one who in May of 2019 gave Tesla stock a one-year target between $2 and $78.20 — and yet his best case was still less than 50% of the actual price one year later. He admitted in September of 2020:

“We’re kind of gasping for breath as, frankly, the retail investors got this right.”

I agree with him here. But before I’m going to agree with him on something like his recent opinion that GM’s EV turnaround is a success story, I’d be really interested in what sort of swag bags they gave Jonas and other financial advisors, and how cool the stuff in them was. I’d also really like to know what they’ve told Jonas and others is coming in the future, and what sorts of awesome events they’ll miss out on if they write negatively about the company.

And to be clear, maybe they didn’t get anything! Maybe the auto industry isn’t at all like the company I used to work for. Maybe that was unique to that industry.

But man, the parallels feel spooky … and if it’s true, it’s given us another huge advantage over these institutions. We can look through the data. We can even ask questions on the earnings call! (Serious question: do any other automotive companies do anything like this?)

Even if no other company is trying to entice people with celebrities like Idris Elba or Margot Robbie, or swag bags, or whatever, just by getting the information at the same time as everyone else puts us on a much more level playing field, and one where we can stay up until 2:00am trying to determine how big the Cybertruck’s battery will be and why that could matter … stuff that traditional financial media can’t be bothered with.

Tesla might be the first large company to get driven more by retail research than financial media sentiment, but it’s certain to not be the last. It’ll be fascinating to see how other companies attempt to pivot to take advantage of this new dynamic.

Otherwise, GM, if anyone out there wants to send me a celebrity to chat with or some swag bags, I’ll gladly accept them.

I just won’t write about your company afterward. Feels too dirty.

Anyway, did I miss something? Tell me in the comments and maybe I’ll be back with a part 4!


*Disclaimer: I am a Tesla [NASDAQ:TSLA] shareholder who has purchased shares within the preceding 12 months. Research I do for articles, including this article, may compel me to increase or decrease stock positions. However, I will not do so within 48 hours after any article is published in which I discuss matters that I feel may materially affect stock price. I do not believe that my voice could or should influence stock price by itself, and I strongly caution anyone against using my work as your sole data point to choose to invest or divest in any company. My articles are my opinion, which was formulated using research based on publicly available data. However, my research or conclusions may be incorrect.


*As a quick aside here, one of the people whose comments inspired me to try to better explain this wrote defending his comments, and to address those super briefly — I wasn’t angry nor was I trying to single out you or anyone with this article, sorry you felt that way! Your comments were emblematic of many others I’ve heard, including many when I was doing that particular job, which argued that what we were doing didn’t add up, and it was unfair for us to cut jobs when they might only result in a tiny percentage of savings … so I clearly didn’t explain that well enough, and thus the article. Oh, and I don’t generally reply in comments because I don’t trust Disqus to keep my identity safe, and I am serious about that. Although, I do read them!

Anyway, I love the feedback, so keep it coming. I started writing for CleanTechnica in large part because I was trying to explore my feelings about investing in Tesla, and I wanted to put my research out for others to look at and tell me what was wrong about it. Anyway, let’s get to part 3, finally!

 
 

 


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