are selling all the shares they can, as fast as they can. If they thought the company and its stock had bright prospects, it’s hard to imagine they’d be leaving the board and dumping shares. A final clue that this is bad news is how Tesla disclosed it... via an SEC filing, not a press release, and after the close on Good Friday – the perfect time for an announcement you hope no one will notice. TERRIBLE FIRST-QUARTER EARNINGS The company reported a $702 million loss in the first quarter of 2019 – double consensus expectations – and guided for another loss in the second quarter. It was so bad that Wedbush analyst Daniel Ives, who was once bullish on the stock, wrote... To this point, in our 20 years of covering tech stocks on the Street we view this quarter as one of top debacles we have ever seen, while Musk & Co., in an episode out of the Twilight Zone, act as if demand and profitability will magically return to the Tesla story. Ives said he was “throwing in the white towel” and downgraded the stock. The cash flow statement was equally bad, as the company had negative $640 million in cash flow from operations. It spent an additional $280 million in capital expenditures, for a total cash burn of $920 million. That’s a huge reversal from the previous
hit some trees. The driver survived but was burned to death when the battery caught fire and emergency responders couldn’t open the doors because Tesla’s famous recessed handles failed to deploy after the accident. It’s hard to know if anecdotes like these are indicative of bigger problems or whether they will affect Tesla’s brand and reputation – but they sure don’t help. I’ve never seen executive departures like this... More than 88 executives at Tesla have left the company since January 2018. And overall, the departures are heavily skewed in the legal and accounting areas of the company – exactly what one would expect to see if fraud is occurring. Even if it’s not, it’s hard to imagine that Tesla is well-positioned to navigate its current troubles (financial or otherwise) with an inexperienced, 34-year-old CFO. Last Friday, Tesla disclosed that four members of its board of directors would depart, which will shrink the board from 11 to seven members. While bulls note that they will serve until the end of their terms and argue that a smaller board will improve governance, my gut tells me they’re fleeing what they believe to be a sinking ship... Unexpected, en masse board resignations are one of the most classic and time-tested warning flags that experienced investors look out for. Worse yet, these board members MASSIVE HIGH-LEVEL TURNOVER
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May 2019
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