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Warren Buffett and Jeff Bezos earned the right to earnings-day silence. Elon Musk hasn't

  • Elon Musk's bizarre earnings call and attack on Wall Street analysts as "dry," "boring" and "bonehead" highlights the tension between short-term and long-term investing attitudes.
  • The largest asset manager in the world, BlackRock, has led a recent charge to shift the investor mindset away from the quarterly Wall Street give-and-take between CEOs and analysts.
  • Warren Buffett and Jeff Bezos don't do calls. Rex Tillerson didn't, either. But they earned that right.

Tesla founder and CEO Elon Musk has been given a really long leash by investors, but even some of them feel the relentless leader went too far when he dismissed Wall Street analysts' questions on Wednesday's earnings call and attacked one analyst's question as "boring" and "bonehead."

The surprise tantrum does highlight a growing tension in the investing universe: the short-term earnings-oriented focus, which includes the quarterly earnings' give-and-take between corporate management and analysts and a push by many money managers, such as BlackRock, the largest in the world, to migrate investors away from the short-term and to a longer-term view of investing.

In 2016 BlackRock CEO Larry Fink issued a letter to companies in the S&P 500 and major European companies that proposed eliminating the practice of offering quarterly guidance. Fink wrote that chief executives and boards should provide a strategic framework for long-term value creation.

Some CEOs already have earned the right to ignore the quarterly earnings game. Warren Buffett doesn't do quarterly calls and doesn't offer quarterly guidance. Jeff Bezos hasn't been on an earnings call in years. When he ran ExxonMobil, Rex Tillerson wasn't to be found on an earnings call; the highest you got from the oil giant was the head of investor relations. The new ExxonMobil CEO, Darren Woods, doesn't join quarterly calls, either. And sometimes the CEO weight falls somewhere in between silence and acquiescence.

But these companies, and leaders, earned the right to earnings-day silence, or their business models simply did not require any quarterly update for investors to be comfortable with the overall direction. Sometimes the line is too close to call. For years Netflix CEO Reed Hastings refused to allow analysts to ask questions on the call posed in real time; they had to send in questions in advance and Netflix chose the ones it wanted to answer. And this during years when it was spending heavily while losing money. More recently, Netflix has moved to the still "unusual" practice of having one Wall Street analyst lead a Q&A with its management.

"Most CEOs and many investors hate quarterly calls," said Jon Lukomnik, executive director of investor nonprofit group Investor Responsibility Research Center's IRRC Institute.

But if Apple's Tim Cook, CEO of the most valuable company in the world, can still make the time to dutifully answer analyst questions once a quarter, Musk can too.

Musk has already been given enough

Elon Musk and Tesla aren't anywhere close to earning that earnings-day right. Musk's frustration, and his broader point that investors should be focused on the long term rather than volatility — and that day traders aren't his audience — is fine to make. He's just not the one who has earned the right to make it. He is sitting on top of a balance sheet that demands he take questions about cash flow, gross margin and spending seriously. Anything less will, and should, be considered defensiveness. And that's not a good thing for a leader to lead with.

Institutional investors who have been with Tesla for years have given Musk room to run — some corporate governance experts say too much. They backed his purchase of SolarCity when corporate governance experts slammed it as a dubious transaction. And they backed his huge stock-based compensation plan when influential proxy-voting firms advised against doing that.

But the give-and-take between analysts and corporate management is the least that can be done when a firm has lost money for six consecutive quarters, has continued to fall short of milestones and also insists it does not need to raise more capital.

Even investor watchdog and research groups that are no fans of short-term trading don't support Musk on this one.

"Musk's temper tantrum certainly was surprising, and my personal view is that given Tesla is at such a turning point, with legitimate cash-flow fears and widely divergent views in the market on company prospects, it is important for Musk to speak with analysts and investors," said Ken Bertsch, executive director, Council of Institutional Investors.

Bertsch added, "That said, some investors in addition to BlackRock do think that quarterly earnings calls can be overdone and waste time and foster short-term focus."

Including Warren Buffett and, for that matter, Bezos.

"Their business plans in general long ago gained substantial credibility in the market, and it is not clear that Tillerson participating in ExxonMobil's calls would have added much."

Buffett does take a full day of questions from investors at the annual Berkshire Hathaway meeting, which is this weekend. And in a few recent years, Buffett also invited analysts for a Q&A, a concession made after its lower-cost B shares were issued in large numbers to help fund the acquisition of Burlington Northern, and Berkshire was added to the S&P 500, making the stock much more widely held. But you won't ever see quarterly guidance from Omaha.

Bertsch noted that Bezos did receive some criticism on his approach to communication years ago, before Amazon's success had been fully established, and "was more in the kind of moment that Tesla finds itself in now."

Nell Minow, a Tesla shareholder and well-known investor watchdog, said she is not a huge fan of the quarterly calls. She said they "play into and perpetuate overfocus on both short-term numbers and the relevance of Wall Street analysts who try to justify their value by trying to inflate the importance of the announcements made on the calls." Minow, who is vice chair at ValueEdge Advisors, which works with institutional investors to engage with corporate management, added, "You won't find Warren Buffett or indeed most value investors spending time on the calls."

Minow said the calls can serve a purpose — usually when a short-seller asks a tough question or when the CEO departs from the talking points. "But more than 95 percent of the time it's so orchestrated that it adds no value."

This was not one of those times, but for all the wrong reasons. The value added was to take billions in value away from Tesla shares based on Musk's testiness.

Elon Musk had a testy call with analysts after May 2, 2018 earnings, attacking the short-term focus of Wall Street. But he loves to talk long-term, about things like space travel, as he did in Australia late last year. The analyst whose question Musk called 'boring and bonehead' said on Thursday, 'This is a financial analyst call, this is not a TED talk'.'
Mark Braker | Getty Images
Elon Musk had a testy call with analysts after May 2, 2018 earnings, attacking the short-term focus of Wall Street. But he loves to talk long-term, about things like space travel, as he did in Australia late last year. The analyst whose question Musk called 'boring and bonehead' said on Thursday, 'This is a financial analyst call, this is not a TED talk'.'

There's one thing Musk could do to rectify the situation, and it would fit with his very un-corporate CEO-like radical transparency. Few established corporate CEOs would ever talk about their incredible mental highs and lows as he has openly done or, just a day before earnings, tweet about comets being full of coke.

Now Musk could use his radical transparency to apologize. He could say he screwed up — he's done that before, and not too long ago, when he said the decision to automate the Tesla factory went to an extreme and has set the company back.

The man is clearly under a lot of stress — you don't have to ask him that; he's talked about it on multiple occasions — from his "production hell" to sleeping on a couch at the Fremont, California Tesla plant while trying to ramp up production of the Model 3. He could say that and ask investors to move on from it and give him another chance next quarter. It is understandably frustrating when you have a long-term view and long-term goal to be battered about over quarterly gross margins. But for a stock that has significant cash issues and has risen to a market cap that is 17 times higher than its IPO price — while never being able to sustain profits quarter to quarter — it's not time yet for Musk to join Buffett and Bezos in taking the afternoon off on earnings day.

Even bullish Wall Street analysts said the call was a serious red flag. There wasn't really an analyst that had anything to say in defense of Musk, though others in the market did come to his defense, including CNBC's Jim Cramer.

Some have compared it to the infamous Enron call when Jeff Skilling called an analyst an "[expletive deleted]," but there's a big difference. In the Enron case the analyst was noting that Enron was the only company he knew that refused to provide a balance sheet or earnings statement before the call. Tesla's numbers are all out — Tesla's numbers are why so many in the market are concerned, or even betting heavily against it.

"An IPO is just a milestone in the journey; it's not the end at all. It just makes life difficult. You've got to start delivering every quarter, which is quite painful." -Deepak Ahuja, Tesla CFO, in 2017

Asking for Musk to revisit the call is probably asking for too much. He did, though, offer a "you're welcome" on Twitter, on Thursday, to the Tesla investor and Youtube channel owner whom Tesla allowed to ask several questions via the internet when Musk got bored during the call.

Musk responds

On Friday morning, Musk did take to Twitter, but not with anything resembling an apology. He explained that the analysts he attacked on the call don't represent investors but short sellers and the "short thesis" was behind their questions.

Lukomnik at investor watchdog IRRC expressed some sympathy for Musk's frustration with questions about issues like quarterly gross margin. He said more CEOs should work to change the narrative and focus on the "strategic pan," and "investors could help by asking those types of questions, but right now the general dynamic is a short-term 'did you meet your quarter, what is guidance?'"

But Musk, having over-promised and under-delivered on key milestones while burning cash, isn't the best CEO to play that "strategic pan" role right now.

The truth is, even though Tesla's 2010 IPO was considered a success, there's a part of Tesla management that still regrets having to go public. Comments given over the years by Tesla CFO Deepak Ahuja illustrate how the company feels about the quarterly dance. Speaking last year to an audience in India, he said, "An IPO is just a milestone in the journey; it's not the end at all. It just makes life difficult. You've got to start delivering every quarter, which is quite painful compared to having slightly longer term strategy and vision and the right investors who go along with that ride."

Ahuja also explained why the company went public. "It was the best way to get capital at the lowest cost possible."

Ahuja explained that unlike most Silicon Valley start-ups, being an automotive company means having an asset-intensive, brick-and-mortar business model that venture capitalists aren't likely to back. "We knew we needed billions of dollars, and no VC in the Valley was going to give us even $100 million, because they're just not used to funding brick-and-mortar companies like Tesla."

Morgan Stanley's research team issued its own statement of annoyance: "While they may be 'dry' in nature, we argue such questions are extremely important for a highly levered and cash hungry company with 2025 bonds trading at 89. ... Feedback we have received from investors during and following the call support this view. ... an important part of Tesla's success has been its relationship with the capital markets in funding its ambitious plans. The analysts on the call represent the providers of capital that Tesla has throughout its history depended upon."

The shorts — which recently ratcheted up short interest in Tesla to 30 percent of its publicly available shares — are smelling blood.

Some of the things Musk said are good reminders about long-term investing for individuals:

  • "The problem is that people get too focused on what is happening in the space of a few weeks, or a few months. It is an old maxim of investing: You should not be focused on short-term things, you should be focused on long-term things."
  • "We have no interest in satisfying the desires of day traders, we could care less — please sell our stock, don't buy it."
  • "If people are concerned about volatility, they should definitely not buy our stock. ... Do not buy it if volatility is scary."

All true, but better said by a Warren Buffett or Jack Bogle when preaching the benefits of investing in broad index funds, not a single, highly levered stock that recently saw its bonds downgraded by Moody's and its credit situation switched from "stable" to "negative."

Tesla is not even the Tesla version of an index fund.

There remain many things about Tesla that the Larry Finks of the world like. Fink didn't stop writing letters after his 2016 missive on long-term investing. Last year Fink wrote a letter calling on all investors to support corporations that promote social change.

"Increasingly, ownership lies with index funds and others who express their opinions through engagement, proxy voting and other stewardship tools, rather than buying and selling," IRRC's Lukomnik said. "But the ethos of the calls hasn't changed to meet the needs of these universal owners, who may, in fact, have a longer-term perspective. For example, ESG/sustainability issues rarely get mentioned. Yet you see the Blackrocks and State Streets of the world saying they care about those issues as active owners."

Musk and Ahuja are trying to accomplish a lot more than your average index fund or ETF, or Silicon Valley start-up. "There has been no successful American car company in 100 years, and then to make it an electric car company in California that is vertically integrated in its manufacturing, and wants to challenge the dealership network, and do its own sales and service; that's an incredibly hard thing to take on."

But once you take the money, to expect to be able to run is, even for Musk, asking for too much credit.

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