Elon Musk Plays a Dangerous Game With His Analyst Roast

(Bloomberg) -- Most quarterly earnings calls are a waste of time. Analysts congratulate management on a “great quarter” and then ask about a seemingly trifling matter. Big picture questions, or ones that really get to the heart of the matter, are as rare as thoughtful, unscripted answers from management. Providing they have all the data to update their financial models, analysts go away content, if often unenlightened.

Rinse and repeat three months later, ad nauseam. Tesla Inc.'s earnings call on Wednesday was a long way from pedestrian — read my Bloomberg Opinion colleague Liam Denning for more on what happened. But, in a nutshell, Elon Musk chided analysts for asking “boring” questions about the carmaker's capital needs.

Musk's performance bordered at times on arrogance and didn't sit well with investors, who have perfectly rational concerns about the company's cash burn. So while it's easy to get exasperated by the obsession with the humdrum at these meetings, analysts' financial nit-picking is kind of crucial — especially with visionaries like Musk.

Nobody got thrown off the call (unlike an unfortunate Macquarie analyst in 2016); nor did a microphone pick up what the analysts really think about the CEO (a fate that befell Snap Inc.'s Evan Spiegel last year). And at least Musk didn't resort to reminding analysts that he's much richer than them (yes Jamie Dimon, I'm talking about you).

But whichever way you cut it, Tesla's earnings call was a car crash. I don't envy Musk for having to spoon-feed analysts four times a year, but then I wasn't recently awarded a $2.6 billion pay package. Indeed, Musk's biggest error was probably talking too much. If he really can't stand talking about Tesla's finances, he should leave it to finance director Deepak Ahuja. Instead, when Ahuja spoke up, Musk interrupted. Google hired Morgan Stanley's Ruth Porat in part because she knows how to talk Wall Street, something CEO Larry Page didn't always do very well.

It's a pity analysts weren't brave enough to respond to Musk's attacks and defend the part that they play. Most are self-aware enough to realize that they're not billionaire entrepreneurs who want to revolutionize transportation and fly to Mars. 

But, as Fiat Chrysler chief executive Sergio Marchionne reminded analysts in 2015 in perhaps the most interesting earnings call I've listened to, the sell-side has a purpose that goes beyond chucking numbers into a spreadsheet to forecast where the stock will be by year-end:

“Your obligation at the end of the day is to direct the flow of capital,” Marchionne said. “It is not to provide fireside chats about stocks, it's not about writing fairytales about things that could or cannot happen. It's to direct the flow of capital. That's what you do for a living. I make cars, you direct the flow of capital.”

If Marchionne's right, then Musk has a problem. Tesla's boss can be as sniffy as he likes about the capital markets' short-term mentality, providing he doesn't intend to tap them for more money again. But it's quite likely he will.  Earnings calls don't matter until times get tough, as executives at United Continental Holdings Inc. discovered in a disastrous quarterly update last year. Then, suddenly, words matter a lot. Musk should weigh his more carefully.

To contact the author of this story: Chris Bryant at cbryant32@bloomberg.net.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net.

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