May 3, 2018 / 1:04 PM / 3 months ago

Tesla shares, bonds drop as CEO Musk bites hand of Wall Street

(Reuters) - Tesla Inc (TSLA.O) chief Elon Musk’s refusal to answer “boring” Wall Street questions about finances sent the electric vehicle maker’s shares down as much as 7 percent on Thursday, jarring investors and raising concerns about its ability to raise money in the future.

FILE PHOTO: SpaceX founder Elon Musk pauses at a press conference following the first launch of a SpaceX Falcon Heavy rocket at the Kennedy Space Center in Cape Canaveral, Florida, U.S., February 6, 2018. REUTERS/Joe Skipper

Tesla’s bonds followed the shares lower and, with at least three brokerages cutting price targets for the stock, several wondered what it would now cost the company to raise more funds this year if need be.

In a conference call on Wednesday, Musk refused to answer questions from analysts on Tesla’s capital requirements, saying “boring questions are not cool.”

Instead, he took over a dozen consecutive questions from YouTube investment channel HyperChange TV, which had previously recommended buying Tesla shares.

Cowen analyst Jeffrey Osborne dubbed the call, in which Musk talked of “barnacles, flufferbots, and bonehead bears”, surreal.

Morgan Stanley’s Adam Jonas said it was the most unusual he had heard in 20 years in the business, noting that “the analysts on the call represent the providers of capital that Tesla has throughout its history depended upon.”

Some saw the call in even more stark terms.

Eric Schiffer, head of the Patriarch Organization, a Los Angeles-based private equity firm, called it “the single greatest CEO meltdown in American car history.”

“Elon Musk’s war on day traders and analysts from big banks is like him being on the earnings call with a suicide vest on and pulling the cord. It’s horribly incompetent with investors and results in the stock getting hit by roaring missiles,” Schiffer said, adding that he did not own Tesla shares “for reasons like this.”

Of 27 brokerages covering the stock, nine now have a “buy” or higher rating, 10 “hold” and eight have “sell” or lower.

The company’s shares closed down 5.5 percent at $284.45 in New York. They have lost more than a quarter of their value since touching a high of $389.61 in September, hurt by reports of bottlenecks around production of the Model 3 sedan, seen as crucial to Tesla’s profitability.

Musk has won legions of vocal fans for his soaring vision and bold promises, from making electric vehicles mainstream to sending rockets into space as the CEO of SpaceX.

But the entrepreneur has also exhibited erratic behavior in recent months, from late-night tweets and jokes about bankruptcy to a public spat with regulators investigating a fatality involving a Tesla.

Some investors said Musk’s behavior was part of his appeal.

“We like Elon Musk and because he gets frustrated it only makes him human,” said Gerald Sparrow of Sparrow Capital. “We focus on the numbers they produce, not the emotions.”

On Wednesday, Tesla forecast lower capital spending for the year and a profit in the second half.

Musk as also bullish on upcoming projects, promising decisions soon on the construction of a new Model Y factory, and the location of a Chinese Gigafactory. He also pledged to reduce third-party contractors, saying their use had “really gotten out of control.”

“So we’re going to scrub the barnacles on that front. You’ve got barnacles on barnacles. So there’s going to be a lot of barnacle removal.”

Tesla is closely held, with co-founder Musk owning 22 percent and its top four investors, including him, over 40 percent - giving Musk a certain freedom to brush off analyst concerns.

Tesla’s market capitalization of $51 billion exceeds that of Ford Motor Co (F.N), which posted revenues of $156.7 billion last year versus Tesla’s $11.8 billion.

MANUFACTURING ON THE FLY

Tesla has consistently fallen short of its promises on car production and has promised in the past it would not need to raise funds, before doing just that.

The company has raised capital each year since its initial public offering in 2010 and issued debt twice in 2017.

Tesla’s free cash flow widened to negative $1 billion in the first quarter from negative $277 million in the fourth quarter, excluding costs of systems for its solar business.

The company plans to reach its weekly goal of producing 5,000 Model 3 cars in two months, after revising the target several times.

“We believe that Tesla is essentially learning how to become a manufacturing company on the fly,” said RBC Capital Markets analyst Joseph Spak.

“Investor feedback to the call was shock that a CEO would be dismissive and the general sentiment was that the defensiveness spoke volumes.”

Additional reporting by Munsif Vengattil in Bengaluru and Alexandria Sage in San Francisco; editing by Anna Driver and Rosalba O'Brien

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