Tesla makes a very good car and has certainly created high interest in electric vehicles. On the other hand, it’s amazing how regularly the Tesla leader will over-promise and then under-deliver, getting the company into trouble with Wall Street investors. Recently he did it again. Let’s take a look at the details and see what leadership lessons might emerge.
By most measures, the recently released 2017Q2 vehicle delivery data for Tesla were a disaster. Specifically, here were the problems:
1.) Weak Demand – All the hype by the CEO would suggest that company can’t keep up with the demand for its cars. But, the fact is the company can’t sell all the cars it is building and inventory is building up. Specifically, in Q2 the company built over 25,000 cars and claims to have delivered about 22,000 cars. The cumulative number of cars produced but not sold has now crossed a staggering 16,000. That is more than 2 months of inventory for a company that built its reputation on being a “build to order” company. While the CEO claims that some of this excess production was to increase its “loaner fleet” which provides Tesla cars to people getting their own Tesla serviced, that has to be very minor compared to its huge inventory build-up.
2.) Bloated Sales Data – When the Wall Street analysts got into the details of the 22,000 cars that Tesla claimed it delivered in Q2, it became clear that the number was bogus. Deviating from prior quarters, the company had not released the number of vehicles “in transit”. This is the first time the company has deviated from its practice of disclosing “in transit” deliveries. Under pressure, a week later Tesla released its “in-transit” numbers, showing actual Q2 deliveries were a weak 20,350. As one analyst put it, “given the company’s arguably ongoing history of misleading investors, not announcing vehicles in-transit likely means that Tesla was trying to misguide us once again.”
Stepping back, the Tesla bubble seems to be bursting. Since the announcement of the Q2 delivery data recently, stock price has dropped from $380/share down to $320 range. The company’s miss on sales deliveries took an already sour Goldman Sachs assessment of the company and turned that firm into an even bigger critic of the company as it lowered its Tesla price target from $190/share to $180. Coming from an investment bank that helped the company compile its last couple of equity financings, this should be both noticeable and alarming to current Tesla investors. As mentioned by one analyst, “we submit that the exponential growth narrative of the company has been long dead as is being obfuscated by management’s slippery narrative.”
So what does a leader learn from all of this? That’s obvious: Don’t over-promise and don’t under-deliver! The world loves individuals, and companies, that consistently make objective estimates, and then meets or over-delivers on those promises. Regularly under-delivering creates credibility problems and a lack of trust.