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Instant Reaction: Tesla Earnings Miss Despite A Sales Surge · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is a breaking
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  Speaker 1: news update from Bloomberg. Instant reaction and analysis from our
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  Speaker 1: three thousand journalists and analysts around the world. Tesla earnings.
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  Speaker 1: The company posted third quarter profit that fell short of
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  Speaker 1: Wall Street's expectations despite record EV sales. It's a sign
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  Speaker 1: of the pressure that automakers are facing from shifting federal
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  Speaker 1: policies and rising costs. I want to bring in Ed Ludlow.
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  Speaker 1: He's the cost of Bloomberg at Tech on Bloomberg Television.
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  Speaker 1: He joins us from our San Francisco bureau. Really interesting
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  Speaker 1: number when it comes to cash flow, free cash flow
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  Speaker 1: ED third quarter free cash flow three point nine to
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  Speaker 1: nine billion dollars. The estimate was for one point two
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  Speaker 1: five billion dollars. Why.
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  Speaker 2: How funny? I just posted the IB on the Bloomberg terminal. Hey, team,
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  Speaker 2: free cash flow so much higher? Why question mark answer
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  Speaker 2: from editors and other reporters energy storage question mark that's
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  Speaker 2: to say, don't know. I mean, I've read so much
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  Speaker 2: of the deck already.
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  Speaker 1: Well, I want to I want to help us out.
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  Speaker 1: Add because Thomas Thornton over at Hedge funt Ptelemetry sending
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  Speaker 1: an ib to me during the simulcast. He said, inventory
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  Speaker 1: cleared out with EV subsidies ending, that's why cash flow
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  Speaker 1: was strong. Was this about inventories?
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  Speaker 2: Remember that the number from the third quarter, which was
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  Speaker 2: josh Shi of five hundred thousand vehicles, was heavily influenced
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  Speaker 2: by the expiry of the federal tax credit on consumer evs.
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  Speaker 2: In part, Tesla did additional promotional activity around that. So
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  Speaker 2: you know elsewhere on the bottom line, you know, if
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  Speaker 2: it's EPs or other metrics, they've missed on part because
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  Speaker 2: of those factors, right, you know, the discounting and other
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  Speaker 2: promotion they did. Inventory will be a factor. We've been
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  Speaker 2: tracking a build up in inventory that Tesla had going
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  Speaker 2: into that period. But remember they also saw an inventory
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  Speaker 2: build up ahead of the cheaper model Y Model three
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  Speaker 2: standard coming out, with some consumers holding off because they
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  Speaker 2: knew that some kind of product was going to be
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  Speaker 2: unveiled in the month of October. But what I would
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  Speaker 2: say is that when we talk about the bottom line broadly,
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  Speaker 2: Tesla is listing a very long laundry list of impacts here,
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  Speaker 2: branking from tariffs, fiscal policy, R and D costs, the
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  Speaker 2: mix of vehicles they sell, but this isn't severe by
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  Speaker 2: any means, right, you know, this is the market selling
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  Speaker 2: news basically.
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  Speaker 3: Well, what's interesting is both you and our Dana Hall
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  Speaker 3: on our Live Tesla blog pointing that out. You know,
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  Speaker 3: it is difficult to measure the impacts of shifting global
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  Speaker 3: trade and fiscal policies and the automotive and energy supply chains,
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  Speaker 3: our cost structure, demand for durable goods and related services.
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  Speaker 3: As you say, they are reminding everyone that the business.
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  Speaker 3: I mean, there's a lot of factories, of factories, factors
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  Speaker 3: that are going to involve that are going to impact
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  Speaker 3: their business. I feel like they're managing and maybe with
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  Speaker 3: some negative tone going forward.
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  Speaker 2: Yeah. I mean one sort of specific example is that
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  Speaker 2: when you introduce a new product and you have to
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  Speaker 2: install the assembly line for that product, there are downtime
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  Speaker 2: and installation costs associated with that. It impacts how you
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  Speaker 2: produce other products. That shows up in financials. In this case,
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  Speaker 2: they haven't really given us a big picture outlook for
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  Speaker 2: their growth for this calendar year or next year or
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  Speaker 2: going forward. They have told us that they are doing
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  Speaker 2: things like ramping the standard models of the three and
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  Speaker 2: the why and now they've installed the assembly line for Optimus,
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  Speaker 2: the humanoid robots. So like I'm talking about in factories
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  Speaker 2: in Texas and I'm assuming elsewhere down the line, they're like, Okay,
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  Speaker 2: we've got to find space to build an assembly line
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  Speaker 2: here for a humanoid robot, and that will have an impact.
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  Speaker 2: But the way I've summarized it in the blog is
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  Speaker 2: there are two paragraphs in the deck that are explaining
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  Speaker 2: to us the macro environment is changing and fiscal policy
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  Speaker 2: is changing, and Tesla is trying to say, we're kind
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  Speaker 2: of in transition here, bear with us.
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  Speaker 1: What where are those I want to know what those like?
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  Speaker 1: What is the transition that's happening right now? This is
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  Speaker 1: a macro and this is the context too, ad is
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  Speaker 1: this is somebody who was very close to the president
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  Speaker 1: and was very close to you know, during the election,
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  Speaker 1: before the election, and then after the election for a
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  Speaker 1: good time as well. Well.
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  Speaker 2: The direct answer is that tariffs have had an impact.
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  Speaker 2: They've listed it in the negative column on profit, so
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  Speaker 2: that's across both the consumer ev business and the energy
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  Speaker 2: storage business, you know. As it relates to that free
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  Speaker 2: cash flow question, they do say in the free cash
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  Speaker 2: flow section of the deck that not only did they
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  Speaker 2: have record deliveries in that court of gone energy products
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  Speaker 2: were more higher volume, but policy is not really supporting
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  Speaker 2: that right now, at least not in the United States
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  Speaker 2: right So I think for them, it's just this idea
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  Speaker 2: that the world, the direction of travel we were moving
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  Speaker 2: towards for sustainable energy, you know, transition from gas engine
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  Speaker 2: or combustion engine TV. It's not there right now. And
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  Speaker 2: what they explain in those two paragraphs is they're trying
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  Speaker 2: to invest into it. A lot of R and D
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  Speaker 2: costs for these future products are robots and rotos?
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  Speaker 1: Is there an appetite for that?
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  Speaker 2: Is there?
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  Speaker 1: I mean, are they building a product that people want?
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  Speaker 1: I know that you Steve Jobs famously was talking about
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  Speaker 1: building products that people didn't know that they wanted, but
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  Speaker 1: then ended up wanting them when they saw them. But
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  Speaker 1: do we want do we want here? Do we need
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  Speaker 1: these humanoid robots? Is there a market for this? So?
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  Speaker 2: Elon Musk and Tesla are once again behind their prior forecast.
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  Speaker 2: If you guys remember, the original Optimus forecast was that
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  Speaker 2: by the end of this year there would be meaningful
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  Speaker 2: volumes of them working within Tesla facilities, and that doesn't
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  Speaker 2: appear to be the case. Yet the way that they
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  Speaker 2: are pitching it is a way that the rest of
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  Speaker 2: the humanoid roble industry pitches it at least, which is
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  Speaker 2: that we have a labor deficit in some industries, heavy industry, agriculture,
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  Speaker 2: and that economically, at a macro level, optimist is going
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  Speaker 2: to fill that void. So to answer your question, Tim,
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  Speaker 2: they would say that the demand is justified or evidenced
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  Speaker 2: by the lack of labor in certain workforces. Whether a
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  Speaker 2: consumer wants to go out and buy one for tens
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  Speaker 2: of thousands of dollars, that bit we just don't have
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  Speaker 2: the answer to yet.
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  Speaker 1: I want to bring in Ross Gerber. He's the president
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  Speaker 1: and CEO of Gerber Kawasaki Wealth and Investment and Management
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  Speaker 1: got more than three billion dollars in assets under management.
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  Speaker 1: He joins us from Santa Monica, California. Ross, you now
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  Speaker 1: have about eighty million dollars of Tesla shares, down from
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  Speaker 1: one hundred million earlier this year. At your peak, how
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  Speaker 1: much Tesla stock did you own?
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  Speaker 4: I think we had about one and a half times
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  Speaker 4: more than we have today, so that's not that much more.
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  Speaker 4: You know, We've got our position by sixty percent, so
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  Speaker 4: that's that's fairly large.
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  Speaker 1: Are you Are you buying or selling today or buying
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  Speaker 1: or selling right now?
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  Speaker 4: Neither neither. You know, you know Tesla as a hold
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  Speaker 4: for us. You know, the people who are holding the
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  Speaker 4: stock at our firm, our clients very much believe in
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  Speaker 4: Tesla and don't want to let go of their shares
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  Speaker 4: at all. And then you know, the clients that don't
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  Speaker 4: want to own Tesla don't own Tesla anymore. But we're
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  Speaker 4: not recommending to buy Tesla or per Se more likely
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  Speaker 4: recommending to sell Tesla for investors up at these prices
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  Speaker 4: because you're getting such a premium valuation. But in general,
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  Speaker 4: we've just been holding the stock because you know, we're
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  Speaker 4: kind of stuck with our position right now.
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  Speaker 1: What about you, we because we check in with you
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  Speaker 1: quarterly and you you've really changed your position on the
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  Speaker 1: company in recent years in recent quarters, and your position
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  Speaker 1: on Elon Musk too. Are you a believer in the
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  Speaker 1: company right now?
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  Speaker 2: Yes, and no.
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  Speaker 4: I still own Tesla stock as well personally, not a lot,
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  Speaker 4: but you know, I like to have some because I
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  Speaker 4: bought it at a dollar a share or a dollar fifty,
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  Speaker 4: so it's like fun to have in my portfolio still.
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  Speaker 4: But that said, you know, I don't know what's going
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  Speaker 4: to happen with full self driving. I just don't think
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  Speaker 4: it works, and I think vision only systems don't work.
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  Speaker 4: And I'm very sure of this now. Even though I'm
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  Speaker 4: not an engineer, I can explain to you how humans drive.
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  Speaker 4: And I don't think Elon gets how humans work. I
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  Speaker 4: think he gets how machines work. And so I think
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  Speaker 4: that Tesla's in a pickle. If they can solve full
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  Speaker 4: full self driving, like I could get in my car
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  Speaker 4: right now and push a button and it drives me home,
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  Speaker 4: Like I can get in a weaym right now and
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  Speaker 4: it'll drive me home no problem. Then I think Tesla
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  Speaker 4: has a reason to buy the stock because now they've
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  Speaker 4: got their products working and they can grow from there.
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  Speaker 4: But as far as waiting for robots and cabs to
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  Speaker 4: pay off, it doesn't matter if full self driving doesn't work.
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  Speaker 4: And full self driving doesn't work, so nothing's going to
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  Speaker 4: get me excited about Tesla until it drives me home.
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  Speaker 3: All right, good stuff, we're talking with Ross Gerber and alone.
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  Speaker 3: I know you're reading over stuff. Come on into the
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  Speaker 3: conversation with Roth.
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  Speaker 2: Yeah, I mean you know, just going through the deck.
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  Speaker 2: The way that Tesla explains it is that they had
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  Speaker 2: lower FSD revenue recognition in this quarter because of the
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  Speaker 2: timing of previous generation releases of FSD in the same
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  Speaker 2: period a year ago. You know, I'm not a Tesla shareholder,
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  Speaker 2: as you guys know, but I do drive a Model
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  Speaker 2: Y in fact, and I use FSD every day for
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  Speaker 2: about sixty miles thirty miles to work thirty miles back.
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  Speaker 2: I'm not on version fourteen yet. But Ross is speaking
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  Speaker 2: to the question, which is always there. Explain the jump
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  Speaker 2: or the steps to the end result, the end state.
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  Speaker 2: The end state is robotaxi, right if Tesla is to
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  Speaker 2: be believed, And right now, you know, the streets seems
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  Speaker 2: kind of split on whether we understand how we go
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  Speaker 2: from a software platform that consumers pay for as a
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  Speaker 2: one offer a subscription package to a world where the
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  Speaker 2: vehicles built on a common software platform or iterations of
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  Speaker 2: that platform power a rope proprietary ride hailing robotaxi service.
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  Speaker 2: You know, it's difficult to see the jump, and Ross
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  Speaker 2: can speak for himself, but just in the reporting, that's
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  Speaker 2: what we hear all the time.
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  Speaker 4: Yeah, I mean You're one hundred percent right in that
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  Speaker 4: these are completely different businesses, right, Like selling cars that
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  Speaker 4: drive themselves is an Apple business model, And that's why
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  Speaker 4: I always love Tesla. When I first found Tesla, I
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  Speaker 4: was like, this is the Apple of cars, right, Like
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  Speaker 4: you build hardware and with great software, and then you
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  Speaker 4: make money on services, right And that's really where Tesla's
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  Speaker 4: making a ton of money right now is on services
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  Speaker 4: and energy storage, which are still great businesses for Tesla.
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  Speaker 4: But when you talk about building an Uber like platform,
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  Speaker 4: this is an extremely difficult thing that it took Uber
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  Speaker 4: almost a decade or more to make money doing, and
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  Speaker 4: Uber is very very good at this now, and the
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  Speaker 4: only way they've been able to make money is by
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  Speaker 4: charging substantially more for the because Uber is not cheap
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  Speaker 4: anymore and they had to subsidize rides for a decade
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  Speaker 4: just to build that business. So when you actually think
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  Speaker 4: about Tesla scaling, if there was no competition, that'd be
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  Speaker 4: one thing. But there's already several cab services I can
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  Speaker 4: take right now, whether it be Uber, Lyft or waimup
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  Speaker 4: that are all very good at what they do. So
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  Speaker 4: you know, even if Tesla gets this to work, it's
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  Speaker 4: still a tough business. And the second thing I would
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  Speaker 4: just say, a you use full self driving a lot.
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  Speaker 4: Obviously you probably if I asked, do you feel comfortable
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  Speaker 4: turning it on and going into the backseat of your
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  Speaker 4: car and letting you drive that full thirty miles home.
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  Speaker 2: I've never done that or attempted it, and I think
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  Speaker 2: you know, I post quite a lot on X my experiences,
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  Speaker 2: like I say today, this is what happened. You know,
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  Speaker 2: I would never get in the back of the car
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  Speaker 2: and turn it on. I also would not put my
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  Speaker 2: little baby boy in it either. But the way that
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  Speaker 2: I've tried to track it is generation by generation. How
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  Speaker 2: has it improved on the route that I take every day?
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  Speaker 2: The one area is really struggled, as with the toll
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  Speaker 2: boobs on the Golden Gate Bridge. You know that can
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  Speaker 2: be precarious and you can see my posts on that
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  Speaker 2: on your point in the in the AI graph of
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  Speaker 2: the shareholder deck. The way that Tester explains it is
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  Speaker 2: that the latest version of FSD, they say, has a
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  Speaker 2: substantial amount of the source code in the Robotaxi version,
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  Speaker 2: and by putting it out into the real world, it
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  Speaker 2: gives them valuable real world data to help them improve
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  Speaker 2: a future robo taxi service. Don't I don't weigh in
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  Speaker 2: on that one way or the other. I'm just saying
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  Speaker 2: that's Tesla's explanation on the link between the two, the
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  Speaker 2: consumer facing FSD and the same code base that will
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  Speaker 2: be used to power a future robotaxi service.
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  Speaker 1: Hey, ed Ross made the point that he doesn't believe
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  Speaker 1: vision only FSD or vision only self driving works. Can
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  Speaker 1: you talk a little bit about that technology that Tesla
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  Speaker 1: uses versus the other companies, namely Weima and Amazon Amazon
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  Speaker 1: subsidiary as well.
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  Speaker 2: Yeah, so very simple. When we say vision based system,
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  Speaker 2: the inputs for the vehicle are only cameras on a Tesla.
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  Speaker 2: The cameras capture optical data from around the vehicle and
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  Speaker 2: use the underlying algorithm to make an onboard decision interpreting
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  Speaker 2: the world around them. The opposite academic view is that
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  Speaker 2: you need to paint a richer digital picture of the
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  Speaker 2: world using other forms of data gathered by lidar, radar,
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  Speaker 2: and in some cases even going beyond that. You know,
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  Speaker 2: like there are varying degrees of lydar spinning or stationary
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  Speaker 2: or static.
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  Speaker 1: Sorry.
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  Speaker 2: The economic argument that Tesla and Elon must have always
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  Speaker 2: made is that having a vehicle that has multiple sensors
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  Speaker 2: on it is not scalable. You know, there is no
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  Speaker 2: end result where the vehicle could be affordable for a
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  Speaker 2: consumer or fitotable for an operator of that system to run.
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  Speaker 2: The other robotaxi companies like Weymoa or Zeukes, who do
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  Speaker 2: have multiple sensors and custom versions of them, say that
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  Speaker 2: you have to have them for redundancy. So if one
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  Speaker 2: of those digital pictures fails, i e. The vision one,
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  Speaker 2: the cameras fail, or the ID or radar fails, you
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  Speaker 2: can still be safe because you have a rich enough
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  Speaker 2: digital picture of the world around you for the vehicle
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  Speaker 2: to make a decision based on the circumstances presented in
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  Speaker 2: front of it.
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  Speaker 3: All right, Lola, we know you've got some stuff to do.
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  Speaker 3: Offer these earnings, so appreciate your input throughout the day
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  Speaker 3: today and certainly off of Tesla's earnings. Ross, thank you
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  Speaker 3: so much. Ross Gerber, President, chief executive officer of Gerbert
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  Speaker 3: Kawasaki Wealth and Investment Management, more than three billion in
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  Speaker 3: assets under management, and they own about eighty million dollars
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  Speaker 3: worth of Tesla's shares