Tesla (TSLA): Gene Munster Sizes Up Production Target Struggles

Loup Ventures' Gene Munster explains why Tesla does not have the "luxury" to keep setting the same targets for all four of its stakeholders.


Is there a rhyme and reason to Tesla Inc (NASDAQ:TSLA) leader Elon Musk’s knack for setting incredibly ambitious goals? After all, Bloomberg research points out the Tesla team has run slow on 21 out of 54 projects that they have followed from the electric auto empire’s first days. It is no wonder stories fly when Tesla has a track record for continuing to miss its targets, adding food to fire for a story that Tesla a) struggles with executions b) lacks the power to sustain itself. Yet, Gene Munster, tech whiz and managing partner at venture capital firm Loup Ventures chime in with a defense for a “method to Musk’s goal setting madness.”

“In our view, Musk misses expectations because he publicly sets the same targets for all four of the company’s stakeholders: customers, investors, employees, and suppliers. Most public companies have the luxury of sending different messages to each of their stakeholders. Our rule of thumb to translate Musk’s targets into reality is to add 3-9 months. We continue to expect the Model 3 to mark a pivotal moment in the world’s adoption of EVs,” highlights Munster.

That said, the analyst sees a tech giant in a “unique” leg of growth evolution and wonders why Musk feels the need to point to the same target to all of the company’s stakeholders? Whereas a traditional company sizes up each stakeholder as a whole group, the analyst notes, “Tesla has to think of each one as a cog. To survive, the company has to advance each cog in unison with a consistent message to each of its stakeholders.” Munster pinpoints the supplier as the first “cog” Tesla should push, suggesting the company needs to apply heat to these suppliers to deliver parts on time.  After all, it only takes one supplier to come up shy of the target for the whole production line to fumble with a target miss. Tesla can only move as quickly as its weakest link; and Musk knows this all too well as the root of his production challenges.

Second, Munster points out assembly, indicating that just like suppliers should be held to higher standards, so should the employees that assemble the Model 3. “Like the supplier, if the employees think there’s wiggle room in the target, they will likely fall short,” continues the research analyst, adding: “If any one of the stakeholder groups senses wiggle room, they’ll slow down; it’s human nature. And speed of production is a critical element to Tesla’s success. The company needs to ramp Model 3 to generate cash to stay in business.” Frankly, Tesla does not have the “luxury” of the majority of public companies in communicating varying messages to each of its shareholders. Munster draws the distinction here. The majority of public companies do not have to cautiously balance these groups, for the following key reasons: 1) multiple suppliers source parts 2) other companies have a “broader” product line 3)  unlike Tesla, these companies boast a stronger cash position.

Lastly, Munster concludes drawing attention to Apple- another tech empire that can set supplier goal expectations calling for 70 million iPhone units in a given quarter- while indicating to investors through an earnings guide to temper expectations to 60 million iPhones. However, should Apple confront the same “wiggle room” issue with late suppliers, it usually can source the part from a backup supplier; a cushion Tesla lacks. Even if AAPL customers grow impatient with longer iPhone lead times, the big AAPL machine can still bring revenue to the table in sales from prior generation iPhones, Munster writes. Whereas Apple’s cash position allows breathing room for sustainability through the next iPhone launch, Tesla simply cannot “afford to wait” for its Model Y to hit the market.

TipRanks reveals a mix between cautious and positive sentiment circling Tesla stock. Out of 22 analysts polled in the last 3 months, 6 are bullish on TSLA stock, 9 remain sidelined, while 7 are bearish on the stock. With a return potential of 7%, the stock’s consensus target price stands at $296.00.

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