(Bloomberg) – Tesla Inc. will report its sixth consecutive quarterly profit on Wednesday – and possibly its first quarter of $ 1 billion. This follows a remarkable year when Tesla’s shares split and soared, the company joined the S&P 500 index and sold nearly half a million cars.
Two years ago, the world’s leading electric car manufacturer had a rough spot. Elon Musk, CEO of Tesla, told employees in an open letter of January 2019 that the company had to reduce the number of employees by 7% and increase the production rates of Model 3 in order to survive. Later that month, the CEO told analysts that Tesla should reduce costs and vehicle prices to avoid bankruptcy.
And there was one more thing. As the call for earnings came to an end, Musk dropped a bomb: Deepak Ahuja, the longtime CFO who previously worked at Ford Motor Co. worked, retires again. A then unknown protégé of the finance team, Zachary Kirkhorn, would replace him after a short transition period.
Investors were worried: Was the departure of Ahuja another sign of unrest and executive talent that had to run to the exits? Tesla’s PR team did not have a basic biography or photo of Kirkhorn ready at the time. The surprise announcement caused shares to tumble.
Kirkhorn, 36, remains a bit of a mystery to the average investor, but he has made his mark. He sharpened Tesla’s balance sheet with a series of successful capital increases, a more conservative approach to forecasting and greater discipline in cost savings that helped Tesla act more like the S&P 500 company he became.
“People still do not really know who Zach is, but they know what he did,” said Gene Munster, managing partner of Loup Ventures. “He’s a shy person, and I do not think he likes to speak in public. But it was a remarkable turnaround. ‘
Numbers speak
Although he participates in all of Tesla’s earnings calls, he’s not a conference attendee. Several sales analysts said they had never spoken to him by telephone. Tesla drivers did not respond to an email about this story.
But the numbers speak for themselves. By the standard most chief financial officers measure, he excelled. Tesla shares rose more than 1,300% during his tenure. On the day Musk announced that Kirkhorn would take over – January 30, 2019 – Tesla’s market capitalization was $ 53 billion. That was about $ 835 billion at the end of Monday. At this rate, the valuation of a trillion dollars may not be far off.
The company’s shares traded up 1.4% in New York on Tuesday to $ 892.83.
Tesla’s high market capitalization has less to do with financial engineering than the automaker experiencing production problems, growing concerns about climate change and a wave of EV mania on Wall Street. But Kirkhorn capitalized on the company’s success by drawing up a fortune balance, with only $ 12 billion raised in 2020. The company reported profits, but also beat analysts at the expectation game, which often exceeded their consensus estimates.
“I do not know Zach personally, but he taught Tesla to promise too little and deliver too much,” said Gary Black, a bullish private investor. “It seems a lot more disciplined.”
Not everyone is a fan. Protection fund manager David Einhorn, a longtime critic of Tesla who has shortened the carmaker’s inventory, has publicly questioned the company’s accounting practices. The president of Greenlight Capital challenged the chief financial officer and Musk in a tweet in April to explain what Einhorn claims it differs from Tesla’s debtors. He recently called the rally in his stock a ‘fad’.
Tesla Lifer
Kirkhorn is one of four executives at the helm of the world’s most valuable automaker. Musk, 49, is the company’s face and voice. Drew Baglino, the senior vice president of propulsion and energy engineering, shared the stage with Musk during last fall’s Battery Day event. Jerome Guillen, the president of the car, has previously led sales and is loved among early customers who still have emails from him.
Kirkhorn attended the University of Pennsylvania, where he enrolled for the Jerome Fisher program in management and technology. This allowed him to earn two bachelor’s degrees in science in 2006: economics at Wharton School and mechanical engineering and applied mechanics at Penn Engineering. (Musk also went to Penn). He briefly interned at Microsoft Corp and then took a job as a business analyst at McKinsey & Company.
This is also where he met his husband, according to a 2018 wedding announcement in The New York Times. The couple owns a home in the hills of Oakland, California, not far from the headquarters of Palo Alto, California, in Tesla, according to public records.
He joined Tesla in March 2010 as a senior analyst in the finance division. Eighteen months later, he leaves to pursue an MBA at Harvard Business School – which Musk said was not necessary. After finishing, Kirkhorn returned and worked under Ahuja and Jason Wheeler, who served as chief financial officer from 2015 to 2017, when Ahuja returned. Tesla last month released its first ever report on diversity and inclusion and Kirkhorn was featured in a section called ‘Pride of Our Employees’. It is noted that he has been promoted five times.
Pivot point
Several former colleagues and multi-year investors who know Kirkhorn have said he is deeply committed to Tesla’s mission for clean energy. They describe him as very close to Tesla’s products, in terms of engineering and manufacturing as well as finance. In revenue calls, he talks in detail about Tesla’s other revenue streams, from the sale of regulatory credits to what the company calls “Full Self Driving” software and future insurance products.
“The automotive business is capital intensive and under Zach, Tesla was more capital efficient,” said Dick Amacher, a former engineer and product planner at General Motors Co. He says he owns two Tesla models and stock in the company. “A finance manager is supposed to provide guidance for future strategy, and the results speak for themselves.”
The first half of 2019 was embarrassed by Musk’s sudden decision to close stores – a move he took days back – but one that shocked Tesla’s sales staff and surprised shareholders. A bullish Wall Street broker in June of the same year viewed the carmaker’s gleaming share price as ‘humble’, and two others warned of a weakening sales outlook. The inconvenience was further exacerbated when veteran chief technology officer JB Straubel left unexpectedly in July.
“When Zach arrived, he had the worst job in the world,” Munster said. “He had to deal with Elon and save a very complicated company.”
‘War cabinet’
Tesla showed progress by the third quarter of 2019 to improve its balance sheet. At a major turning point, the automaker reported its first gain in nearly a year, beating analysts’ expectations for a loss, and stunned observers with the news that the Model Y crossover would launch months earlier than expected. expected – a big deal for a well-known company. for blowing deadlines.
“We are rapidly making the turn for our next growth phase, and our financial health continues to strengthen,” Kirkhorn told analysts during a revenue call in October 2019. “We remain focused on reducing costs, which enable rapid investment in future programs and growth. “
Tesla’s cash of $ 3.7 billion at the end of 2018 amounted to $ 14.5 billion at the end of the third quarter of 2020, the most recent available figure. Musk recently called it a ‘war coffin’. Tesla will spend some of the money on global expansion, with new car and battery plants being built in Austin, Texas and Berlin.
Kirkhorn has a Twitter account, but his tweets are protected. When Tesla reported its total delivery earlier this month, it shared the release on LinkedIn.
“Half a million cars in 2020! Congratulations to the Tesla team, our new customers and those who support our journey, ”he wrote in the post. “Looking forward to another exciting year.”
(Updates on pre-sale trading in ninth paragraph.)
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