(Bloomberg) – Tesla Inc. is expected to report its sixth consecutive quarterly profit on Wednesday – and potentially its first quarter of $ 1 billion. This follows a remarkable year, when Tesla’s shares split and skyrocketed, the company entered the S&P 500 Index and sold nearly half a million cars.
Two years ago, the world’s largest electric car maker was going through a rough patch. Tesla CEO Elon Musk informed employees in an open letter in January 2019 that the company needed to reduce the number of employees by 7% and increase production rates for the Model 3 to survive. At the end of that month, the CEO told analysts that Tesla needed to cut costs and vehicle prices to avoid bankruptcy.
And there was one more thing. As the earnings call drew to a close, Musk dropped a bomb: Deepak Ahuja, the longtime finance chief who once worked at Ford Motor Co., was retiring again. A then-unknown protégé of the finance team, Zachary Kirkhorn, would replace him after a short transition period.
Concerned investors: Was Ahuja’s departure another sign of turbulence and executive talent rushing for exits? Tesla’s PR team at the time did not have a basic biography or photograph of Kirkhorn ready. The surprise announcement caused the stock to plummet.
Kirkhorn, 36, remains a mystery to the average investor, but he left his mark. It reinforced Tesla’s balance sheet with a series of successful capital increases, introduced a more conservative approach to forecasting and provided greater cost-cutting discipline that helped Tesla to act more like the S&P 500 it has become.
“People still don’t really know who Zach is, but they know what he did,” said Gene Munster, managing partner at Loup Ventures. “He’s a shy person and I don’t think he likes to speak in public. But it was a remarkable turnaround. “
Numbers speak
Although he participates in all of Tesla’s profit calls, he is not a conference goer. Several sell-side analysts said they never spoke to him on the phone. Tesla executives did not respond to an email about this story.
But the numbers speak for themselves. By the standards that measure most CFOs, he stood out. Tesla’s shares rose more than 1,300% during his tenure. On the day Musk announced that Kirkhorn would take control – January 30, 2019 – Tesla’s market capitalization was $ 53 billion. It was about $ 835 billion at Monday’s close. At this rate, a trillion dollar valuation may not be far off.
The company’s shares rose 1.4% to $ 892.83, as of 8:41 am in New York on Tuesday.
Tesla’s high market capitalization has less to do with financial engineering than the automaker working on production problems, growing concern about climate change and a wave of EV mania on Wall Street. But Kirkhorn capitalized on the company’s success by building a strong balance sheet, with $ 12 billion raised in 2020 alone. The company reported profits, but also beat analysts in the game of expectations, often exceeding its consensus estimates.
“I don’t know Zach personally, but he taught Tesla to promise less and deliver more than expected,” said Gary Black, an optimistic private investor. “They seem much more disciplined.”
Not everyone is a fan. Hedge fund manager David Einhorn, a longtime Tesla critic who sold the automaker’s shares, publicly questioned the company’s accounting practices. The president of Greenlight Capital challenged the CFO and Musk in an April tweet to explain what Einhorn claimed were discrepancies in Tesla’s accounts receivable. He recently called the bullish stock “fad”.
Tesla Lifer
Kirkhorn is one of four executives at the head of the most valuable automaker in the world. Musk, 49, is the company’s face and public voice. Drew Baglino, the senior vice president of powertrain and energy engineering, shared the stage with Musk at the Battery Day event last fall. Jerome Guillen, the president of the automotive sector, previously led sales and is loved by the first customers who still receive his emails.
Kirkhorn attended the University of Pennsylvania, where he enrolled in the Jerome Fisher Program in Management and Technology. This allowed him to graduate in 2006 with two Bachelor of Science degrees: economics from the Wharton School and mechanical and applied mechanical engineering from Penn Engineering. (Musk also went to Penn). He interned briefly at Microsoft Corp. and then took over as a business analyst at McKinsey & Company.
It was also there that she met her husband, according to a 2018 wedding announcement in The New York Times. The couple owns a house in the hills of Oakland, California, not far from Tesla’s headquarters in Palo Alto, California, according to public records.
He joined Tesla in March 2010 as a senior analyst in the finance department. Eighteen months later, he left for an MBA at Harvard Business School – which Musk said was not necessary. After graduating, Kirkhorn returned and worked with Ahuja and Jason Wheeler, who served as CFO from 2015 to 2017, when Ahuja returned. Tesla released its first report on diversity and inclusion last month and Kirkhorn was featured in a section called “Pride in our employees”. He noted that he was promoted five times.
Inflection point
Several former colleagues and investors from several years who know Kirkhorn said he is deeply committed to Tesla’s clean energy mission. They describe him as being very close to Tesla products, concerned with engineering and manufacturing as well as with finance. In earnings calls, he talks in detail about other Tesla revenue streams, from selling 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 has been more efficient in terms of capital,” said Dick Amacher, a former engineer and product planner at General Motors Co. who says he has two models from Tesla and company shares. “A financial leader must provide guidance for the future strategy and the results speak for themselves.”
The first half of 2019 was marked by Musk’s sudden decision to close stores – a change he stepped back days later – but which shook Tesla’s sales team and intrigued shareholders. An optimistic Wall Street broker considered the fall in the automaker’s stock price “humiliating” in June of that year, and two others warned of deteriorating sales prospects. That unease increased even more when veteran chief technology officer JB Straubel left unexpectedly in July.
“When Zach showed up, he had the worst job in the world,” said Munster. “He had to deal with Elon and save a really complicated company.”
‘War Chest’
In the third quarter of 2019, Tesla was showing progress to improve its balance sheet. At an important tipping point, the automaker reported its first profit in almost a year, exceeding analysts’ expectations for a loss, and surprised close observers with the news that the Model Y crossover would launch months ahead of schedule – a big deal for a company known for exceeding deadlines.
“We are quickly turning the corner on our next phase of growth and our financial health continues to strengthen,” Kirkhorn told analysts in an October 2019 earnings conference call. “We remain focused on reducing costs, which allows for quick investments in future programs and growth. ”
Tesla’s $ 3.7 billion in available cash at the end of 2018 increased to $ 14.5 billion at the end of the third quarter of 2020, the most recent number available. Musk recently called this a “war chest”. Tesla will spend some of that money on global expansion, with new car and battery plants under construction in Austin, Texas and Berlin.
Kirkhorn has a Twitter account, but his tweets are protected. When Tesla reported its delivery totals earlier this month, it shared the launch 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 with pre-market trading in the ninth paragraph.)
For more articles like this, visit us at bloomberg.com
Subscribe now to stay up to date with the most trusted business news source.
© 2021 Bloomberg LP