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(Bloomberg) – Tesla Inc. is widely expected to report its sixth consecutive quarterly profit on Wednesday – and potentially its $ 1 billion first quarter. This follows a remarkable year when Tesla shares split and exploded, the company joined the S&P 500 Index and sold nearly half a million cars.
Two years ago, the world’s leading manufacturer of electric cars was going through a difficult period. Tesla CEO Elon Musk informed employees in an open letter in January 2019 that the company needed to downsize by 7% and increase Model 3 production rates to survive. Later in the month, the CEO told analysts Tesla needed to cut costs and prices on its vehicles to avoid bankruptcy.
And there was one more thing. As the call for results drew to a close, Musk threw a bombshell: Deepak Ahuja, the long-time CFO who previously worked at Ford Motor Co., was retiring again. A protected then unknown to the finance team, Zachary Kirkhorn, would replace him after a short period of transition.
Investors worry: Was Ahuja’s departure another sign of turmoil and runaway executive talent? Tesla’s public relations team at the time did not have a basic biography or photograph of Kirkhorn on hand. The surprise announcement sent stocks tumbling.
Kirkhorn, 36, remains a bit of a mystery to the average investor, but he’s made his mark. He consolidated Tesla’s balance sheet with a series of successful capital increases, introduced a more conservative approach to forecasting, and provided greater discipline in cutting costs that helped Tesla act more like the S&P 500 company than it did. became.
“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 publicly. But it was a remarkable turnaround.
The numbers speak
Although he participates in all Tesla earnings calls, he is not a conference participant. Several business analysts said they had never spoken to him on the phone. Tesla executives did not respond to an email on the story.
But the numbers speak for themselves. By the yardstick that most CFOs measure up to, he excelled. Tesla shares rose more than 1,300% during his tenure. On the day Musk announced Kirkhorn would take over – January 30, 2019 – Tesla’s market cap was $ 53 billion. It was around $ 835 billion at Monday’s close. At this rate, a trillion dollar valuation might not be far off.
Shares of the company rose 1.4% to $ 892.83 at 8:41 a.m. in New York on Tuesday.
Tesla’s strong market cap has less to do with financial engineering than the automaker facing production issues, 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 fortress balance sheet, with $ 12 billion raised in 2020 alone. The company reported profits but also beat analysts in the game of expectations, often exceeding their expectations. consensus estimates.
“I don’t know Zach personally, but he taught Tesla to under-promise and over-deliver,” said Gary Black, an optimistic private investor. “They seem a lot more disciplined.”
Not everyone is a fan. Hedge fund manager David Einhorn, a longtime Tesla critic who bypassed the automaker’s stock, has 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 to be variances in Tesla’s accounts receivable. He recently called the rally in his stock “fashion.”
Tesla Lifer
Kirkhorn is one of the four leaders at the helm of the world’s most valuable automaker. Musk, 49, is the public face and voice of the company. Drew Baglino, senior vice president of powertrain and energy engineering, shared the stage with Musk at last fall’s Battery Day event. Jerome Guillen, the president of the automobile, previously led sales and is loved by early customers who still have emails from him.
Kirkhorn attended the University of Pennsylvania, where he was enrolled in the Jerome Fisher Program in Management and Technology. In 2006, he obtained a Bachelor of Science degree in Economics from the Wharton School and Mechanical and Applied Mechanical Engineering from Penn Engineering. (Musk also went to Penn). He did a brief internship at Microsoft Corp. then worked as a business analyst at McKinsey & Company.
It was also there that he met her husband, according to a 2018 wedding ad in the New York Times. The couple own a home in the Oakland Hills, 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 to pursue an MBA at Harvard Business School – which Musk said wasn’t necessary. After graduating, Kirkhorn returned and worked under Ahuja and Jason Wheeler, who served as CFO from 2015 to 2017, when Ahuja returned. Tesla released its first-ever Diversity and Inclusion report last month and Kirkhorn was featured in a section called “Pride of Our Employees”. He noted that he had been promoted five times.
Turning
Several former colleagues and multi-year investors who know Kirkhorn have said he is deeply committed to Tesla’s clean energy mission. They describe him as being very close to Tesla’s products, concerned with engineering and manufacturing as well as finance. In earnings calls, he goes into detail about Tesla’s other sources of revenue, from selling regulatory credits to what the company calls “Full Self Driving” software and future insurance products.
“The auto industry is capital intensive and under Zach Tesla has been more capital efficient,” said Dick Amacher, former engineer and product planner at General Motors Co. who says he owns two Tesla models and shares of the company. ‘company. “A finance manager is supposed to provide advice for future strategy, and the results speak for themselves.”
The first half of 2019 was marred by Musk’s sudden decision to close stores – a move he pushed back days later – but which rocked Tesla’s sales staff and confused shareholders. A bullish Wall Street broker called the automaker’s share price “humiliating” in June of that year, and two others warned of a deterioration in the selling outlook. This unease was further exacerbated when veteran chief technology officer JB Straubel unexpectedly left in July.
“When Zach came in he had the worst job in the world,” Munster said. “He had to face Elon and save a really complicated business.”
‘War chest’
In the third quarter of 2019, Tesla was making progress in improving its balance sheet. At a key turning point, the automaker announced the first profit in nearly a year, beating analysts’ expectations for a loss, and stunned close watchers with the news that the Model Y crossover would launch months earlier than expected. – a big problem for a company known to skip deadlines.
“We are rapidly entering our next phase of growth, and our financial health continues to strengthen,” Kirkhorn told analysts in an October 2019 earnings call. “We remain focused on reducing costs, which allows for rapid investments in future programs and growth. ”
Tesla’s $ 3.7 billion in free cash flow at the end of 2018 climbed to $ 14.5 billion at the end of the third quarter of 2020, the most recent figure available. Musk recently called this a “war chest”. Tesla will spend some of that money on global expansion, with new auto and battery factories being built in Austin, Texas and Berlin.
Kirkhorn has a Twitter account, but his tweets are protected. When Tesla announced its delivery totals earlier this month, it shared the statement on LinkedIn.
“Half a million cars in 2020! Kudos to the Tesla team, our new customers and those supporting our trip, ”he wrote in the post. “Looking forward to another exciting year.”
(Updates with pre-market trade in ninth paragraph.)
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