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Tesla’s earnings calls are usually freewheeling affairs, with pulsating electronic music and wildly optimistic projections from CEO Elon Musk, who often likes to crack crude jokes and giggle. Today was different. Instead of the typical sci-fi rhapsodies about self-driving vehicles taking over the world and robots solving poverty, Musk spent much of the call talking about constraints on his vision for Tesla.
For example, when asked when production would start on Tesla’s Optimus robot, he said he needed to “inject some reality into the situation” and gave a lengthy answer about why setting up a production line is hard and takes time. Asked when Tesla will offer fully unsupervised self-driving software or a Tesla robotaxi service in Europe, Musk said he could not provide a timeline because he doesn't know what regulators will decide. (That hasn’t stopped Tesla in the past.)
And asked whether older Tesla vehicles will ever work with fully autonomous driving software—something the company has promised for years—Musk said that, actually, the chips and cameras in the vehicles aren’t good enough for complete autonomy after all. He also was cautious about the timing for when full self-driving software would be made available on a broad scale, cautioning that a coming new software update that enhanced safety was needed first.
His comments appear to have wiped out any enthusiasm about Tesla’s first-quarter results, which showed the company’s electric vehicle business beginning to recover from a yearslong slump. Tesla shares initially jumped 4% in after-hours trading when the company reported its results, but were down 2.4% by the time the call ended.
Maybe SpaceX’s investor meetings this week, related to that company’s coming initial public offering, put Musk in an unusually cautious frame of mind. Or perhaps he's realizing how complicated it will be to run two public companies. Indeed, when asked about a chipmaking project that involves both SpaceX and Tesla, Musk referred to the complexities of dealing with the boards of both companies, saying, “it takes a while to work through the kind of independent director reviews on this.” Not exactly gung-ho!
ServiceNow’s Quarter Gets Poor Reception
The impact that acquisitions have on margins is a sore subject for software investors, as ServiceNow learned on Wednesday. The enterprise software firm reported a reacceleration in topline growth, to 22% for the first quarter of the year, only to see its stock tank as much as 15% in after-hours trading.
Investors may have been responding to ServiceNow’s acknowledgement that its just-completed $7.75 billion cash purchase of cybersecurity firm Armis would erode its profit margins this year. Specifically, the company’s full year free cash flow margin will be diluted by two percentage points—the company is now projecting a 35% FCF margin—while its second quarter operating margin would be reduced by 1.25 percentage points to 26.5%.
For the full year, ServiceNow cut its projected operating margin to 31.5%, from 32%. (This is the operating margin excluding the cost of stock compensation expense. With those and other non-cash expenses included, ServiceNow’s operating margin is closer to 13.5%.)
Salesforce learned the hard way—from activist pressure—that weak margins turn off investors. Salesforce has lifted its margins sharply in recent years. ServiceNow could win over more investors by following suit.—Martin Peers
In Other News
• Microsoft on Wednesday named longtime LinkedIn executive Daniel Shapero as CEO of the corporate social network and said former LinkedIn CEO Ryan Roslansky will oversee Microsoft’s core Office 365 apps.
• Billionaire crypto entrepreneur Justin Sun on Tuesday sued World Liberty Financial, the crypto venture co-founded by President Donald Trump and his family, accusing the project and one of its co-founders of “criminal extortion” after he declined to invest more money into the company.
• Google announced the first versions of its AI chips that are specialized for training and inference, expanding its competition with Nvidia.
Today on The Information’s TITV
Check out today's episode of TITV in which we unpack SpaceX's debt profile and its deal with Cursor.
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