Tesla’s Finance Chief Quietly Tallies Profit Surge

Tesla is widely expected to announce sixth consecutive quarterly profit Wednesday — and probably its first quarter of $1 billion. The company entered the S&P 500 Index in a remarkable year when Tesla’s stock split and skyrocketed, selling almost half a million vehicles.

The world’s leading electric carmaker went through a tough patch two years ago. In a January 2019 open letter, Elon Musk, Tesla’s Chief Executive Officer, told workers that the company had to reduce headcount by 7 percent and raise Model 3 production rates to survive. Later that month, the CEO told analysts that to avert bankruptcy, Tesla needed to slash costs and its vehicle prices.

And there was one more thing. Musk dropped a bombshell as the earnings call came to a close: Deepak Ahuja, the longtime finance chief who previously worked at Ford Motor Co., was retiring again. Zachary Kirkhorn, a then-unknown finance team protégé, will replace him after a brief time of transition.

Worried investors: Was the departure of Ahuja another indication of chaos and executive talent running for the exits? At the time, Tesla’s PR team did not have a simple bio or Kirkhorn photo at the ready. The sudden announcement sent tumbling shares.

For the average investor, Kirkhorn, 36, remains a bit of a mystery, but he has made his mark. He has shored up Tesla’s balance sheet with a series of effective capital raises, adopted a more conservative approach to forecasting and created greater discipline in cost-cutting that has helped Tesla behave more like the S&P 500 company it has become.

“People still don’t really know who Zach is, but they know what he’s done,” 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’s been a remarkable turnaround.”

Numbers Talk

Though he participates in all Tesla earnings calls, he’s not a conference-goer. Several sales experts said they had never spoken on the phone with him.

Yet the numbers speak for themselves. By the metrics that most CFOs assess, he has excelled. During his tenure, Tesla shares have risen more than 1,300 percent. On the day Musk announced the acquisition of Kirkhorn — January 30, 2019 — the market capitalization of Tesla was $53 billion. At Monday’s end, it was around $835 billion. A trillion-dollar valuation might not be far off at this rate.

The company’s shares received an early gain of up to 1.7 percent to trade up 0.4 percent at $884.09 as of 9:55am EST Tuesday.

Tesla’s lofty market cap has little to do with financial engineering relative to the automaker operating on Wall Street through demand concerns, increasing anxiety about climate change and a wave of EV mania. But Kirkhorn capitalized on the success of the group by creating a balance sheet for the fortress, with $12 billion raised in 2020 alone. The business has posted profits but also beat analysts at the game of expectations, sometimes beating their consensus forecasts.

“I don’t know Zach personally, but he’s taught Tesla to under-promise and over-deliver,” said Gary Black, a bullish private investor. “They seem much more disciplined.”

Everybody is not a fan. David Einhorn, founder of the Hedge Fund, a long-time critic of Tesla who has shorted the stock of the carmaker, has publicly challenged the accounting practices of the firm. In an April tweet, the Greenlight Capital president asked the CFO and Musk to clarify what Einhorn believed were inconsistencies in Tesla’s receivable accounts. The rally in its stock was recently dubbed a “fad.”

Tesla Lifer

Kirkhorn is one of four executive officers at the helm of the most valuable car manufacturer in the world. Musk, 49, is the company’s public face and voice. At last fall’s Battery Day event, Drew Baglino, the Senior Vice President of Powertrain and Energy Engineering, shared the stage with Musk. Jerome Guillen, the President of Automotive, previously led sales and is admired by early buyers who still have emails from him.

Kirkhorn attended University Pennsylvania, where he was enrolled in the Jerome Fisher Program in Management & Technology. This allowed him to graduate with two bachelor of science degrees in 2006: Wharton School and mechanical engineering and applied mechanics from Penn Engineering. (Musk went to Penn as well). He briefly interned at Microsoft Corp., then took a job as a McKinsey & Company business analyst.

According to a 2018 wedding announcement in The New York Times, that was also where he met his husband. According to public records, the couple owned a home in the hills of Oakland, California, not far from Tesla’s Palo Alto, California, headquarters.

As a senior analyst in the finance department, he joined Tesla in March 2010. Eighteen months later, he left Harvard Business School to pursue an MBA—which Musk said was not necessary. Kirkhorn returned after graduating and worked under Ahuja and Jason Wheeler, who, when Ahuja returned, served as CFO from 2015 to 2017. Last month, Tesla published its first ever report on diversity and inclusion and Kirkhorn was highlighted in a segment called “Pride in Our Employees.” It noted he has been promoted five times.

Turning Point

He is profoundly committed to Tesla’s clean energy project, many former colleagues and multi-year investors who know Kirkhorn said. They describe him as very similar to Tesla’s products, mindful of engineering and manufacturing as well as finance. On conference calls, from the selling of regulatory allowances to what the company terms “Full Self Driving” applications and future insurance products, he speaks in great detail about Tesla’s other revenue streams.

“The auto business is capital intensive and under Zach, Tesla has been more capital efficient,” said Dick Amacher, a former engineer and product planner at General Motors Co. who says he owns two Tesla models and stock in the company. “A finance leader is supposed to provide guidance for future strategy, and the results speak for themselves.”

Musk’s abrupt decision to close stores was marred in the first half of 2019 — a move he walked back days later — but one that rattled Tesla’s sales team and confused shareholders. In June of that year, a bullish Wall Street broker ruled the carmaker’s falling stock price as “humbling,” and two others warned about a weakening outlook for sales. When veteran Chief Technology Officer J.B. Straubel left suddenly in July, the unease was further stoked.

“When Zach came on, he had the world’s worst job,” said Munster. “He had to deal with Elon and save a really complicated company.”

War Chest

Tesla has been making progress towards strengthening its balance sheet by the third quarter of 2019. The automaker posted the first profit in nearly a year at a critical turning point, smashing the analysts forecasts for a loss, and surprised close observers with news that the Model Y crossover would launch months earlier than anticipated — a major deal for a company notorious for blowing deadlines.

“We are quickly turning the corner for our next phase of growth, and our financial health continues to strengthen,” Kirkhorn told analysts on an October 2019 earnings call. “We remain focused on reducing cost, which enables rapid investments in future programs and growth.”

At the end of 2018, Tesla’s $3.7 billion in cash on hand ballooned to $14.5 billion at the end of the third quarter of 2020, the most recent figure available. Musk recently named it a “war chest.” Tesla will invest some of the money on global expansion with new auto and battery plants under construction in Austin, Texas, and Berlin,.

Kirkhorn has a Twitter account, but his tweets are protected. He posted the release on LinkedIn when Tesla announced its distribution totals earlier this month.

“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.”

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