- Tesla CEO
Elon Musk attacked coronavirus-pandemic shelter-in-place orders, demanding a restoration of "freedom." Tesla 's factory in California has been shut down since March.- The company managed an unexpected profit in the first quarter, but its ambitions for a 500,000-vehicle year are in doubt.
- Markets don't care what Musk says — Tesla is now worth $150 billion, more than twice the market caps of General Motors, Ford, and Fiat Chrysler Automobiles, combined.
- Investors do care that Musk's brash leadership style and at-times reckless comments have created a company that's posted a 3,000% return since 2010.
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If anybody thought a global pandemic was going to get Elon Musk to watch his words, they were wrong.
On an earnings conference call Wednesday night, after Tesla posted an unexpected profit for the first quarter, Musk lambasted shelter-in-place orders that, among other things, have idled Tesla's car factory in Fremont, California.
"If somebody wants to stay in their house, that's great and they should be able to," Musk said. "But to say they cannot leave their house and that they will be arrested if they do, that's fascist. That is not democratic. This is not freedom. Give people back their goddamn freedom."
We should have seen it coming, as Musk had been railing against shutdowns on Twitter before earnings were announced. And it's not as if he hasn't previously pushed the envelope on CEO decorum when dealing with the financial community. Who can forget his testy "boring boneheaded" assessment of Wall Street analysts' questions a few years back? His penchant for recklessness tinged with arrogance is probably the biggest flaw in his character.
The markets don't care what Musk says
The markets don't really price Tesla based on what Musk says, of course. Shares surged over 10% at times in after-hours trading on Wednesday, adding over $50 and sending the stock to almost $860, minting a market capitalization of nearly $150 billion. That's over twice the current combined value of General Motors, Ford, and Fiat Chrysler Automobiles. In the US, there's now a sort of used-to-be Big Three and a new Big One, at least financially: Tesla.
That's a baffling situation to many industry observers, who habitually point out that the major automakers have been printing money, pre-pandemic, by selling as many profitable pickups and SUVs in a month as Tesla sells all-electric vehicles in a year. But there's a good reason why Tesla is worth so much. It has to do with the company being incorrectly underpriced as an carmaker, but also misunderstood as a Silicon Valley tech startup; what we're really seeing is a 21st-century General Electric.
Back to Musk and his big mouth. Is there something new here? The guy has rarely kept his outrageous opinions in check. The difficulty for followers of his thoughts, diatribes, and opinions is that several decades of business-school-trained-slash-nerdy-introvert CEOs has given us a leadership template that's a blunt choice between being Bob Iger or Bill Gates.
Musk, as I've noted before, is much more like the brash, outspoken entrepreneurs of yesteryear who built the auto industry and took big risks in the 20th century: Enzo Ferrari, Gianni Agnelli, Henry Ford II, Lee Iacocca, John DeLorean. Enzo quite literally had blood on his hands, so committed was "il Commendatore" to racing that he demanded victory or death from his drivers. Agnelli made Fiat into the symbol of Italy's postwar recovery and was basically the country's imperious, unofficial king in his heyday.
It's impossible to create something as financially ridiculous as a car company without having an outsized, unpredictable, frequently offensive personality. And Musk has moved beyond even that level of mad ambition: Tesla shares mindspace with SpaceX, his other company, whose modest core goal is to colonize Mars.
Tesla's endgame isn't even electric cars
But Musk also doesn't see Tesla selling a million or more vehicles a year, and potentially many more, as the endgame. The cars are a solution to an existential problem: global warming. As it's become obvious that the outlook for the global climate is dire, it's also become clear that it's taken Tesla almost two decades to move the needle ever-so-slightly against the entrenched internal-combustion engine.
So Musk's larger objective is to grow Tesla to the point where the competitive threat, although still marginal, is enough to get the rest of the auto industry to go electric. That's his and Tesla's grander accomplishment, as manufacturing giants such as GM and Volkswagen have finally committed to EVs in a serious way (GM rolled out its new electric technology early this year, and VW sees going electric as its best alternative in a post-Dieselgate scenario in Europe.)
It is worth pointing out that pandemic shelter-in-place restrictions have completely stalled Tesla's progress toward a 500,000-car year in 2020, so Musk's comments can't be placed in a context that's either purely virtuous and in-it-for-humanity or in the swashbuckling, uncensored tradition of less tightly leashed business leaders in the Era Before Twitter. (To his credit, Musk is legitimately concerned that Tesla's suppliers could face a tougher road ahead than Tesla itself, which has over $8 billion in the bank to ride out the COVID-19 crisis.)
It's also worth pointing out that Musk is perhaps the second-loudest voice on Twitter, behind President Donald Trump. The CEO has internalized the chief executive's central insight about the platform — that it empowers a kind hyper-communication, but with an experimental edge.
In Musk's case, he can easily test whether he has any meaningful support for a controversial idea simply by tapping out a tweet. For other CEOs, that kind of market research can cost millions. And Musk isn't afraid to come off as a buffoon or villain, while other CEOs obsessively avoid drama around their statements.
The disadvantage is that Musk wanders out of his depth or pushes his luck way too far. His infamous "funding secured" tweet of 2018 cost him his chairman title at Tesla and led to and SEC investigation and fines, as well as restrictions on his Twitter habit.
Don't forget that Tesla is mostly owned by the markets
Ultimately, the market now no longer discounts nor rewards Tesla for what Musk says; the age of speculation about the company's fortunes is over. Anytime Musk wants, Tesla sells more stock to eager investors and pockets another few billion. It's hard to complain about the 3,000% return that Tesla has delivered since its 2010 IPO.
And now the fundamentals have begun to line up, after years of halting progress on actually manufacturing automobiles. For example, even with the pandemic shutdown in California, Tesla is building cars in China, attacking what should be its largest market, given that China's auto sales could double what carmakers achieve in the US.
Over the next few years, if Tesla can post consistently profitable quarters, it could begin to covert its 25% gross margin into one of the highest net margins in the auto industry. And for what it's worth, Tesla is the only mechanism for investing in substantial growth in sustainable transportation; the legacy automakers are held back by the immense costs of serving the huge existing market for gas-powered vehicles.
Tesla and its investors don't owe everything to Musk — there are 40,000 people working for the company who've made a collective contribution, and some of them might not be comfortable with the freedom to return to work right now if it means contracting COVID-19.
But there wouldn't be a Tesla worth $150 billion without Musk. An uncomfortable truth, but also the often exasperating, even maddening, secret of Tesla's success.
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