Mahir Desai, a law and business professor at Harvard, wrote an
op-ed earlier this month on how Elon Musk's business empire may
be starting to wobble. Now, while a lot has been made
of Tesla's stock price halving in value since it hit, it's all
time high in December. If we zoom out a bit, the stock
price is still up more than 50% over the last year.
Stock price alone doesn't necessarily tell us much about
how a business is doing, as what Demoterin of NYU has long argued
that company valuation shouldn't be approached as purely number
crunching exercises. In his book Narrative and
Numbers, he argues that valuation is instead a bridge
between stories and numbers, where every story becomes a
number in the valuation, and every number in a valuation has
a story behind it. Matt Levine has argued in the
past that Tesla investors don't value Tesla or any of Musk's
companies on what they actually do.
Instead, they think of them as venture capital funds run by a
guy with a strong record of investing in whatever's the hot
new thing. If the company's profits don't
match up with the stock price today, that doesn't really
matter to them, as next year a great new product will be
unveiled. Solar roof tiles, a robot, a
tunnel to Europe, A sports car with rockets on it, artificial
general intelligence and everything out based on Twitter
or a colony on Mars. And this business, which is just
around the corner, will be so profitable that the naysayers
will be proven wrong. Now, of course, I'm no naysayer.
Long term viewers know how positive I've been about the
Hyperloop at the heart of the line city in Saudi Arabia.
And if it wasn't for the functionality of Musk's
Hyperloop, the whole thing would make no sense.
In a totally unrelated side note, Elon Musk told Fox News on
Thursday that the administration is going to go after people
pushing lies about Tesla. So just to be clear, I expect
all of the above mentioned projects to be delivered next
year on schedule, and I think that they'll be great.
Desai in his article, says that while Elon Musk built a car
company from the ground up along with a number of other
businesses, which is no small feat, his wealth is mostly
explained by a financial cult where Musk has been largely
immune from critics. He writes that skyrocketing
Tesla shares have made fans and investors so devoted that all
Musk has to do is mention a new ambition to goad them into
buying even more stock. And the larger the stated
ambition, the more wealth and power they hand to him.
He argues that since Musk's foray into politics, not just in
the US but around the world, cracks in his empire have
started to show. He highlights how automotive
revenues and profits at Tesla have declined and points out
that 22 years after the company's founding, it remains
unclear if it can ever generate significant can free cash flow
for shareholders. He says that Tesla appears to be
relying more and more on price cuts, a practice that can
increase sales in the short term but damages the brand in the
long run. He says that the political
backlash against MASK is now hurting Tesla sales, and that,
perhaps sensing the shifting tides, Musk has been suggesting
that Tesla is an AI company to further nourish the investor
cult in. In looking at Musk's other
business interests, the Harvard Business School professor argues
that Solar City has atrophied since its controversial
acquisition by Tesla in 2016, that it's unclear if the Boring
Company has any revenues or prospects of profit, that the
possibility of profits for Neural Link, the brain implant
company, seems even more remote, and that Twitter is a shell of
its former self both economically and culturally.
Since its acquisition. He points out that SpaceX, which
is more than 20 years old, has raised an estimated $12 billion
and is only now rumored to possibly achieved $12 billion in
annual revenue, which is not the same as profit mostly from
Starlink. Desai makes the point that
Musk's wealth is not derived from the cash flow his various
businesses throw off. More money has gone into them
than they've returned in profits.
His wealth is derived instead from their stock valuations,
which are driven by the hype around Musk and the belief that
amazing breakthroughs are just around the corner.
Musk's businesses have not been generating much hype of late.
Growth seems to have halted and competition has grown.
One of Tesla's most vocal investors has even called for
Musk to step down as CEO. Tesla's stock price nearly
doubled in value after Donald Trump's election win last
November, driven by optimism that Musk's alliance with the
new president would remove business obstacles and possibly
pave the way for lucrative federal contracts.
Tesla at the time faced a criminal fraud investigation and
a related SEC investigation into exaggerated claims about the
full self driving capability of its vehicles.
It faced a joint investigation by the DOJ and SEC into misuse
of company resources over plans to build a private residence for
mosque using company funds. The US Attorney's Office was
looking into whether Tesla had deliberately misrepresented the
battery range of its electric cars to customers.
There were 4 NITSA investigations into vehicle
problems, 7 cases alleging unfair labor practices, a racial
discrimination investigation, and an OSHA investigation into a
worker's death. His other businesses faced
investigations and federal lawsuits, too.
President Trump replaced a number of government officials
who had been overseeing many of these investigations and,
according to the Washington Post, Elon Musk's, which was
able to lay off staff at a number of agencies that regulate
his businesses. When questioned about the
conflicts of interest in a joint interview with President Trump
on Fox News, Musk said I'll recuse myself if it's a conflict
and the president said he won't be involved.
While the ability to shut down investigations into his
businesses should have helped him out, Elon Musk recently
confessed in a Fox Business interview that he's running his
businesses with great difficulty, and that does seem
true. Tesla erased all of the stock
price gains that it saw in the wake of the election, and the
backlash against his companies was so severe that the president
had to buy one of his cars on live TV while singing its
praises, presumably to revive sales.
Everything's computer. Musk's social media company
Twitter was taken down by a cyber attack and two of his
Starship rockets exploded shortly after their launches,
grounding flights in Florida and the Caribbean and triggering
warnings about falling spaceship debris.
According to the European Automobile Manufacturers
Association, Tesla sales in Europe fell for a second month
in a row this February, and to make it worse, this was during a
period when EV registrations overall on the continent grew.
Tesla sales in Europe are down more than 40% so far this year,
and the company's European market share has collapsed.
The press blames this on a few things, like aging design,
rising competition, and controversy around Elon Musk.
The problem isn't just in Europe, either.
According to Kelley Blue Book, Americans registered 11% fewer
Teslas in January than they did a year ago, during a period when
they registered 44% more electric vehicles from some
rival brands. According to the website
Futurism, Tesla sales in China have fallen 49.2% compared to
the previous year, while BYD, Teslas biggest Chinese
competitor, saw a 90% increase in sales over the same month.
While sales declines in the United States and Europe can be
blamed on Elon Musk's political activism, the Chinese are less
concerned with American politics and liberal ideology and appear
to be buying Chinese cars because they believe them to be
more advanced and because they're significantly cheaper.
The Electric Vehicle Council of Australia also reported a Tesla
downturn, with sales falling by 70% in February 2025 versus
February 2024. Interestingly, Tesla sales
actually rose 20% in the UK last month, with the Model 3 coming
2nd and the Model Y placing third in February 2025 new car
registrations. Another exception was in Canada,
where Tesla sold about 8600 cars in just three days at 4 separate
Tesla dealerships in Canada this January.
This breaks down as one car every minute, 24 hours a day for
three straight days, even when the stores were closed.
This burst of sales came as an EV rebate program in Canada
ended in January after the funds set aside for the program were
allocated earlier than expected. The weekend before the program
ended, there was a massive increase in claims from Tesla
dealerships as the EV maker claimed over half of the
remaining funds. Canadian news reports that
hundreds of Teslas piled up in Canadian parking lots after the
suspicious sales rush, and the Canadian government is now
withholding the payments while they investigate any possible
fraud. The Canadian Transport minister
has barred Tesla from future rebates in other programs until
the threat of US tariffs on Canada are withdrawn.
Some of the global sales decline has been blamed on customers
waiting to buy the refreshed Tesla Model Y, which just became
available this month. But journalists are reporting
that the new Model Y is showing on the Tesla website as being
available for same day delivery today, which doesn't indicate
the demand is awfully strong. Another reason that people might
not be buying Tesla's is that at the rate that parts fall off of
cyber trucks, there's no real need to buy one.
If you really want one, you can just start collecting parts from
the side of the road and after about a year you can just
assemble your own one. The cyber truck is in many ways
like a reverse kit car where they deliver you a fully
assembled truck, but after a while you just have a collection
of parts in boxes in your garage.
At an all hands meeting with Tesla employees last week, Elon
Musk predicted strong demand and told employees to hang on to
your stock. His brother Kimball, who's a
Tesla board member, sold $27 million worth of stock last
month. And the chairwoman of the board,
Robin Denholm, sold $33 million worth of stock, according to
regulatory filings. So not all employees have been
listening to him. Around half of Elon Musk's net
worth is tied up in SpaceX, which owns Starlink, the
dominant satellite Internet service provider.
Possibly due to Musk's political connections, the service has
been installed at the White House and Trump's Commerce
Secretary has even lobbied officials to consider Starlink
for the US Rural Broadband Access Program.
Reports show that the Federal Aviation Authority has been
asked to find funding for Starlink, possibly replacing a
$2.4 billion fifteen year contract that was already
awarded to Verizon to overhaul a communication system in 2023,
according to the FT. Musk's foray into politics has
also began to hamper Spacex's global expansion plans too.
They report that the Ontario premier, Doug Ford, ripped up a
$100 million deal with Starlink in response to US tariffs
against Canada, and that Musks controversial behavior has
caused problems for Starlink adoption in Brazil, Italy and
even in his home country of South Africa.
They write that European countries are so concerned with
US threats to cut off Starlink access in Ukraine, a service
that's paid for by Poland, that the EU is proposing to fund a
homegrown alternative to Starlink for security purposes.
While the news reports that Twitter is back above the $44
billion price that Elon Musk paid for it in 2022, many
investors are highly skeptical about this valuation as user
numbers and advertising revenues have declined significantly
since 2022. The transaction that values the
business at $45 billion was XAI, another Elon Musk company buying
it. A person who saw the documents
described the earning innings number reported as being wildly
adjusted to the FT. It's not obvious that an
unrelated party would pay anything like that to buy the
12th most popular social network.
This transaction is similar to when Tesla bought Solar City in
2016, where Musk folded a company that's been losing value
into one that's been gaining value.
He owned 54% of the AI company and used it to buy Twitter which
he owned 80% of. The other investors in XAI
shouldn't be too happy with this as they owned a clean investment
in an AI company which is now saddled with a social media app
that has lost its relevance. In recent weeks, anti Musk
protests have been occurring at Tesla showrooms around the
world, and they've even been incidents of Tesla cars and
charging points being vandalised by protesters.
Politico reports that Musk's government role, his
antagonistic tweets, his boosting of far right
propaganda, and the salute he gave at Trump's inauguration
ceremony have made him a lightning rod for anti Trump
sentiment and his products a target for protesters.
The problem isn't just the protests.
A recent UK survey found that 70% of Tesla owners say that
they're ashamed of their car. It's not necessarily that they
have strong feelings about Elon Musk, but just that driving
around in a Tesla leads other people to think that they're
Elon Musk fans, which they find embarrassing.
Most people just want a car and they don't want it to be read as
being a political statement. According to Joseph SPAC at UBS,
while many American consumers approve of DOGE cuts in
government spending, Musk may be turning off the US consumers
most likely to buy a Tesla. He says that among high income
consumers who say they plan to purchase an EV in the future,
Tesla now ranks lower compared with competitors than it did one
year ago. NPR reports that the Tesla brand
has soared in popularity amongst Republicans and conservatives in
the United States. But they say that the liberals,
moderates, and independents that Musk is driving away are more
likely to consider an electric vehicle.
They say that Ev's towing problems can be an issue for
Republican buyers who are significantly more likely to buy
a truck and use their vehicle for work.
The new fans that Elon Musk is winning over might like mask,
but they don't want to buy an EV.
So are Elon Musk's businesses in real trouble or are they just
facing a temporary set back? Well, a few years ago, Tesla
investors pitched the idea that we were on the path to a 100% EV
future and that Tesla had no competition in that space.
They is justified in their minds, Tesla being worth more
than all other car companies combined today, the idea that
ICE and hybrid vehicles will disappear is much more in
question. Additionally, Tesla has
significant competition from both traditional automakers and
new manufacturers from China who might be beating Tesla on the
tech front. BYD recently revealed new fast
charging technology that can add 250 miles of range with a 5
minute charge, significantly faster than Tesla and matching
the convenience of a regular car.
Tesla recently announced that it had completed regulatory
approval for a paired back Chinese version of its Full Self
Driving software that costs about $9000 extra per car in
China, causing the stock price to rally sharply.
But its biggest Chinese competitor, BYD, launched its
own Full Self Driving software at no additional cost.
The Tesla software alone costs as much as Byds cheapest
vehicle. Tesla has been dead money for
investors for quite some time. While Tesla investors celebrated
in December 2020 when the stock was added to the S&P 500, the
stock has just gone sideways since then and the S&P has
almost doubled. Barons argued a few weeks ago
that it didn't deserve to be in the magnificent 7A group of high
growth stocks, as unlike the rest of the group, Tesla is a
richly valued, highly volatile stock that trades on hopes for
the future rather than dominance in the present.
It's difficult to know how Trump's trade wars will work
out, but for countries who want to retaliate, putting tariffs on
Tesla cars and cancelling Starling subscriptions is an
obvious response. While Trump's new tariffs on
imported cars will hit Tesla along with all other automakers,
as Tesla's contained 30 to 40% of foreign source components,
analysts still report that the tariffs will hit its competitors
harder and that Tesla will be the clear winner in the US
market. Of course, retaliatory tariffs
can be expected, and Tesla still sells the majority of their cars
abroad. Valuing Elon Musk's business
ventures has become much more difficult since he became
involved in politics, as so much now depends on the evolving
political landscape. For example, what happens to
these businesses if Trump's friendship with Musk ends?
While Elon Musk's cost cutting within the US government has
been proceeding at a furious pace, the Washington Post
pointed out that Musk himself is one of the greatest
beneficiaries ever of U.S. government largesse.
Over the years, they report that Musk and his businesses have
received at least $38 billion in government contracts, loans,
subsidies and tax credits. The US government support they
show stretches back more than 20 years, but nearly 2/3 of the
money was committed in the last five years, a lot of it during
the Biden presidency. Just last year alone, they show
that federal and local governments committed at least
$6.3 billion to Musk's companies, the highest total to
date. While this number might rise due
to Musk's connections within the US government, it could equally
collapse if Trump and Musk had a falling out.
Today, Tesla is still valued at around 100 times its projected
earnings, far more expensive than other auto manufacturers,
which suggests that investors are.
Pinning their hopes on new technological breakthroughs and
rapid growth. And we'll have to wait and see
how that works out. Thanks for tuning into this
week's podcast, with special thanks to my supporters on
Patreon who make this all happen.
If you'd like to support the channel, you can sign up using
the link in the show notes. Have a great day and talk to you
again soon. Bye.