In This Episode
Tesla is laying off 14,000 people, their self-driving cars are hitting a wall—figurative and sometimes literal—and this week, Cybertrucks were recalled over faulty pedals. How did Tesla go from being one of the world’s most successful businesses to the business equivalent of a dumpster fire that’s lost hundreds of billions of dollars in valuation? Erin and Max break down how Elon Musk trapped his company in a cycle of increasingly elusive innovation. And how, despite all of this, Tesla has it remained dominant in an electric car market that is only growing.
SOURCES
Taxpayer Subsidies Helped Tesla Motors, So Why Does Elon Musk Slam Them? – Mother Jones
How Elon Musk Got Rich: The $230 Billion Myth | The Class Room ft. Second Thought
Can Elon Musk Lead the Way to an Electric-Car Future? | The New Yorker
Elon Musk’s growing empire is fueled by $4.9 billion in government subsidies – Los Angeles Times
Elon Musk’s Distraction Is Just One of Tesla’s Problems – The New York Times
Tesla’s Value Dips Below $500 Billion in Blow to Stock Bulls – Bloomberg
Tesla Is Running Out of Time to Deliver on Self-Driving Promises – WSJ
Schwarzenegger boosts electric car makers
An Electric Car With Juice – The Washington Post
First Tesla Model S deliveries set for June 22nd – The Verge
When I First Saw Elon Musk for Who He Really Is
Tesla IPO Shares Pop, Drop, And Rally. Market Values It At $1.7 Billion. | TechCrunch
TRANSCRIPT
Max Fisher: Erin, it’s time for me to be confused about the stock market again.
Erin Ryan: Max, how many times have I told you that you can’t just walk up to the J.P. Morgan bank teller and tell them you want to put it all on red.
Max Fisher: Okay, so everyone agrees that EVs, electric cars are the future.
Erin Ryan: That is certainly Joe Biden’s ambition. EV sales have tripled in the last few years, and he’s rolled out all these programs and incentives with the goal that EVs will make up half of all new car sales by 2030.
Max Fisher: Right. And everyone also agrees that this is a market like, pretty well dominated by Tesla.
Erin Ryan: Yeah, Tesla is responsible for half of all electric car sales in the U.S. the second ranked seller, Ford, only has 7% of the market, so it’s not even close.
Max Fisher: And yet, Wall Street is treating Tesla like it’s a house on fire. The stock has been dropping for months, wiping out hundreds of billions of dollars in valuation. Earlier this week, Tesla announced it was laying off 14,000 people, a 10th of the workforce, including two top executives. And the stock has only been dropping since.
Erin Ryan: Yeah, it’s lost $800 billion in value–
Max Fisher: That is wild.
Erin Ryan: –since its peak. Look, as I’ve said before, money is fake. [laughter] $800 billion is a made up thing. All these valuation and stock price numbers are made up. But I have to say, when it comes to Tesla, the numbers seem especially fake. And not just this week, but for as long as the company has been around.
Max Fisher: So there is, it turns out, a pretty interesting story in those numbers. And yeah, you might say it’s as much a fantasy as a business story.
Erin Ryan: Harvard Business Review meets The Lion, the Witch and the Wardrobe? Can’t wait. [music break]
Max Fisher: I’m Max Fisher.
Erin Ryan: And I’m Erin Ryan. And this is How We Got Here, a new series where we explore a big question behind the week’s headlines and tell a story that answers that question.
Max Fisher: Our question this week, why has Tesla gone from one of the world’s most successful businesses worth over a trillion dollars to now spiraling even as it remains dominant in the electric car market that is only growing?
[clip of unspecified news reporter number one] Let’s turn to Tesla. Big story out this morning. Shares of the EV maker. Well, they have certainly struggled so far this year off more than 30% since January 1st.
[clip of unspecified news reporter number two] In the EV world. Tesla are planning to lay off more than 10% of its global workforce.
Erin Ryan: Max, I know that since you started looking into this, you’ve been swearing up and down that there’s more going on here than just Elon Musk bullshit.
Max Fisher: Okay, there is a lot of Elon Musk bullshit in this story, but I admit I came away from this more impressed than I expected by the Tesla story.
Erin Ryan: But not by Tesla drivers I’m sure. Consistently the worst on the road.
Max Fisher: Tesla isn’t some hand-wavy Silicon Valley make believe that doesn’t produce anything. Like they sold almost two million cars last year. They made $8 billion in profits. They’re big in China, they’re big in Europe. And this is all after basically creating the electric car market.
Erin Ryan: Okay. But I saw a real Cybertruck driving around the other day, and any company that makes a car that ridiculous is uh probably not a great company. I’m just putting that out there.
Max Fisher: Well, that brings us to the story I want to tell this week. It’s kind of a revisionist history of Tesla’s rise. About how the company’s success was driven by these strengths that also turned out to be, in a way, tragic flaws.
Erin Ryan: Very Greek tragedy. Icarus for carmakers, complete with glue coming undone. [laugh] Let’s hear it.
Max Fisher: Okay, so Tesla got started in 2003 in California as a little startup that converted small European cars from gas to electric engines. And this was at a time when electric cars were seen as totally unworkable.
Erin Ryan: I remember hearing people talk about electric cars back then as these like overpriced, underpowered, impractical wind up toys owned by rich do gooder Hollywood celebrities, which was skewered in a pretty famous episode of South Park.
[clip from South Park episode] I drive a hybrid. It’s much better for the environment. [?]
Max Fisher: Yes, there was also a documentary in 2006 called Who Killed the Electric Car? that accused carmakers and oil companies of conspiring to suppress EVs.
[clip of montage audio from 2006 documentary Who Killed the Electric Car?] We’re up against the automobile industry, the oil industry. It’s David versus Goliath. Who killed the electric car? Lack of corporate wisdom. In my opinion, it’s it’s big oil. The murder was committed by the General Motors Company.
Erin Ryan: Forget it Max, it’s Chinatown.
Max Fisher: [laugh] So there was some truth to all this. But the doc also did indeed have a lot of rich, do gooder Hollywood celebrities bragging about their overpriced, underpowered, impractical windup toys.
Erin Ryan: All while flying private between–
Max Fisher: Yeah.
Erin Ryan: –shooting destinations, of course. Which is to say that electric cars still felt like a great idea in theory as a way to slash global carbon emissions, but one that didn’t yet work in practice. No one wanted to spend $80,000 on a glorified golf cart.
Max Fisher: Tesla kind of solved this problem. Like, here’s a clip from Tesla’s first car show in 2006, the same year as that documentary about the supposed death of electric cars. See if you can recognize the voice of the person introducing Tesla’s CEO.
[clip of Arnold Schwarzenegger] Now next we have Martin Eberhard, who is the CEO of Tesla motors. And of course, this is one of the great cars, Tesla Roadster, an electric car that gets 250 miles per charge. I test drove this one. It’s hard. [sound of audience laughter] [?].
Erin Ryan: I feel like if your last name is Eberhard, you should always have Arnold pronouncing it. It just sounds. It just sounds better.
Max Fisher: Eberhard.
Erin Ryan: Eberhard.
Max Fisher: So Tesla did two big things that helped to make electric cars viable. And you can hear then California Governor Arnold Schwarzenegger hinting at these.
Erin Ryan: If they’re following Detroit’s example, these two innovations are more cupholders and engine components that fall apart faster.
Max Fisher: So one big innovation that Tesla brought was technological. Electric cars up to that point had run on lead acid batteries. And Tesla switched these out for lithium ion batteries, which hold a much longer charge.
Erin Ryan: They also sound way less scary than lead acid batteries.
Max Fisher: You’d rather be riding around on lithium ion.
Erin Ryan: I do remember electric cars before Tesla having a range of like 50 or 60 miles, which is a pretty big limitation, especially in a country with as much nothing as America.
Max Fisher: That’s [?] miles. Yeah, and lithium ion powered engines are also way more powerful. And this helped with Tesla’s other big innovation, which was marketing EVs as luxury sports cars.
Erin Ryan: I see. So people would think they were cool. Unlike the early hybrid cars like the Prius that had reputations as environmentally friendly, but not as, you know, fun.
Max Fisher: Here’s Tesla’s CEO again. This is in 2006 at an event to test drive their first car.
[clip of unspecified person interviewer] We just saw the first demonstration in front of the video cameras of the Roadster. It’s a very quick car, and yet it’s also an electric vehicle. In in your mind, which is more important?
[clip of Martin Eberhard] It’s both. It’s absolutely both. I mean, you can have a car that’s quick and you can have a car that’s electric, but having one that’s both is how you make electric cars popular.
[clip of unspecified person interviewer] Whoa.
Erin Ryan: So where is Elon Musk in all this? Because that guy who says he’s the Tesla CEO is very much not Elon Musk.
Max Fisher: So at this point, Musk was just the money guy. He had invested $6.5 million in Tesla back when it had been just a tiny startup, which made him the company chairman.
Erin Ryan: Money that he’d made from his role in PayPal, which had been bought by eBay, which resulted in a $165 million payday for Elon.
Max Fisher: Not bad.
Erin Ryan: Of course, with some Silicon Valley slap fighting along the way.
Max Fisher: Yeah, so on that. If you want the full Elon Musk story, you’re in luck. Erin has a new video going deep on him as part of her extremely smart and funny YouTube series, This Fucking Guy.
Erin Ryan: Well, thank you Max, but I couldn’t get everything on Elon in one video because he keeps doing stuff.
Max Fisher: It’s hard to keep up with.
Erin Ryan: It is.
Max Fisher: So for our purposes, what you need to know is that in 2008, two years after Tesla’s first big road test, Musk took over as CEO of the company.
Erin Ryan: I feel like Tesla still had not really broken through yet.
Max Fisher: No, it was a mess. It was burning money. It wasn’t making enough sales. Wracked by internal turmoil. Musk was actually its fourth CEO in two years. Things were so bad that a popular auto industry blog called The Truth About Cars had a running Tesla death watch.
Erin Ryan: And today, of course, Tesla Death Watch is what happens when you turn on its automatic driver program in the vicinity of even a small child.
Max Fisher: Yikes, dark. Okay, so, look. I do not think much of Elon Musk. I do not feel like he has been a force for good in our politics or certainly our social media feeds. But when he took over Tesla, he was very, very good at two things. Hyping up the company’s brand and raising more investment money.
Erin Ryan: Those are kind of the same thing when you’re running a startup, though, right?
Max Fisher: Yeah. Starting a car company is really expensive, and even more so if you also have to build the infrastructure for a totally new kind of car. Tesla needed to set up factories, charging stations, whole supply chains, and it had to operate at a loss for years while people got accustomed to the idea of switching to electric.
Erin Ryan: But we should say yes, Elon Musk convinced a lot of investors to give Tesla money to do this, but he did a lot of lying in the process. Overstating Tesla’s technology or overpromising on timelines. Kind of the business equivalent of me texting my friends that I’m five minutes away when I haven’t even put my shoes on yet.
Max Fisher: [laugh] So our producer, Emma Illick-Frank, talked about this with someone named Edward Niedermayer. Edward is a reporter who has been covering Tesla for a long time. He also wrote a great book on Tesla called Ludicrous. Here’s Edward.
[clip of Edward Niedermayer] Tesla is the first company to bring sort of Silicon Valley startup and venture capital culture into the auto industry. That has a profound effect on how it does everything it does from how it designs vehicles, how it continuously updates them, how it manufactures them, some to really good effect and some to, you know, less good effect. It’s the source of both their strength and their perennial uh challenges. One of the things that comes along with that is sort of the eternal optimism and hype that really runs a lot of the venture capital ecosystem.
Max Fisher: This is part of what I meant about those tragic flaws that are responsible for both Tesla’s rise and later also, its now growing troubles.
Erin Ryan: Because the lying catches up to him?
Max Fisher: Well, this is what’s funny. In a way, it’s the opposite. The lying is too successful. Musk raised as much money as he did by convincing investors that Tesla was not just going to become another successful automaker. It was going to create an entirely new industry that it would dominate forever.
Erin Ryan: This is, of course, a strategy that comes out of Silicon Valley. Elon’s fellow PayPal honcho Peter Thiel wrote a whole book about it. The idea is that instead of inventing a better typewriter and carving out your little slice of the typewriter market, you invent word processors. And now you’re Microsoft and you own 100% of the word processor market.
Max Fisher: But this saddled Tesla with a long term problem. It was one thing to promise investors in 2008 that Tesla was going to control a hypothetical future electric car market, but this meant that Tesla was priced like a technology company, not based on how much it earned in any given year.
Erin Ryan: It was, after all, losing money for a long time.
Max Fisher: Right. But based on this expectation that in the future, Tesla would achieve exponential growth through inventing and controlling an entirely new market.
Erin Ryan: Which, in fairness, it kind of did with EVs.
Max Fisher: Right. But once its valuation is pegged to that expectation, there always has to be some other promise that Tesla will do it again in the future.
Erin Ryan: Oh, I see. Number go up. If one day Tesla had come out and said, okay, we did it. We’re through inventing new markets, and now we’re just going to sell cars that investors would start to treat it like a normal company.
Max Fisher: Right.
Erin Ryan: Its perceived market value would be based on boring stuff like sales and projected future earnings, rather than on this promise of a future hypothetical and eventually literal moonshot.
Max Fisher: Exactly. But that did not become a problem until much later. For a long time, as the electric car boom was something that still loomed in the future, investors really bought into Tesla’s hype.
Erin Ryan: I do remember that a lot of people started buying Tesla’s cars, too.
Max Fisher: Yeah and Tesla unveiled the model S in 2009 and car nuts went wild for it. The company sold like 10,000 preorders, even though it wasn’t going to come out until 2012. Here’s a Consumer Reports video on the hype around it.
[clip of Consumer Reports video audio] Tesla’s actually been selling electric cars in the United States, but this model said to go on sale in 2012. This brings it to a whole new level. This car actually sits five passengers. In fact, they’ll have an optional third row seat. So you could put two kids in the back. But the performance is really quite striking. Zero to 60 is supposed to be less than six seconds. And the range, you’re talking about over 100 miles of range with an optional battery up to 300.
Erin Ryan: Okay. I have never seen anyone throw their kids in the trunk of a Tesla. What happened to that third row of seating? I’m so confused.
Max Fisher: So something else happened in 2009 at the same time as this that shows how this great strength of Elon-era Tesla, its knack for hype, would also eventually become a liability.
Erin Ryan: I dug into this a little bit for the This Fucking Guy video we did on Elon the great Daimler Department of Energy hoodwink.
Max Fisher: Oh, it’s a big one. So I will set the scene. Tesla was taking all these preorders for its first mass market launch, the model S, but its costs were skyrocketing from setting up the supply chains and factories. And by that summer, it was secretly weeks away from bankruptcy.
Erin Ryan: Musk was trying to get a big investment from the German carmaker Daimler, but Daimler thought Tesla’s financials looked too risky. Pretty perceptive. At the same time, he was also trying to get a half billion dollar grant from the Department of Energy. But the government had the same fear as Daimler. They thought Tesla’s business was too shaky to justify the loan.
Max Fisher: So Elon Musk did what he has done many times since to get people to invest in Tesla. He lied.
Erin Ryan: He told Daimler he’d already gotten the Department of Energy loan. That wasn’t true, but it convinced Daimler to invest. Which in turn convinced the Department of Energy to approve the loan.
Max Fisher: The same loan that he’d already claimed he’d secured, which was how he ended up, in fact, actually securing it.
Erin Ryan: A snake eating its own tail. And that was typical of Musk in another way, relying on all sorts of government subsidies and handouts for Tesla.
Max Fisher: Which is not such a bad thing per se, like the goal of these handouts is to stimulate the electric car business, which they do.
Erin Ryan: It does make him a liar and a hypocrite for simultaneously claiming, as he always has, to oppose government subsidies.
Max Fisher: And more to the point of explaining Tesla’s rise and fall. It helps to make Tesla look profitable even when it is not.
Erin Ryan: Because the actual car making part of the business was losing money, but the government subsidy receiving part of the business was outpacing those losses.
Max Fisher: In the first quarter of 2013, for example, Tesla announced $11 million in profits. Not a huge number, but enough to show, hey, we’re in the black, we’re a viable business. But that same quarter, it revealed it had booked $68 million in California clean air credits. Next quarter, same story. Tesla reports $26 million in profits on paper, but in the fine print, it reveals that that was driven by $51 million from that California Clean Credit air subsidy alone.
Erin Ryan: So the image of Tesla as a profitable automaker is kind of a fantasy created by government handouts.
Max Fisher: But building your business on chasing subsidies and exploiting government programs creates some perverse incentives, especially when you add on top of that Tesla’s habit of hype and over promising that it’s gotten into in order to keep its valuation inflated.
Erin Ryan: You are thinking of the battery swap scam.
Max Fisher: I could not believe this story when I first heard it.
Erin Ryan: I love this scam. It is such a it is so scammy.
Max Fisher: So just to again set the scene. Tesla had announced that it was going to set up stations where instead of recharging your Tesla’s battery over a long 45 minute wait, you would swap out the drained battery for a fully charged one in a matter of seconds. Here’s a video from an event in 2013 demoing this.
[clip from Tesla event in 2013] So what we really want to show here is that you can actually be more convenient uh than than a gasoline car. So, so hopefully this this this is the hopefully this is what convinces people finally, that electric cars are the future. [cheers and applause]
Erin Ryan: But this was all bullshit.
Max Fisher: And it’s bullshit that served to hoodwink, not just investors, but the government. In 2015, California started cutting Tesla huge subsidies on the basis of these battery swap stations.
Erin Ryan: Except that only one such station exists in the middle of nowhere in rural California.
Max Fisher: Oh, it gets so much worse. So that guy we talked to earlier, Edward Niedermayer, the reporter who wrote the book on Tesla, was actually the one to first uncover this. We’ll let him tell the story.
[clip of Edward Niedermayer] Being someone who kind of needs to go and see things for myself, I went down to uh Harris Ranch, which is halfway between, LA and San Francisco, and I spent a long Memorial Day weekend there watching um and sure enough, there were lines for the superchargers. Um. But they did not open the battery swap station at all. Um. Instead, what Tesla did was they brought in backup superchargers and hooked them up to diesel generators. So it was this very dramatic moment where not only was this sort of technology that they were hyping, as you know, this game changer at the time for, for electric vehicles wasn’t real or wasn’t being used in a real way. Uh. But then they were bringing in these, like, polluting diesel generators to charge vehicles when they could have just if the swap station had been real, allowed customers to use it, which they said they wanted to do. Ultimately, what I found out was that the swap station allowed Tesla to earn a lot more of zero emission vehicle credits from the California scheme. So they were effectively kind of ripping off uh this carbon offset scheme, essentially.
Erin Ryan: Oh my god.
Max Fisher: Yeah, it is wild.
Erin Ryan: This earth day concert brought to you by coal, glorious coal.
Max Fisher: So keep this pattern in mind because if you are a company and you scam the government out of subsidies, probably at worst you might lose the subsidies or face a fine. But if you scam investors with smoke and mirrors like this, they can gut your valuation and cost you everything.
Erin Ryan: But as of the 2010s, these sorts of consequences are still a long way away. In fact, isn’t this around when Elon Musk starts promising that Tesla was going to make fully self-driving cars?
Max Fisher: Yes, Musk said that Tesla was worth basically zero if it couldn’t figure out self-driving cars, which might seem odd since Tesla was starting to make pretty good money selling EVs.
Erin Ryan: And now we’re getting into the money is fake portion of the show. [music break]
[AD BREAK]
Max Fisher: Remember that Tesla’s valuation isn’t based on sales like with a normal company, but more like a tech startup on the promise of future exponential growth. Now that electric cars were a reality, Tesla needed some other promised future breakthrough to keep its stock price up.
Erin Ryan: Oh so promising magical cars that drive themselves. This is where Tesla started to get over its skis, because it had to convince investors that this promise of self-driving cars was real, and that led it to do things that were risky and ultimately dangerous.
Max Fisher: Here’s Edward Niedermayer again.
[clip of Edward Niedermayer] From quite early on, this led to the company sort of crossing some lines that a lot of other companies wouldn’t, um some of which might have been more normal in a in a venture backed sort of private company, um versus a publicly traded company. Um. But as time has gone on, you’ve seen these line crossings get bigger and bigger and bigger to the point now where, you know, Tesla is essentially all in on the idea of full self-driving when, you know, they’ve been promising it by the end of the year for six years and and it’s not only not here, but it never will be.
Erin Ryan: Wow. It’s like waiting for Godot.
Max Fisher: [laugh] So Tesla started lying about its self-driving technology pretty much right away. Here’s a news report from last year on revelations the company’s big self-driving demo from 2016 had turned out to be a total sham.
[clip from Tesla’s self driving demo] According to a Tesla engineer’s testimony. The car used 3D mapping on a predetermined route from a Californian house to Tesla’s then headquarters in Palo Alto. The engineer revealed that during filming, the drivers had to intervene in test runs, and when trying to show that the model X could park by itself, the car actually crashed into a fence.
Erin Ryan: This reminds me of that recent news story of Amazon’s fully automated stores actually relying a lot on human labor, watching people on surveillance cameras.
Max Fisher: Mm hmm.
Erin Ryan: Gosh, tech is such a pump and dump scheme.
Max Fisher: [laugh] Well, not only that, but if you have ever told a lie, you know, the hardest part isn’t the initial lie. It’s keeping the lie alive over time.
Erin Ryan: And if investors who bought into Tesla on this promise of self-driving cars ever decide they’ve been hoodwinked, they’ll sell off, which could devastate the company.
Max Fisher: Tesla created all this pressure on itself to rush out self-driving. To keep that story alive, which led to technical problems, legal problems, and regulatory battles.
Erin Ryan: Tesla did roll out something called autopilot, which is a feature that is meant to be kind of half way to a self-driving car, but it’s really buggy, and you don’t want the robot driving your 5,000 pound car to be buggy.
Max Fisher: In 2018, a guy named Walter Huang was driving his Tesla SUV with autopilot on when it rammed into a highway barrier, killing him and his family sued. Tesla settled. But the National Highway Traffic Safety Administration got involved and opened more than 35 investigations into crashes where autopilot may have been at fault and a number of them were fatal.
Erin Ryan: Oh my goodness. As a non Tesla driver this is very concerning to me as well. The California Attorney General also ended up investigating Tesla’s marketing for these self-driving features.
Max Fisher: As you might think that all of these indications that self-driving features are a commercial and regulatory liability would have started affecting Tesla’s share price. But Musk kept finding ways to boost the stock.
Erin Ryan: Are we going to talk about the 420 tweet?
Max Fisher: [laugh] Yes, yes. Unfortunately. So in the middle of all this swirling doubt about self-driving technology, Elon Musk tweeted that he was taking the company private at $420 per share and that he had secured funding.
Erin Ryan: Which was both juvenile and a lie. The Elon Musk special.
Max Fisher: Yeah, there was no such funding. And telling Wall Street you were about to buy up every share of Tesla for $420 when it was trading well below that is basically a promise, hey, if you buy stock in my company, you’re guaranteed to make money, which a lot of people do, and that pushes up the price.
Erin Ryan: It’s fraud, which the Securities and Exchange Commission investigates and Musk has to settle. A group of investors also sued him over it. Elon was forced to resign as chairman of the board, although he remained CEO and had a social media minder appointed to watch over his posts as a result. Seriously, a businessman in his late 40s with a court appointed babysitter.
Max Fisher: But even despite all this, the stock kept rising. In 2021, it reached $400 a share, which made Tesla worth $1.2 trillion.
Erin Ryan: Only the sixth company in U.S. history to cross the trillion dollar line. And it made Elon Musk, at least on paper, the richest person in the world.
Max Fisher: Right. On paper, that’s the key, because everything is tied up in the Tesla share price, because most of Musk’s net worth is in Tesla stock, and Tesla’s share price is only so high because investors believe that Tesla will both permanently dominate the ever growing EV market and lead an imminent revolution in self-driving cars.
Erin Ryan: It is a lot of spinning plates to balance.
Max Fisher: Well and in 2022, a year after the trillion dollar valuation. Elon added another spinning plate that was maybe more like a bowling ball.
Erin Ryan: Ah yes, buying Twitter.
[clip of BBC unnamed interviewer] When you put that initial bid in. You then had a wobble. You kind of said, I actually don’t want to buy Twitter anymore. Then you changed your mind again and decided to buy it.
[clip of Elon Musk] Well.
[clip of BBC unnamed interviewer] Did you do that? Did you do that because–
[clip of Elon Musk] I kind of had to.
[clip of BBC unnamed interviewer] Right. Did you do that because you thought that a court would make you do that?
[clip of Elon Musk] Yes.
[clip of BBC unnamed interviewer] Right.
[clip of Elon Musk] [laughing] Yes. That is the reason.
[clip of BBC unnamed interviewer] Right. So you were still trying to get out of it, and then you just were advised by lawyers. Look, you’re going to have to you’re going to have to buy this.
[clip of Elon Musk] Were going to we’re, yes.
Erin Ryan: It is amazing to me how much reporters just fill in words for him to agree with. Now that we kind of know that he’s a bit of a clown. Listening back to other interviews that he did when everyone thought he was a genius, you’re like, oh no, people are just giving him words to say.
Max Fisher: Yeah. Well, and that was from a more recent interview that Musk gave to the BBC. And there is every indication that, as he said, his initial offer to buy the company for $44 billion was a stunt for attention. But Twitter sued and forced him to follow through.
Erin Ryan: But what, other than being highly entertaining, does this have to do with Tesla?
Max Fisher: So in order to afford the Twitter purchase, Musk had to sell off a bunch of Tesla stock. And it turned out that this was a really bad time to be selling off a lot of Tesla stock.
[clip from unnamed CNBC reporter] I think it’s the most interesting story in the market. It’s Tesla. Uh. Right now it hits another new low. The market cap has fallen now below Walmart and JP Morgan. That’s stunning in and of itself if you consider where it started this year. Joe, it was north of $1.2 trillion. Okay. Now it is like $355 billion.
Max Fisher: That was CNBC at the end of 2022. And what had happened was that even before he bought Twitter, Tesla had been having a pretty rough year. They got hit with factory shutdowns in China. Sales were not as high as he had promised. The Tesla Cybertruck was way behind schedule. Self-driving cars had materialized.
Erin Ryan: Yeah, and sell low, buy high is not a great financial strategy. The hype and lies, in other words, were catching up to Musk.
Max Fisher: And the mystique around Elon Musk as a visionary figure whose companies could only do better and better was starting to fall away. Now that he was hyperactive on Twitter, he did not look like such a genius anymore.
Erin Ryan: And here I thought the most you could lose from tweeting was your supporting role in Disney’s The Mandalorian.
Max Fisher: [laugh] His tweets also turned off a lot of buyers. By the end of 2022, only one in ten liberals in the U.S. said that they viewed Tesla favorably, and about half of Germans said they would no longer consider buying Tesla because of Musk’s tweets.
Erin Ryan: Way to alienate your entire consumer base, genius. And then, in the middle of all this, Elon had to sell off something like $23 billion in Tesla stock to finance buying Twitter.
Max Fisher: And if there’s one thing Wall Street does not like, it’s seeing the CEO of a company sell off a ton of their stock during a downturn. So it sparked like a little bit of a rush for the exits.
Erin Ryan: And this brings us to 2024 because there’s been another big slide in the stock, right?
Max Fisher: All of these problems in the company’s EV business have just gotten worse.
Erin Ryan: Unfortunately for my road rage, Teslas are still absolutely everywhere here in LA.
Max Fisher: Yeah, Tesla does still account for half of new EV sales in the US, but that’s down from two thirds of all EV sales just a couple of years ago. And the overall electric car market is in a little bit of a dip right now. It’s expected to recover thanks to all those Biden EV incentives. But that market is going to look a little different.
Erin Ryan: Right. Tesla’s business has been selling high end luxury electric cars, and it looks like the future of EVs is going to be in cheaper models so that more people can switch over from gas powered cars.
Max Fisher: And Tesla did have a plan for this, a cheaper EV it called the model two, but its stock troubles really picked up when Reuters reported not long ago that Tesla had secretly canceled the model two.
Erin Ryan: I saw that Musk accused writers of being wrong. But you know, who are you going to believe? The lying liar who lies or the news agency?
Max Fisher: Reportedly, Tesla canceled that cheaper model in order to focus on its latest big scheme, which is self-driving cars it says it will be able to market as driverless taxis.
Erin Ryan: From everything we’ve heard about, Tesla’s need to always be promising some huge future development, this does make a certain kind of sense. Making a cheaper model two would make it just another car company, albeit a pretty successful one.
Max Fisher: Right. So to prevent that, it has to keep the self-driving promise alive. At the same time, Tesla is giving up on the model two, which means it’s accepting a smaller place in the EV world which spooks investors.
Erin Ryan: So Tesla’s value is more and more tied up in this promise of driverless taxis. But Elon is asking everyone to take him at his word that Tesla will get there, and he’s given us more and more evidence that we should absolutely not be taking him at his word.
Max Fisher: That doubt proves pretty poisonous for Tesla. Here again is Edward Niedermayer.
[clip of Edward Niedermayer] You don’t even need to understand the technology. All you have to do is look at Elon Musk and what he says. And every year for the past six plus years, he’s been saying this technology will be finalized, complete. Like we’ll just have a general solution to autonomous driving done by the end of this year. And every year he just repeats himself and he never stops and says, wait, this is where I got it wrong. He never explains himself. And so I think just on a human level, you don’t have to understand the technology and understand that he’s stringing people along.
Erin Ryan: So if this company has been valued forever on both dominating EV sales and also the promise of future breakthroughs, but now the EV sales are down and no one believes the promises anymore, then what is the company actually worth?
Max Fisher: That’s the big question. So as of this recording, it’s trading at $155 a share, which makes the company worth, on paper, a little under 500 billion, which is up from the lowest point but down from more recent months. And it’s still sliding fast.
Erin Ryan: Sure. But where it’s trading is not the same as what it’s worth. Like, what do people think this company is actually end of the day, bottom line, really, really worth.
Max Fisher: I think it helps to look at this like a stockbroker or an investment house. As we’ve talked about before in other episodes, traders and analysts price what companies are worth based on something called the price to earnings ratio.
Erin Ryan: Right. They look at a company’s annual earnings and then they multiply that by some made up number they dreamed up. And the result is what the company’s worth.
Max Fisher: Most car makers are priced with a price to earnings ratio somewhere around five. So for example General Motors made $10 billion last year. Investors multiply that number by five, and they conclude that the company is worth $50 billion.
Erin Ryan: Multiple of five. Sure. Why not?
Max Fisher: But even with its recent dive stock, traders are treating Tesla as worth 60 times its earning from last year. In other words, even though Tesla made less than GM, investors are behaving as if they believe the company is worth ten GM’s.
Erin Ryan: That seems like lunacy to me.
Max Fisher: Some analysts agree with you, and they are saying that they think Tesla is really worth only $23 a share. Basically, they want to price it the same way they would any other carmaker. But other analysts are still putting these stratospheric $200 and $300 valuations on the stock.
Erin Ryan: So basically, nobody knows what it’s worth because Tesla’s value right now is based less on anything concrete, like sales or revenue figures, and more on whether you believe in Elon Musk.
Max Fisher: Like you said, Harvard Business Review meets The Lion, the Witch, and the Wardrobe. Here one last time is Edward Niedermayer on whether Tesla is going to cross into more emperor has no clothes kind of territory.
[clip of Edward Niedermayer] One of the lessons of Tesla over the last ten years or so is, you know, in the right hands, the right story, the right perception, the right narrative can be incredibly powerful. You can shape reality in the internet age and that’s really what’s happened. They’ve been able to defy gravity for so long, but gravity always wins. I think building a sort of cult of personality uh is an extremely effective short term strategy. But in the long run, what’s happened is that the person at the center of that cult becomes disconnected from reality. And when the person who’s sort of being worshipped loses touch with reality and doesn’t have people around them who can constrain them and say, hey, hey, man like I don’t think that’s such a good idea. I think we should rethink things. Then uh, things start to go sideways.
Erin Ryan: Max, Tesla is a particularly egregious example of a stock that runs on fairy dust and wishes. Actually to paint a picture, imagine Tesla’s stock is like a dance floor and Elon Musk is the DJ. Everything’s been great. Really fun party. Then 2 a.m. hits and suddenly the DJ starts spinning the Captain & Tennille, just absolutely killing the vibe. The dance floor clears. We no longer trust the DJ. The party is over. And meanwhile, just this week, Musk has asked shareholders to approve an eye watering $56 billion pay package that a court previously rejected. It is just madness. I hate this party and I want to leave, preferably in a non autonomous taxi.
Max Fisher: That is how a lot of investors feel. Certainly. And I love Captain & Tennille. But I take your point.
Erin Ryan: What?
Max Fisher: [laugh] Anyway, again, I am not a fan of Elon Musk, but to me Tesla’s rise has been good for the world. It really did create the now huge and growing EV market. And if you care about fighting climate change, that is a big, big deal. So in that sense, I am rooting for Tesla. But, you know, at the same time, Tesla has painted itself into this corner where for all the market reasons we discussed, it feels enormous pressure to deliver self-driving cars and driverless taxis before that technology is ready and without, I think, proper heed for the risks. And that has not been such a good thing. So maybe it would be for the best if Tesla became the thing Elon is so terrified of it becoming, which is just a regular EV car company. Price with a regular car maker stock price. Not a moonshot tech company worth an entirely theoretical trillion dollars. The losers in this would be Tesla investors, but I think arguably the rest of us would come out a little bit ahead.
Erin Ryan: We leave you with Elon’s demonstration of armor glass windows on the new, recently discontinued–
Max Fisher: Uh oh.
Erin Ryan: –temporarily Tesla Cybertruck. [music break]
[clip of Elon Musk] [?] Could you try to break this glass, please?
[clip of unnamed person] Sure. Yeah.
[clip of Elon Musk] Oh, my fucking God. Well, maybe that was a little too hard.
Erin Ryan: Oh my gosh. Yeah. It broke. [laugh]
Max Fisher: How We Got Here is written and hosted by me, Max Fisher and by Erin Ryan.
Erin Ryan: It’s produced by Austin Fisher. Emma Illick-Frank is our associate producer.
Max Fisher: Evan Sutton mixes and edits the show.
Erin Ryan: Jordan Cantor sound engineers the show. Audio support from Kyle Seglin, Charlotte Landes, and Vasilis Fotopoulos.
Max Fisher: Production support from Adriene Hill, Leo Duran, Erica Morrison, Raven Yamamoto, and Natalie Bettendorf.
Erin Ryan: And a special thank you to What a Day’s talented hosts Tre’vell Anderson, Priyanka Aribindi, Josie Duffy Rice, and Juanita Tolliver for welcoming us to the family. [music break]
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