Has the Tesla Endgame Begun?

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If the world’s most disruptive car company hopes to survive, it might need to lose its maverick CEO.

For the world’s most charismatic billionaire, 2018 has been the most trying year of his incredible career. Isolate his uncontained arrogance and baiting on Twitter and there is no argument that Elon Musk is both outrageously talented and an unrepentant car guy.

With all the production issues, share price valuation debates and questions regarding his stewardship of the automotive world’s first successful battery-car company, we tend to forget that Musk isn’t merely a technologist seeking to disrupt the established car brands. He is an enthusiast who, like Mr Bean/Blackadder/Johnny English star Rowan Atkinson, has owned (and crashed) a McLaren F1 – arguably the purest road-going performance car ever made.

Musk is well-known for putting in 120 hour-plus weeks at the office, but has his strenuous efforts finally got the better of him?

There has always been a contention from those dedicated – and slightly obsessed – Musk followers that his Tesla project has an untrivial sense of destiny about it. The battery-powered car should have happened decades ago and its absence is merely a conspiracy between manufacturers and Big Oil. Ettore Bugatti, after all, had an electric car, with which he used to commute around the Molsheim factory in the 1930s.

Could August 2018 be remembered as the date when Tesla was either steered towards ultimate success – or terminally derailed? Last month Musk used his preferred personal device – Twitter – to admit that he felt overworked and isolated. The tension between Tesla’s production obligations and supplying perfectly configured powertrain batteries on a scale never attempted in the automotive industry, are now consuming him with 120-hour working weeks.

Has it all become too much for Musk?

On 7 August 2018, Musk – in a manner typical of him – enraged investors by tweeting that he had enough support to delist Tesla. For a man who has openly mocked institutional investors whilst presenting the company’s results, the published note of an intention and ability to remove Tesla from the public sphere was a bit too ambitious. Musk had called the bluff of all his critics.

The desire to take Tesla private was obvious: it would allow Musk greater independence and avoid the annoyance he has suffered as CEO of a publicly traded company, one which is beholden to strict financial reporting rules and all manner of scrutiny.

Investors were concerned when Musk appeared to puff on marijuana on the Joe Rogan podcast.

A private Tesla would not have to report every quarter, and this has been Musk’s moment of infamy as production targets have consistently underwhelmed – sometimes by enormous margins. The market has been good to Tesla. Its share price has ballooned tremendously in the last two years, from just below $40 in 2013 to above $300 in 2018, which availed Musk a massive capital base from which he could execute his master vision for a battery-powered future.

When you take open-market money it comes with a required measure of scrutiny too – and this relationship has not been one Musk is at all comfortable with. His behaviour when questioned about Tesla’s missed production targets or any other strategic discrepancy has often bordered on hostile. With Musk, there is always the sense that telling other people what you are doing with their money is an unnecessary detail which should not apply to renegade entrepreneurs such as himself.

Norway was once a huge supporter and investor of Tesla, but the carmaker's reputation has slid somewhat in the eyes of the Scandanavians.

Record Tesla share prices created other issues too and were perhaps the primary reason why Musk could not do as he had originally tweeted he would. When your share price is as fully valued as Tesla’s, it makes delisting very expensive and few institutions or investors have the reserves of cash, and steadfast belief in Tesla’s wildly ambitious vision, to fund the realisation of Musk’s privatisation tweet. Ironically, the people who had sufficient cash to help Tesla go private were also those most at risk of its battery-powered cars.

Why would Big Oil save the electric car?

Pressured to reveal the credibility of his claim that Tesla has a partner with the $66 billion required to delist, Musk admitted that the Saudi’s national sovereign wealth fund was involved. The irony is crushing. Saudi Arabia is the world’s biggest oil producer and an anchor member of OPEC, the cartel which controls global petroleum production and supply – depending on price fluctuations.

It would appear madly irrational for a national oil revenue investment fund to help Tesla perfect a product and supply chain that will, ultimately, destroy the Middle Eastern hydrocarbon economy. With Elon Musk the new normal is always an outrageous a scenario, hence his claim of Saudi willingness to entrust a ridiculous amount of money, to a company that has never been profitable, isn’t that unbelievable. To take Tesla private at Musk’s $66-billion valuation would have wiped out a 3rd of the Saudi sovereign wealth fund’s holding: which currently stands at a healthy $230 billion.

Why would Saudi oil money be interested in acquiring a large stake in Tesla?

That Musk is desperate isn’t surprising, but that the Saudis signalled an interest? That requires explaining. Despite the Kingdom’s ultra-conservative appearance, the Saudis have realised their prosperity beyond 2030 can’t rely solely on oil. Diversification is now an urgent strategy and buying into the electric car future is a clever move.

Saudi oil money currently owns 5% of Tesla and the world's most ethically responsible oil revenue wealth fund, that of Norway, a minor interest of 0.48%. The Norwegians have immense cash to invest, their oil money piggy bank is 4 times the size of Saudi Arabia’s, yet they weren’t keen on a deal. Norwegians have shown a tremendous appetite for Tesla’s cars, at one stage being the brand’s best comparative market, but customer issues have tarnished Tesla’s image in Norway.

The Norwegian sovereign wealth fund is extremely prudent with its investment strategy and has criticised Musk’s position as both CEO and chairperson of Tesla. It is unlikely they would ever have paid an enormous amount of cash for a business that hasn’t yet made a profit.

Is Tesla better without Musk?

After calling the market’s bluff and being embarrassed by his inability to delist Tesla, Musk has stumbled into yet another public relations disaster, by smoking marijuana during a recent podcast interview – with video footage to confirm the act.

Tesla’s chief accounting officer has subsequently quit, after only a month in the position, and despite the Model 3's production numbers improving, they are nowhere near the required targets. There is an increasing sense that for Tesla to survive, it can no longer have the individualistic Musk as its CEO.

The Model3 has been hit and miss in terms of meeting its production targets.

It’s worth remembering that Musk was not the company’s founder. The original technology and vision, of marrying battery power with a sportscar, was an initiative of Martin Eberhard and Marc Tarpenning. Musk merely bought into the idea and thereafter attempted a hugely ambitious scaling of Tesla’s technology. This has perhaps been his greater failure too.

Tesla’s sophisticated electric powertrain and electronics architecture deserves all the accolades it has received from engineering specialists and technology trends observers. The company’s issue is that it cannot produce enough cars and build them to a desired level of quality. Tesla should have recognised the limits of its disruption and contracted production to an assembly specialist, much as Apple does with its iPhones. Incubating breakthrough technology and assembling it in required production volumes are 2 very different applications – Tesla is brilliant at the former, but has failed miserably at the latter.

Is the Tesla dream slipping away?

Where does the disastrous series of events in August 2018 leave Musk? It would appear all he has gained is a retiring share price and many calling for his resignation. It also leaves Tesla exposed at a time of rising oil prices, which are usually good for the electric car industry as more expensive fuel hikes up customer demand for alternative-propulsion products. Increasing oil prices would also give the Saudis more buying power and, as Musk’s shenanigans make Tesla shares cheaper, Saudi sovereign wealth fund managers can buy more of them…

If Musk thought he could use Saudi oil money to take Tesla private and avoid the grinding administration that accompanies running a publicly listed company, he has been proven very wrong indeed. The great irony is that his antics might have made it affordable for oil money to take over Tesla instead. It would appear Musk has been dealt his final hand and that the house holds all the winning cards.

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