Friday, December 17, 2021

Could Tesla Go Bankrupt? (First To Market)

It is highly unlikely that Elon Musk will go broke - after all, like Trump, he inherited a lot of money when he was born.  But Tesla might not be the most valuable car company in the world for long.  In fact, it may be relegated to history before too long.

Elon is at it again, this time calling Senator Warren "Karen" instead of Pocahontas. It seems, just like Joanne "JK" Rowling, he just can't let it go.  When Ms. Rowling started going off about trans rights, maybe the core of what she was saying was true - that trans athletes competing against biological women isn't fair.  And this is proven to be the case, with some trans athletes breaking women's sports records left and right.  It remains to be seen if those records come with an asterisk or not.

But I get that.  And it is sad we can't have a rational discussion about this without the far-left going off about how any discussion, even, is "transphobic" and that "gender affirmation surgery" (which we used to call a sex-change) is life-saving surgery because people would kill themselves if they don't get it  Sounds more like a hostage situation.  But on the far right, similar silliness abounds - positing that letting trans women use the ladies room would result in women being raped - even though there is no real motivation for a trans woman to suddenly decide to become a man again and go a-rapin'.

And sadly, Joanne had to go there - making tweet after tweet including the latest one with some cryptic comment about how "her rapist" was a woman with a penis.  She must have broke open a new box of Chardonnay before that tweet went out.  It is sad, but once you become super-rich and famous, I guess you figure you can just do whatever the fuck you want to, as you already have more money than you can spend in one lifetime.  I call it Michael Jackson Syndrome.  Maybe the Harry Potter books will have an asterisk next to them as well.

Elon Musk is doing the same thing as Ms. Rowling.  He is on a tweet binge and has been for years.  He has gotten in a lot of trouble, too.  He said Tesla would be bought out for $420 a share (420 - get it?  As in marijuana! Tee-Hee!) and that turned out not to be true and the SEC investigated him.  He also has been hyping Bitcoin and now Dogecoin using his Twitter platform.  He is the Donald Trump of electric cars - and that's not a compliment.

His latest dig - after questioning whether Bernie Sanders was still alive - was to call Ms. Warren a "Karen" for saying that maybe people like Musk should pay taxes for a change (which he will finally do, this year).  Radical stuff, I know.  A lot of people are souring on Musk, even his fanboys.  Like I said before, the incels and gamers are realizing that there is no seat on the rocketship to Mars for overweight Bronies.

But I suspect the simps and fanboys are not as legion as they appear on the Internet.  Like any good royal, Musk can afford to hire a Greek Chorus of admirers - bots and trolls and fake Twitter accounts that laud him and "like" and upvote his postings.   All the social media "influencers" and celebrities do this - act shocked.

I noted before that this nonsense about Musk being "the richest man in the world" is kind of overblown.  I have pointed out that first to market is last in the marketplace. While Tesla has shown that electric vehicles can be practical for at least some people, every other car maker on the planet is tooling up to make their own electric cars, and in fact, many are already on the market.  They will likely undercut Tesla in price and features - as well as reliability and service.  The lack of a dealer network, which Tesla touted as an advantage, may turn into an albatross, as Teslas start to age.

Then there is solar city.  In the ultimate insider job, Musk had Tesla buy a solar company that was owned by his relatives. The company is losing money, has a huge debt burden, and has some minor quality issues (causing houses to catch fire). Even with the influx of cheap Chinese solar panels (attenuated somewhat by Trump's solar panel tariffs) the solar industry isn't what it used to be, particularly home solar.  Since most utilities only buy back electricity at wholesale rates, you cannot make much money with a home-solar setup - not like the old days.  The only alternative is to have a battery bank of old Tesla batteries, to store energy for when the sun goes down.

Maybe Solar City will take off. Maybe not. All I can say is, like Tesla, there is no "secret sauce" to solar panels any more than there is to electric cars.  Others will enter the marketplace and sell these things like any other home appliance - at cut-throat margins.  Anyone who thinks there are huge profits to be made in the car business or the appliance business doesn't know much about either - nor have they read history.

Speaking of history, a little history lesson about Musk is in order.  He was born in South Africa to a wealthy family that owned a gem mine.  So like Trump, he basically was born a millionaire - in an era where millionaire meant something.  He amplified his wealth by investing in PayPal, which had a lot of shady dealings early on, as I noted before.

Meanwhile, a couple of dudes from Silicon valley figured out that you could build a really fast electric car by ditching the conventional lead-acid batteries in favor of Lithium-Ion computer laptop or cell phone batteries - hundreds of them!  So they bought Lotus Elise chassis and fitted them with electric motors and all those batteries.   About that time, Musk bought controlling interest in the company and - according to some sources - claimed to be the "founder" of Tesla.   The original Roadster was unlike other electric cars of the time, most of which had limited range and were  painfully slow.  The Tesla Roadster was fast and had a usable range.  The electric car had come of age.

The rest, as they say, is history.  And just as Steve Jobs didn't "invent" the personal computer, the Mac, the iPod, or the iPhone, neither did Musk really "invent" the Tesla car or the SpaceX rockets or much of anything else.  Yes, his name is on a lot of Patents - and pending applications - but like most technology Patents these days, so are a lot of other people's names.  And yes, I have run into the situation before where the department head or company President insists that his name be on every Patent (or most Patents) that the company files for.  That doesn't mean that person was a key inventor, if an inventor at all.

I suspect that like Jobs, Musk may be forced out of the company eventually, if he keeps up his antics.  Perhaps not in the near future, but you never know.  Apple did eventually hire back Steve Jobs, mostly to use as a talisman of innovation to get the fanboys all exited.  I suspect Musk - if he can keep his hand off the Tweet button - could serve a similar role.

But fortunes could change - and change dramatically - for Tesla and Musk.  The papers love to report him as the "richest person in the world" which he is, on paper.  If you use "market cap" as a calculation of wealth, then you can come up with astounding numbers.  But what those shares of Tesla or SpaceX are worth in the marketplace is another matter.  I am worth a couple of million, on paper.  If I wanted to convert that into dollar bills, it would take me weeks to sell stocks, bonds, and other investments, sell off real estate, and even personal possessions and vehicles.  The difference between me and Elon Musk is that when I liquidate my assets, it doesn't affect overall market values.

If I sell my pitiful shares of stock, the market doesn't crash as a result.  If Elon Musk unloaded all his Tesla stock - even over a period of a year - the share price would plummet.  Even selling off a small portion, as he did recently, affected the share price.  So wealth on paper and money in the bank are two entirely different things.  If you live by Market Cap you die by Market Cap, and Tesla stock, which currently has a P/E ratio of over 300 and was over 1000 in recent times, is clearly over-valued by a factor of 10-15 at least.  If Ford and GM flood the market for electric cars, what will happen to Tesla shares?   They become even more valuable is the wrong answer.

Back in the late 1950's, Studebaker was facing bankruptcy.  No one wanted their cars anymore and they could not compete head-to-head with "The Big 3".  So they fell back and punted, cutting the front and read ends off the Champion and updating the styling and calling it the "Lark".   Meanwhile, the newly formed AMC (from Hudson and Nash) did the same thing with their "Rambler" line.   In 1959 recession struck, and people got tired of expensive, chrome-laded showboats that got 8 miles to the gallon and rusted on the showroom floor.  The "compact" car craze really took off in America, and for a few brief years, it looked like AMC and Studebaker would thrive.

Of course, GM, Ford, and Chrysler didn't fail to notice the trend.  Almost immediately they introduced their own lines of compacts - the Falcon, the Chevy II, the Valiant.  And they sold well - so well in fact that by 1965 Studebaker was history and AMC went back to trying to compete head-to-head and model-to-model with the "Big 3." Turns out, people wanted a car from a major manufacturer with an established dealer network.   Lower prices just sealed the deal.

For better or worse, corporate America steamrolls over competition with "me too!" products that are often better - or at least cheaper than - the originators.  And we see this all the time, worldwide, when it comes to proprietary technology.  Maybe the Tesla charging station is the cat's ass, but over time, a more generic model will likely be more popular.  Tesla should freely licence their technology unless they want to end up like Apple.  Yes, Apple.  Outside of the US, they only have a small share of the cell phone market and even in the US, not a majority share.  And the Mac?  A pitiful share anywhere.

It is almost comical how car companies will try to kill the baby in the cradle by making "me too!" products.  Sometimes it works, other times, not.  When VW started selling "bugs" in the US in the 1950's, GM came up with an almost exact copy of the design - the Corvair.   Before he wrote Unsafe at Any Speed about the Corvair, Ralph Nader wrote Small on Safety about the VW.  It turns out the safety problems of the Corvair were inherited from the VW, as GM slavishly copied the chassis design.  What killed the Corvair wasn't Ralph Nader, but the high cost of making it.

Turns out, Americas preferred cheap and simple Chevy II's and not esoteric aluminum-air-cooled engines mounted astern.  The Chevy II in turn, was a counter to the threat of Studebaker and Rambler.  The Corvette was a counter to the "European Sports Cars" that GI's were bringing home with them.  The Big-3 caould afford to match competitors head-to-head across product lines, even if they lost money, for the sole purpose of putting the other guy out of business.

Of course, later, this "me too!" engineering didn't pan out as well.  Saturn was supposed to out-Toyota the Toyota Motor Company.  Unfortunately, like with the Edsel, there was much hoopla and much money spent, and not a lot to show for it.  Some wags opine that for the billions spent on Saturn, GM could have simply bought the outstanding stock of Toyota.  Time will only tell if GM and Ford can out-Tesla Tesla, or whether their efforts amount to little more than another Saturn.  The last attempt - the Chevy Volt - was supposed to be an answer to the Prius.  By all accounts, the Volt was a good car, but for some reason,the Prius faithful never took a liking to it and today it is no more.

Better luck next time!

So yea, it could go either way, I guess.  GM has gone bankrupt in the past - as has Chrysler, twice.  Would Congress bail them out yet again?  This time around, the competition wouldn't be overseas, but right here in America (ironically, Teslas are built in an abandoned GM plant in Fremont California - a plant that used to make the Cadillac Seville before they switched to a joint venture with Toyota, which also fell by the wayside).

A big problem for GM - and Tesla and the overall US economy - is China.  If we get into a pissing match with China over Taiwan (or Russia over the Ukraine) and decide to boycott China, well, all hell would break loose.  GM makes most of its profits in China, and Tesla makes a substantial share there as well.  We got into bed with the Chinese and back when that all started, it seemed like they were pretty reasonable people to deal with.  But now they have the power - and leverage over the world - they are less and less afraid to use it.  Of course, it cuts two ways - China depends on exports as much as we depend on their imports.  It is a sticky situation.

But all these "what ifs" illustrate how uncertain the world is and how speculative investments are just that - speculating or gambling.  Right now, things like Bitcoin and "stonks" seem like hot deals - and they are hyped the same way a used car salesman tries to sell you a car - which itself should tell you all you need to know.  And people are just starting to figure this out.  Folks are realizing that maybe they aren't "too dumb" to understand crypto, but in fact, too smart to invest in it.

When I started this blog, a decade ago, we were recovering from the largest financial meltdown since the great depression - a meltdown that transferred a lot of money from a lot of little people (and from the government) to the rich.  We are seeing the same thing today and the next meltdown may enhance their wealth even further.  But back in 2005-2007 when we were living in South Florida and real estate prices went insane, people told me I was "too dumb" to understand why a house that rents for $1700 a month was worth paying $3000 a month to own.

Turns out, I wasn't too dumb, and I sold out in time.  Others didn't, insisted the fault was that of the banks or something called the "Community Reinvestment Act" from a decade earlier, and demanded the government bail them out.  Few were bailed out (outside of Wall Street) and these same people became angry and bitter and became "tea partiers" and later, MAGA-hat wearing Trump supporters.

I guess they were the smart ones after all.  /s

Musk the richest man in he world?  Maybe on paper.  Tesla the "next big thing"?  More like a thing - a thing that will be copied - and is being copied - by every automaker in the world.

Including China.