Why Elon Musk Is Attacking Recession, Work From Home, Tesla Layoffs, Twitter Deal

Don’t be fooled by the glowing objects Elon Musk keeps tossing into the ether. Whether its aggressive stance against working from home, its proclamations that the US economy is in recession, or the want-or-not drama surrounding its takeover of Twitter, it’s all just a misdirection by a magician.

When Elon gets anxious enough to act, it’s because something is deeply wrong at Tesla. He did this in 2018, firing off his “funding guaranteed” bond infringement tweet as the company was on the brink of bankruptcy. And he’s almost certainly doing that now, complaining about bots on Twitter and “raining money” as his company’s competition looms and the China market – where Tesla makes most of its profits – collapses. If there’s one thing that’s giving Elon Musk a “super bad feeling” right now, it’s the threat to his vast personal wealth.

We’ve seen this movie before

Tesla’s lingering problems are legend. It has consistently missed deadlines for new products and deliveries and over-promised the capabilities of its products. It has been profitable for two years of its nearly two-decade existence. And Musk himself admitted that he had to “bet the company” a few times.

One such time was in early 2018, when Musk spent billions trying to turn Tesla’s Fremont factory into an “alien dreamer” of machines that would produce his cars with little to no human involvement – something the automotive world warned him wouldn’t work. . Not. Then, in the spring of 2018, Tesla ended up having to do a hiring spree to make up for lost time, and some of those new hires found themselves building cars by hand outside the Fremont factory on a makeshift assembly line under a tent. Unfortunately, the sudden rush also led to a sudden collapse, and in June, the company silently tried to cull 9% of its workforce.

During that time, Musk exhibited all sorts of erratic behavior. He insulted a Wall Street analyst on one of Tesla’s calls with investors, saying he asked “stupid and stupid questions”. He made attacks on Twitter against journalists (myself included) and short sellers. And in an incredible performance, Musk unveiled his first Boring Company tunnel, intended to help Tesla owners avoid traffic by letting them drive underground. It was another one of his poorly made distractions, and one critic later called the tunnels “sewers with discotheque lights.”

All this is to say that when Tesla is in anguish, there is a report, and that report is a spasmodic, dark Elon Musk.

Tesla’s regular issues

Are we back in one of Tesla’s tough times? It might be. The erratic behavior is certainly there. And in an email to Tesla executives seen by Reuters, Musk recently called for a pause on all Tesla hires worldwide and said he needed to cull 10% of his workforce. he later walked these comments back on Twitter (where else?), saying that Tesla’s overall employee count would increase over the next 12 months, although salaried positions remained stable.

This year has been nauseating for the company. By and large, the market has turned against fast-growing tech companies, bringing Tesla stock — a poster child for the past 15 years of Silicon Valley exuberance — up 40% since early 2022. Musk’s bizarre crusade to acquire Twitter hasn’t helped either, as Tesla investors realize that Musk’s money and attention is being diverted elsewhere.

Tesla’s stock price also reflects the fact that it now has real competition in the US market. The reserve list for Ford’s F-150 Lightning is three years old. Deliveries are just getting started and on time. In Europe, Tesla has been losing market share to electric vehicles from Renault, Hyundai and Volkswagen. Tesla’s vehicle mix is ​​getting old, and given the company’s penchant for missing production deadlines, there’s no telling when the Cybertruck – which was supposed to launch last year – will be available. Meanwhile, President Biden seems keen to help EV manufacturers, but only those who run union stores (hence not Tesla).

The reality is that Tesla’s profitability is still fraught with caveats, according to Vicki Bryan, founder of research firm Bond Angle. Based on your reading of the company’s financial records, its American business is in dire straits. Without the help of EV credits paid for by combustion engine makers and without revenue from Tesla’s China operations, Bryan calculates that the company’s US operations would have lost $2.4 billion last year. On paper, its cash position is also helped by a massive $2.1 billion increase in its profit from paying its employees (especially Musk) in stock.

Stock-based compensation is a nifty trick that allows companies to add employee shares back to their balance sheet instead of paying those workers in cash, which would be expensed. It makes a company look healthier – as long as its stock is going up. If the company’s stock is falling, the amount of outstanding shares can suddenly become an albatross. Guess which one is for Tesla.

Tesla is also facing the decline of its profitable tax credit business. Automakers are required by various government entities to achieve a benchmark for the production of electric vehicles. If a company exceeds this benchmark, it receives government credit for the “excess” of EVs it produced; these credits can then be sold to other manufacturers that have not met the regulatory target. Given that Tesla only makes electric cars, it has made a lot of money over the years by selling these credits to other automakers. But as the electric vehicle market continues to grow, that revenue will decline as companies regularly clean up these benchmarks and have less of a need for excess Tesla credits. That means there is pressure for Tesla’s foreign operations – specifically China – to take the slack. The life of the company depends on it.

Tesla’s Existential Problems

If it was a bad year for Tesla, it was a very bad year, not good and terrible for China. Beijing’s zero-tolerance approach to COVID-19 forced 31 cities into lockdown this spring and devastated the economy in ways Musk could not have predicted. Last month, Chinese Premier Li Keqiang, the second most powerful person in the Communist Party of China, warned party members that there was no way the country could reach its 5.5% GDP growth target for the year. , and that may not see growth at all in the second quarter.

If there’s anywhere Musk should be concerned about a


recession

, is China. The country was already slowing thanks to a bloated housing market and President Xi Jinping’s attempts to reshape the economy. But it now has to deal with an 18.2% unemployment rate for 16-24 year olds and a growing migrant unemployment crisis, while maintaining its “zero-COVID dynamics” strategy of immediate lockdowns for areas where any trace of the virus comes up. .

All of this has been terrible for Tesla. Musk’s Shanghai factory was forced to close in March, then reopened, then closed, then opened with limited manpower. It finally returned to full production on May 26, having lost production of 50,000 cars while idle in assembly. In April, Tesla sold just 1,512 Chinese-made cars, down 98% from the previous month. That’s bad, but it’s just the supply side of this problem. There is also the demand side.

Beijing is doing what it can to stimulate spending in the Chinese economy, even giving a tax break to people who buy electric vehicles at prices below $45,000. The fact is that Tesla’s most popular vehicle, the Model-Y SUV, costs nearly $50,000 in China. Its Model 3 Sedan is available for $42,000, but that car has been experiencing double-digit sales drops in the Chinese market. Meanwhile, Chinese electric vehicle makers with much cheaper cars — like BYD, for example — expect to see sales soar.

“I think China has been covering lingering issues with Musk’s US operations,” Bryan said, “and he’s losing his cover in China.”

You will never hear Musk say anything negative about how Chinese officials have managed the COVID situation, even though he has been very clear about his anger at US officials for instituting lockdowns on his factories in California and Nevada. That’s because he is fully aware of the terms of his stay in Shanghai. The Chinese Communist Party owns the land its factory is on, and the party has made it very clear that it will reclaim that land and everything on it if Musk acts. In early 2021, Tesla came under fire in government-controlled media for quality issues with its cars. Sales dropped almost immediately and Tesla was forced to apologize.

Yes, the house of Musk has issued an apology.

All this to say that if the problem is with China, we won’t hear from Musk, but we can see. We’ll see this in Musk’s behavior. Gloomy and grandiose pronouncements on the economy, petulant refusals to honor contracts, and coups against your enemies (in this case, Twitter’s advice) — this is what Musk’s meltdowns look like. And there’s only one reason for that – Tesla, your cash machine, is also in danger of melting down.


Linette Lopez is a senior correspondent for Insider.

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