Elon Musk: provocateur or mentally unwell?

Recapping the last month of Tesla and Elon Musk news:

Aug 1: Tesla announces it will be profitable in Q3. The stock surges from $300 to $340/share. Investors cheer and short sellers fret. Tesla, with Model 3 production staying at high levels, with consumer reviews through the roof, could be a long-term viable company. Tesla electric semi, SUV, battery energy storage, Chinese manufacturing, all point to a bright future.

Aug 7: Elon Musk infamously tweets he will take Tesla private at $420/share. The market sends shares all the way to $380 on high hopes of Saudi riches buying the company. Investors worry $420 is not a high enough price. The significance of the number 420 will become more relevant in thirty days.

Aug 8 – 16: Rumors fly about who could take Tesla private and Elon Musk’s state of mind. Tesla’s Board scrambles. Investors worry. Wall Street tries to discern the situation. The US government investigates. Meanwhile, Elon Musk keeps talking– this time, getting emotional in a NYTimes interview. Savvy observers “claim Musk is making bad decisions.” Tesla stock declines to $330.

Aug 17: Late on a Friday night, Elon Musk declares he will not be taking Tesla private. The stock dumps to $300.

Sept 6: Two weeks later on a Thursday night, during a podcast with prolific conversationalist Joe Rogan, Elon Musk discusses various subjects that include the inevitability of AI dominance, the likelihood humans are living in a simulation, and how fun Teslas are to drive. Oh, and he drinks whiskey and smokes weed while discussing these things.

(Also on this day, my wife and I, along with two dogs, are in the middle of driving from Rochester, NY, to Austin, TX through torrential rainstorms.)

Sept 7: Sellers dump Tesla stock after hearing the news of Elon Musk smoking pot. The reason is clear: his behavior is confirming the growing narrative that he is unwell, and acting erratically. Being so crucial to Tesla’s value, losing a cogent, competent Elon Musk would be damning to the company– and potentially fatal.

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Looking coolly at this situation, what can be gleaned?

Elon Musk does not give a f*ck and/or actively enjoys being a provocateur. This is troubling for investors, because while Elon Musk may in fact be the same brilliant engineer he has always been, Wall Street is showing it is not confident in his ability to lead. There is a not insignificant risk he is mentally unwell.

Tesla’s Board has ZERO control over Elon Musk.  It will be very interesting to see their reaction to this incident. They could do nothing, accepting their status as feckless actors; they could slap Musk on the wrist; or they could confront him, demanding a leave of absence. Either way, Musk is putting them on the spot. But if they showed no control in the ‘going private, just kidding’ debacle, I’m not sure what they can do now. Outing Elon Musk would just inflict further pain on Tesla. This, after all, is Elon Musk’s company.

Opponents will go for the kill.  Short sellers, legacy car companies, oil companies, liberals, and haters from all parts will gleefully take shots at Elon Musk and Tesla. The company’s huge pile of debt now becomes a greater risk as shares slide. Executives, which are desperately needed to help Musk run the company, become harder to attract. Expect more negative news– of crashes, government investigations, personal accusations– to surface as hawks try to make their short positions profitable.

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Relevant questions for an investor:

What are the odds Elon Musk is mentally unwell? 

This seems like the most pressing question, for which everyone is attempting to be an armchair psychologist. What seems factual is that he’s always been like this. That is, he doesn’t care how his unusual behavior affects his companies. This is troubling, but could also be reassuring if presented as evidence he has consistently been weird/erratic/uncaring. The state of his mental well-being leads to the next question…

What is Elon Musk’s value to Tesla?

Elon Musk’s actions of the last month have caused the market to lose confidence in him as CEO of Tesla. This has caused the market to reduce Tesla’s stock from $340 to $260. As much respect as I have for Musk as an engineer, keep in mind his former company, PayPal, has done just fine after parting ways with him. SpaceX, though it would not exist without him, would continue to make millions– and actually may be thriving because of his recent focus on Tesla. In short, Elon Musk is great at engineering revolutionary products, but maybe not so great at running companies. In such a scenario, could the company actually be better off without Musk? (No, I’d say. But regardless, the value of Tesla should not be so tied to the value of Musk as its CEO, like it appears to be.)

What is the actual position of Tesla, the company? 

Tesla is still in the same position as it was before this month’s drama. That is, it is looking towards near-profitability in Q3, with strong demand, and a genuinely revolutionary product.

What will happen this week? 

Who knows? I’d say the negative barrage will crest by midweek and the company’s fundamental value will be that which is important. If I sound a bit like a Tesla bull, that’s a fair criticism of possible bias. My real motivation is to have my money make money. That’s it. So, this guy will be looking to buy as TSLA shares take their beating.

Because when the beating is over, there will still be a list of hundreds of thousands of people waiting to buy a $55,000 electric car, and a company that is making more and more of them every week.

 

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