Up In Smoke

I was having a conversation with a friend whose work I respect completely. I'm not knocking Elon Musk, or his companies, or his visions. They are all great. However, here's how the market sees it. Remember the market is this purely objective, discompassionate and calculating machine, focussed on one thing, and one thing only - the bottom line. Think of the market as a shark, that only cares about one thing, to kill and eat its prey so that they survive and prosper. The market might be slightly psychopathic, but that is the environment we all have to operate in. The rules are the same for everyone. Try deny that reality, you will die, suddenly and quickly. The market doesn't care. It's not emotional, does not have heroes, cares about only one thing - the bottom line. That is, how is a company doing compared to others in that sector, what is its revenue generating potential for the future (sometimes known as discounted cash flow), what are its likely net profits, and how is it competitively placed.

I also mentioned how the Apple board got rid of Steve Jobs, only for him to return a decade or so later. Markets, like people, can be both rational and irrational at the same time. I mentioned that it might be best for everyone, including Elon, if he stepped down, and let his companies be managed by more competent CEO's. A plain fact. Objective and cold. Like the shark. Elon is a personality cult, which is a major failing in business, and irresponsible, as it puts all of his companies at risk, because if he goes or does stupid things, like he has been doing recently, his companies go under too. Who cares if you're "proud" of Elon for smoking a joint [1, 2]? The market will punish that type of behavior (to the tune of $5billion), and not to understand or appreciate that is just boneheaded. The market doesn't care what you think. If you can't predict the markets you will go under too, and fast. The markets don't care who you are or what you've done, or what "big visions" you have. The markets are cold, calculating and ruthless and care about only one thing. The bottom line. 

The markets are Markovian, they don't care about what you've done before, they care only about today. Smoke a joint today, and they will punish you today. The markets don't care if your fans are butthurt. The markets are more calculating than that. They might even get a kick out of watching you miscalculate. The markets only care about one thing. Are you delivering. Well Elon is delivering, but look at what exactly:

"On Tuesday, Business Insider reported that although Tesla hit its production goal of 5,000 Model 3s by the end of June, 4,300 of those vehicles required substantial fixes. That’s 14 percent making it through “first pass yield,” or an initial production line that requires no fixes at all. An industry exec told the site that the standard automaker FPY is 80 percent.

“The Model 3s come in [to the showroom] scratched or damaged,” he says. “They don’t fit together properly. If you look at the panels, they’ll be mismatched. They won’t line up.”

On Thursday, Business Insider reported that Wall Street analysts tore apart a Model 3 to find multiple failures, including “inconsistent gaps & flushness throughout the car, missing bolts, loose tolerances, and uneven & misaligned spot welds … The results confirm media reports of quality issues & are disappointing for a $49k car.” [3]

Meanwhile, Musk just does not seem to be able to control his impulses, tweeting and saying things that keep dropping his company's stock price. Whether that's insulting Analysts on earnings calls [4], calling people "pedos" and "child rapists" [5], or manipulating his company's stock price and inviting SEC investigation [6]. Tesla stock (TSLA) is down around 30% this last month alone.

In early May, Musk cut off analysts from Bernstein and RBC Capital who had asked if the company should raise more capital while it could even if it did not need it. Musk responded that he “specifically” did not want to, and called the analyst’s questions “so dry. They’re killing me.” Tesla’s stock declined 6% in about a 20-minute period after his tirade [7].

Musk's track record in other areas such as successful satellite launches [8] and worker safety [9] has not exactly been stellar either. So the only safe conclusion is to say Elon Musk really isn't up to the job of CEO. He should go [10, 11].

References

[1] Tesla shares crash after Elon Musk smokes joint on live web show

[2] Air Force is looking into Elon Musk's pot smoking

[3] Tesla insiders say ‘it’s a s–t show’ under beleaguered Elon Musk

[4] Tesla loses $2bn in market value after Elon Musk refuses to answer 'dry' questions on finances

[5] Elon Musk’s ‘pedo’ attack rattles Tesla investors: ‘This thing is unraveling’

[6] Elon Musk's tweets investigated for possibly breaking law

[7] Tesla shares drop after embarrassing memo leaks

[8] Mark Zuckerberg 'deeply disappointed' SpaceX explosion blew up $200m Facebook satellite

[9] Tesla workers say they pay the price for Elon Musk's big promises

[10] Is Elon Musk Too Volatile to Run Tesla and SpaceX?

[11] Elon Musk is a Total Fraud.