Elon Musk is way smarter than me. Waaaaaaaaaaaaaay smarter! He’s smarter than most other people, although admittedly the intelligence gap might not be as wide. Musk understands the public’s awe of his genius, which is why he can say and do what he pleases without consequence.
I came to this realization after reading this article that Musk’s recent dumping of some of his Tesla shares had nothing to do with a poll of his Twitter acolytes but rather the need to generate cash to pay a huge tax bill on some expiring options.
“With a tax bill that we calculate at north of $10 billion, selling stock over the coming months is not a surprise,” Daniel Ives, an analyst with Wedbush Securities said in a note to clients. Ives noted that “holding a Twitter poll to sell 10% of his stock is another bizarre soap opera that can only happen to one company and one CEO in the world.”
The sham Twitter poll isn’t the first time Musk has allegedly misled the public. The SEC in 2018 sued him for securities fraud because of his tweet claiming he had raised the funding to take Tesla private. Lawyers quickly negotiated a settlement requiring both Musk and Tesla to pay $20 million fines, but months later the SEC accused him of violating the settlement. Musk accused the SEC of making “an unconstitutional power grab.”
Musk has shown nothing but disdain for U.S. regulators, the political leadership of California, and for Senator Bernie Sanders, saying in a recent tweet, “I keep forgetting you are still alive.” I find that comment quite distasteful.
As best I can tell, the only authority for which Musk has shown respect is China’s communist leadership.
“The economic prosperity that China has achieved is truly amazing, especially in infrastructure! I encourage people to visit and see for themselves,” Musk wrote in a Twitter post. He was responding to a tweet from China’s state-run publication that included a quote from President Xi Jinping referring to the end of “absolute poverty in China.” Musk also praised the Chinese government for becoming “a global leader in digitalization,” an expertise that will aid the country’s stated efforts to achieve world domination. Musk has also lauded the Chinese for being “smart” and “hard working people” while criticizing Americans for being “entitled” and “complacent.”
Most company CEOs have the maturity to avoid picking unnecessary fights with regulators and elected officials, but Musk can do it with impunity, even when it results in needless and costly litigation. JPMorgan Chase on Monday filed a $162 million lawsuit against Tesla, accusing the company of “breach of contract action” over stock warrants following Musk’s 2018 tweet about taking the company private.
There was other recent news about Tesla that I’d expect would raise some investor concerns but didn’t. Electric, a trade publication, reported that Tesla is seeing an increase in complaints “over serious and dangerous phantom braking events plaguing Autopilot in the latest software updates.” Phantom breaking is when the self-driving system unnecessarily applies the brakes, which can cause an accident.
Musk in a January earnings conference call said that he was “highly confident” a Tesla would “be able to drive itself with reliability in excess of human this year.” Chris “CJ” Moore, previously Tesla’s director of Autopilot, wrote in a leaked memo that Musk’s claim didn’t match “engineering reality.” Moore has since joined Apple, where he’s reportedly working on that company’s self-driving software. He reports to Stuart Bowers, who previously served as Tesla’s vice president of engineering and worked on the Autopilot driver assist feature for more than seven years.
In June, Jerome Guillen, a 10-year Tesla veteran and one of four executives running the company alongside Musk, resigned. In September 2018, Tesla’s CFO and head of HR abruptly resigned just hours after Musk smoked marijuana during an hours-long interview streamed live online. Earlier in 2018 the previous CFO resigned, as did the company’s treasurer. Another CFO lasted only 15 months.
Executive turnover, particularly departing CFOs, is usually viewed as a warning sign. But Wall Street doesn’t care when it involves Tesla.
“Tesla’s executive team has historically exhibited what we perceive to be a higher-than-average rate of turnover and – as such are not overly concerned about these departures,” Ben Kallo, a Robert W. Baird analyst wrote after Guillen’s departure. Although Pierre Ferragu, an analyst with New Street Research, called Guillen’s resignation “a huge and unexpected loss,” he cheerfully opined, “the company will continue to attract other top-guns.” If top EV management talent is so readily available, why can’t GM find one or two of these executives?
There are signs that Tesla’s EV competition is becoming more formidable. Ford reported that it has received 160,000 pre-orders for its electric F-150 Lightning pick-up truck. More than 10 percent of the orders came from Tesla owners planning to trade in their Muskmobiles for a Blue Oval truck. Ford’s electric Mustang has garnered rave reviews. A friend who recently drove one to Palm Springs was ecstatic about the made-in-Mexico car. Apple’s concept car has earned some plaudits, with one reviewer saying it “looks way better than Tesla’s Cybertruck.” Meanwhile, Tesla is shipping cars without USB ports and inoperable wireless chargers, not even notifying buyers in advance. The company enjoys a charmed life in that there is no customer uproar.
The EV company I’m rooting for is Rivian, which recently went public with a lofty valuation of more than $150 billion. (The company’s stock price has since retreated.) Rivian is backed by Ford and Amazon. RJ Scaringe, its thirtysomething CEO, avoids the limelight and doesn’t hype the company. He uses Twitter sparingly and rarely grants interviews. The Bloomberg interview I watched was impressive. Unlike Musk, who dropped out of an energy physics doctorate program at Stanford after a couple of days, Scaringe finished his education and graduated with a PhD in automotive engineering from MIT.
Rivian was previously based outside of Ann Arbor. The company last year quietly relocated to California, but Scaringe didn’t take to Twitter to bash Michigan’s appallingly bad leadership that did nothing to incentivize the company to remain in the state. California offered Tesla and its car buyers oodles of incentives, but Musk still trashed the state when he announced that he was relocating Tesla’s headquarters to Texas.
Rivian’s R1T electric truck is garnering rave reviews, and I like what the company stands for. Rivian has placed one percent of the company’s equity into Forever, a financial platform focused on high impact climate initiatives with an emphasis on preserving and restoring wildlands, waterways, and oceans. Rivian last year turned down a $1 million grant from the Town of Normal where its plant is located.
“The impact of COVID-19 has reminded us all of the importance of community,” Scaringe wrote in a letter to the town. “The main asset of any community is its people, and as resources stretch thinner for every community across the world, we want to do whatever is possible for a pre-production company in our position to help alleviate pressure on our home.”
I sense Musk secretly fears Rivian. He recently tweeted the company still must prove it can mass produce its vehicles. Musk noted that Ford and Tesla are the only two U.S. automakers that haven’t gone bankrupt, implying the Rivian might not survive. That’s true but Ford has been in business for more than 100 years, and Tesla for less than 20. Scaringe also has the backing of Ford and Amazon, so he can leverage that expertise as well. Tesla’s only backing is Elon Musk, and he lacks the maturity and stability typically required of a CEO in for the long haul. Famed short seller Michael Burry has speculated that Musk sold his shares because he knows they’re way overvalued. Musk dismissed Burry as a “broken clock.”
Scaringe possibly lacks Musk’s visionary brilliance, but any shortfall in the genius department he clearly makes up with an abundance of character and class. Slow and steady wins the race and it’s the quiet and modest executives who invariably go the distance.