Ignore Musk the troll, focus on the businesses

Elon Musk clearly loves to be in the news and he does so by making outlandish statements about all manner of random topics in the news whenever he has the chance. Jack Shafer provides many examples of this and says that the media keeps falling for it. This has the added advantage (to Musk) of distracting people from the more serious news of the performances of his businesses, which are not good.

What we should be focusing on are the actual facts. One is that in 2021, the last full year when Twitter was public and thus we knew something about its finances, it had gross revenues of about $5 billion ($4.5 billion from advertising) and made a profit of $221 million. This means that its costs were about $4.8 billion. This was a high point for revenues and one of the few years when it made a profit.

After Twitter borrowed about $13 billion to allow Musk to take it private, that added another $1.5 billion in costs to service the debt, meaning its total operating costs are now $6.5 billion. Furthermore, advertisers dropped out, reducing revenues to about $3 billion. This means that Twitter was on a path to lose $3.5 billion a year, which is unsustainable. Musk has cut staff by almost half but that will save at most about $2 billion, leaving a gap of $1.5 billion to close, while risking core operational functions. This problem of a large negative cash flow is what Musk is faced with.

As I said in an earlier post, the share price of Tesla has been tanking and while part of this may well be due to Musk’s obsession with Twitter, other analysts suggest that another reason is that Musk’s hype there has caught up with him, and that the company is finding it hard to sell its cars.

Although most think the weakness in Tesla shares is a direct result of Musk’s Twitter takeover, Johnson believes it’s fundamental. 

“It’s just a car company that has built too much capacity they can’t sell,” [GLJ Research’s Gordon] Johnson said on CNBC’s “Squawk Box.”

Tesla has issued five price cuts in China in the current quarter alone, yet the company is unable to meet sales expectations, Johnson said, highlighting weak sales numbers out of China.

That explains the recent declines in Tesla shares, he said. 

“Institutional investors are simply … looking at this data and I think they are becoming very concerned because if you look to next year, they are running down their backlog. Their backlog in China has collapsed to nothing,” Johnson said.

He told CNBC that Tesla isn’t able to sell all of the cars it can make, contrary to popular belief. In both the second and third quarters, Tesla produced more cars than it sold, he stressed, adding it’s on pace to do so again.

Tesla’s share price continues to steadily sink, and is now down to about 140 from its high of 407 on November 5, 2021. By comparison, general stock market indices like the S&P 500 and the Dow Jones have increased over that same time period, so Tesla’s losses cannot be blamed on broad factors of the economy.

The real danger to Musk will not come from Twitter, which has become his personal toy, but from upset Tesla shareholders.


  1. Matt G says

    He’s like the Orange Messiah. Is his ego running the show, or is he cleverly covering up his poor choices?

  2. John Morales says

    Matt G, leaving aside that your two options are not mutually exclusive, why should I care either way? Way I see it, he’s just a super-rich dude indulging himself.

    He bought it, he can break it. Doesn’t bother me in the slightest.

    (I suppose it might bother Twitterers, but I’m not one of those)

  3. says

    Another dodgy QElon business we need to focus on is Theralink Neuralink. PZ and others have highlighted their abysmal record of killing lab animals in their (unnecessarily rushed) development and testing of brain-machine interfaces — and yet now they want permission to start human trials. If anything this company needs to be under an even harsher spotlight than Tesla.

    And we shouldn’t ignore Twitter either; we should be looking more closely at QElon’s backers in that buyout, and what they hope to achieve with it.

  4. jenorafeuer says

    Honestly, I don’t think anybody who’s studied the history of the auto industry is particularly surprised at Tesla peaking and now having problems. These sorts of events have happened multiple times in the past:
    -- New company starts up to fill niche that existing auto companies aren’t filling
    -- New company manages to do well and ramps up into full production
    -- Older auto companies finally realize there is actually a market they were ignoring and start making their own version (often changing just enough to get around any patents they can’t tie up in court for too long to enforce)
    -- Older auto companies use their existing massive production lines and economies of scale to make things cheaper than new company can manage
    -- New company eventually falters and either collapses or gets all of its patents and useful parts bought out.

    This is hardly just limited to the auto industry, of course, but the sheer production scale and the upgrade cycle pace of the auto industry make it a major thing there.

    Tesla has survived as long as it has due to Musk’s ridiculous promises for the future keeping them in the news, enough early money thrown in that they could weather the initial difficult years, the fact that there were enough people at the company who actually knew what they were doing that many of those promises could actually be followed through on, and a somewhat deliberate building of what was pretty much a cult around them. Those can only go so far. Tesla is now in a position where major manufacturers are making all-electric vehicles as well (many of which are less locked-in to charging stations), Musk has exhausted enough of his personal social capital that many are pointing out the emperor not only has no clothes but never really did, and the history of broken (and in many cases impossible) promises are catching up to the company as a whole.

    I suspect there are a number of people at Tesla who are glad that Musk is mostly off to wreck a new toy, and would much prefer to see him thrown out entirely.

  5. John Morales says

    jenorafeuer prompted this:

    I was thinking; had Musk bought Wikipedia, then I would be upset.

    But then, it’s not for sale. Twitter was.

    There’s talk about Twitter functionally serving as infrastructure, and honestly, I think there’s merit to that claim though I myself do not partake of it.

    If so, I can’t think of a good (that is, for the common weal) reason governments should not regulate it, much as they do other such infrastructure.

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