Over the past year, in pursuit of his ambitious goals to transform U.S. auto and energy markets, Elon Musk has met critics from all directions: customers, stockholders, and workers. After Tesla recently missed its Model 3 production quotas for the third time in three quarters, the South African playboy entrepreneur offered a rare glimpse of contrition: the “car biz is hell,” he tweeted, adding that he was sleeping in the Tesla factory to overcome production shortfalls.
The week before, a Delaware court allowed a class action suit against the company to move ahead. Shareholders are alleging Tesla management engaged in a “self-dealing” breach of fiduciary duty. From a historic peak of $360, Tesla share prices fell by nearly a third to $250 in April. The New York Times ran the headline “Tesla Looked Like the Future. Now Some Ask if It Has One,” while The Economist warned that “Tesla is heading for a cash crunch.”
This is a hard pill for many to swallow. For years now, Musk has come to stand in for something more than each of his three manufacturing companies: Tesla, the plug-in electric car manufacturer; SolarCity, the solar-panel and battery manufacturer that merged with Tesla in 2016; and SpaceX, the federally financed private rocketry firm. In his heroic gleam and boyish daring, many Americans see something as close to a leader as they are likely to have experienced in recent memory. (...)
The week before, a Delaware court allowed a class action suit against the company to move ahead. Shareholders are alleging Tesla management engaged in a “self-dealing” breach of fiduciary duty. From a historic peak of $360, Tesla share prices fell by nearly a third to $250 in April. The New York Times ran the headline “Tesla Looked Like the Future. Now Some Ask if It Has One,” while The Economist warned that “Tesla is heading for a cash crunch.”
This is a hard pill for many to swallow. For years now, Musk has come to stand in for something more than each of his three manufacturing companies: Tesla, the plug-in electric car manufacturer; SolarCity, the solar-panel and battery manufacturer that merged with Tesla in 2016; and SpaceX, the federally financed private rocketry firm. In his heroic gleam and boyish daring, many Americans see something as close to a leader as they are likely to have experienced in recent memory. (...)
But what is the substance of this vision? With Musk entering a new phase in his manufacturing career, it is a question worth considering. While the headlines, stock prices and investor ratings (Moody’s just downgraded Tesla) follow the production numbers and profit margins, the rest of us should examine just what it is we expect Musk to do.
What would success look like? Can it be done within the constraints of a private business firm? And, if so, as the debts come due, who is willing to sacrifice to help Musk achieve it?
What we often mean when we root for Musk is that we want to hasten the coming business-directed energy transition of our industrial system away from fossil fuels. In this, he embodies both a widely-popular yearning for social transformation and the businessman’s stolidity restraining it.
For those condemned to life on Earth, what Musk represents above all is the possibility of a “green” or “renewable”—and therefore “sustainable”—capitalism.
Species survival is one way of putting it, but this elides all the details relevant to our political lives. That ambiguity is precisely why the vision is so appealing: it can be both revolutionary and ostensibly consensual. For the past fifty years, after all, among the easiest and most widely accepted formulas for people to work together to change their futures has been through patterns of personal consumption. We invest our savings, purchase private equipment, place our bets in the enthralling spectator sport that is the clash of powerful personalities and organizations—and then we wait.
It is this sleek, efficient temple of opportunity and security that Musk has cultivated and we have bought in to that justifies the massive government spending behind his projects. Indeed, the most potent collective action behind Musk’s success has come from the state. In today’s political climate, projects such as his, which promise a return on investment and private-management practices, are the only ones deemed worthy of public investment. The states of California, Nevada, New York, and Oregon, have all joined the federal government in offering direct grants and loans to Musk’s companies, and hundreds of millions of dollars in consumer rebates are ultimately paid into Tesla through consumers (the federal government, for example, pays a $7,500 tax credit to purchasers of electric cars; California pays a further $2,500). As early as 2015, the Los Angeles Times attempted to sum the total public aid to Musk’s operations and arrived at $4.9 billion.
Yet Musk’s profitability—his success by the conventional standard—still hasn’t materialized. Tesla was run at a $671 million loss in the third quarter of 2017—$117 million paid in interest on the company’s debts alone. In fiscal year 2017, losses summed to $2.2 billion, about three times what the company lost in 2016.
Moreover, Tesla has repeatedly missed every deadline promised to its customers and is currently under investigation by the National Labor Relations Board for denying employees the right to collective bargaining. The company faces numerous shareholder lawsuits alleging managerial violations of fiduciary duty, with a raft of class-action suits following a recent investigation by the Securities and Exchange Commission.
Musk’s career thus illustrates the central challenge of U.S. industrial planning. Because of taboos against government ownership and income-tax financed public services, the public must find ways of persuading businessmen to manage private property to meet public objectives. Often this leaves us choking at an ideological and political impasse. Rather than have government authorities spend billions to own and operate their own plant under public oversight and administration, we are trapped debating which private profit-making groups the government should support in pursuit of its public-interest goals.
If there is a coherent strategy, it is to underwrite the financing of uncertain companies that operate largely to generate capital gains for insiders, while unloading risk to savers on the outside. But when these companies threaten savers, the vainglory of businessmen loses much of its utility as an instrument of public policy.
Meanwhile, the effect of this style of industrial policy in the labor market is palpably unpleasant. To avoid becoming Ponzi schemes, companies such as Tesla and SolarCity must compete in product markets by undermining existing, middle-class jobs. The brazen fact here is that the assemblage of jobs and green-energy programs behind Tesla use public expenditure, but they guarantee little employment income and no production targets.
What would success look like? Can it be done within the constraints of a private business firm? And, if so, as the debts come due, who is willing to sacrifice to help Musk achieve it?
What we often mean when we root for Musk is that we want to hasten the coming business-directed energy transition of our industrial system away from fossil fuels. In this, he embodies both a widely-popular yearning for social transformation and the businessman’s stolidity restraining it.
For those condemned to life on Earth, what Musk represents above all is the possibility of a “green” or “renewable”—and therefore “sustainable”—capitalism.
Species survival is one way of putting it, but this elides all the details relevant to our political lives. That ambiguity is precisely why the vision is so appealing: it can be both revolutionary and ostensibly consensual. For the past fifty years, after all, among the easiest and most widely accepted formulas for people to work together to change their futures has been through patterns of personal consumption. We invest our savings, purchase private equipment, place our bets in the enthralling spectator sport that is the clash of powerful personalities and organizations—and then we wait.
It is this sleek, efficient temple of opportunity and security that Musk has cultivated and we have bought in to that justifies the massive government spending behind his projects. Indeed, the most potent collective action behind Musk’s success has come from the state. In today’s political climate, projects such as his, which promise a return on investment and private-management practices, are the only ones deemed worthy of public investment. The states of California, Nevada, New York, and Oregon, have all joined the federal government in offering direct grants and loans to Musk’s companies, and hundreds of millions of dollars in consumer rebates are ultimately paid into Tesla through consumers (the federal government, for example, pays a $7,500 tax credit to purchasers of electric cars; California pays a further $2,500). As early as 2015, the Los Angeles Times attempted to sum the total public aid to Musk’s operations and arrived at $4.9 billion.
Yet Musk’s profitability—his success by the conventional standard—still hasn’t materialized. Tesla was run at a $671 million loss in the third quarter of 2017—$117 million paid in interest on the company’s debts alone. In fiscal year 2017, losses summed to $2.2 billion, about three times what the company lost in 2016.
Moreover, Tesla has repeatedly missed every deadline promised to its customers and is currently under investigation by the National Labor Relations Board for denying employees the right to collective bargaining. The company faces numerous shareholder lawsuits alleging managerial violations of fiduciary duty, with a raft of class-action suits following a recent investigation by the Securities and Exchange Commission.
Musk’s career thus illustrates the central challenge of U.S. industrial planning. Because of taboos against government ownership and income-tax financed public services, the public must find ways of persuading businessmen to manage private property to meet public objectives. Often this leaves us choking at an ideological and political impasse. Rather than have government authorities spend billions to own and operate their own plant under public oversight and administration, we are trapped debating which private profit-making groups the government should support in pursuit of its public-interest goals.
If there is a coherent strategy, it is to underwrite the financing of uncertain companies that operate largely to generate capital gains for insiders, while unloading risk to savers on the outside. But when these companies threaten savers, the vainglory of businessmen loses much of its utility as an instrument of public policy.
Meanwhile, the effect of this style of industrial policy in the labor market is palpably unpleasant. To avoid becoming Ponzi schemes, companies such as Tesla and SolarCity must compete in product markets by undermining existing, middle-class jobs. The brazen fact here is that the assemblage of jobs and green-energy programs behind Tesla use public expenditure, but they guarantee little employment income and no production targets.
by Andrew Elrod, Boston Review | Read more:
Image: SpaceX
