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To state the obvious, I’m no fan of Tesla Motors (NASDAQ: TSLA), nor am I particularly fond of its superstar CEO, Elon Musk.
To be fair, my aversion toward Mr. Musk isn’t all his doing. I just find the surfeit of media praise off-putting.
BusinessInsider is particularly offensive on this point. Its deifying headlines are shameless: “How Elon Musk Become the Most Badass CEO in the World.” “Elon Musk Reveals His Most Important Daily Habit.” “The Full Story of Elon Musk Is Much More Awesome Than You Realize.” Trust me, there are many, many more of similar sycophantic flair.
Of course, it’s irrational to judge a person solely on the words of others, but Musk isn’t shy about contributing to his own legend. Modesty is not a strong suit. To wit: Musk believes Tesla Motors’ growth trajectory could make it a $700 billion company by 2025, putting it on par with Apple (NASDAQ: AAPL) today (in nominal dollars).
A Comparison to Apple
All I can say is that Tesla had better start hoofing it. In 2014, Tesla sold $3.2 billion of electric cars, batteries, and what not. For its efforts, it lost $294 million. Still, investors are willing to look past the red ink to tomorrow’s potential. Tesla sports a $25.5-billion equity market cap.
How does Tesla today compare to Apple of yesteryear?
Ten years ago, Apple sold $13.9 billion worth of sundry personal computing devices, for which it earned $1.3 billion. Investors valued Apple at $45 billion. Today, Apple sells nearly $200 billion of personal computing devices, for which it earns $44 billion. Apple is valued at $737 billion.
To compare Apple to Tesla is to compare, well, apples to oranges. Apple’s customers can afford to upgrade their Apple gear every year or two. That’s the advantage of selling products priced in hundreds of dollars. Tesla, in contrast, sells $70,000-plus electric cars. Few Tesla customers are interested in upgrading every year or two, or possibly every 10.
Recent sales figures suggest eclectic-car fatigue could be setting in.
In the fourth quarter, Tesla delivered a record 9,834 vehicles. That sounds positive until you dig deeper and discover Tesla came up 1,000 cars short on the consensus analysts estimate and 1,345 on Tesla’s own estimate. (Interestingly, Tesla articles and press releases are frequently couched in the language of “production” and “delivery,” but not “sales.”)
I have no skin in Tesla’s game, but my personal preference would be for “production” or “deliveries” to fall to zero. My enmity has nothing to do with the electric car per se, or with Musk’s wealth (which is the product of the wildly successful PayPal, not Tesla). I wish entrepreneurs who satisfy customer wants in a competitive market nothing but the best. They deserve every dollar that flows their way.
The Real Problem
My issue with Tesla is that its market is illegitimate. Tesla is a monument to subsidies and largesse. The federal government provides a $7,500 tax credit for each electric car sold. Many states offer similar incentives. A legitimate product does not require a $7,500 head start on the competition.
What’s more, The Wall Street Journal reports Tesla receives excess “credits” for complying with federal fuel-efficiency standards and state zero-emission vehicle (ZEV) mandates because it manufactures only electric cars. Tesla can sell surplus these credits to auto makers that fail to meet government rules on emissions. Last year, Tesla made roughly $150 million selling ZEV credits.
Tesla’s vaunted battery business has its own advantages. Nevada will bestow Tesla with nearly $1.3 billion in tax incentives over the next 20 years for building its gigafactory in the state. Nevada will also turn its head on estimated $300 million in payroll and other taxes through 2024.
If Tesla and Elon Musk can earn fortunes through competitive, market-driven activities, more power to them. But if Tesla and Musk earn fortunes on subsidies, cronyism, and handouts, then I wish them failure, because failure will eventually come their way.
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