Blain’s Morning Porridge 14th Feb 2025: Elon Musk – Technoking and Debt Paladin: what are the risks?
“I would like to die on Mars. Just not on impact.”
Elon Musk is an extraordinary character. His successes are multiple. Now he has taken up battle against US Debt – putting him into new direct conflict with the establishment. While markets continue to support him there are concerns he is too thinly spread. That is not the problem – the risk is Tesla is overpriced, vulnerable and if it tumbles… what might follow? History shows when overblown confidence snaps… there is seldom a swift recovery.
Two or three times a year I find it necessary to write about Elon Musk and/or his businesses – he is the towering personality and influencer of the current age. His legions of admirers paint him as the ultimate Founder. They lap up his every utterance about “epic” results tomorrow, self-driving around the next corner, and the rosy outlook ahead.
The first lesson you learn playing Rugby is… “The bigger they are, the harder they fall.” They don’t come much bigger than Musk.
“I come not to bury Musk, but to give him due credit… for Elon is an honourable man….”
Elon Reeve Musk has proved and extraordinarily effective entrepreneur – the defining character among his generation of founders and financiers. He has raised up multiple new businesses that have upended apparently moribund industries in a dazzling series of disruptive paradigm shifts; creating the electric vehicle market, slashing the costs of space flight making it a monetizable sector, reinventing how to deliver internet, and wielding the power of social media with direction and a ruthlessness no one previously believed possible through his acquisition of Twitter/X. He has proved the ultimate marketer, salesman, and driver of value and success.
Now he is establishing himself as the foremost political power in the US – leveraging his reputation for delivery on the toughest job on the planet: reining back US government spending. Eggs will broken. People are going to lose their livelihoods – but Elon will post photos of himself sleeping on the floor to deliver results. Trump’s Maga supporters love it – but as his barely positive approval rating shows, Democrats are horrified. They don’t matter.
The fact is the US needs action on its burgeoning debt deficit – which growing about $3.5 trillion per annum. If Musk and his team achieve results, and cut out significant bureaucratic dead-wood, and, who-knows, make the government efficient through AI and better budgeting… what’s not to like? Among Republican voters, Musk retains tremendous support.
Of course… Musk won’t really be sleeping on the floor. (Apparently salubrious Sleep-Pods are part of Musk’s logistics train.) Some say he’s the ultimate Alien-Lizardman and he doesn’t require sleep… and even if he did, his crowning success as an entrepreneur has been assembling the right individuals in the background to run his businesses while he gets on with the business of being Elon. He relies on folk like COO of Space X, Gwynne Shotwell, or former CFO of Tesla Zack Kirkhorn (who resigned with suspicious immediatiality in 2023).
Concerns that Musk is spread too thinly to oversee Tesla, SpaceX, Twitter, Starlink and now the US budget are overblown. It isn’t the problem some detractors think is could be because he pays his core inner-circle handsomely to make sure the component parts of the Musk-Myth work. He may be CEO (or Technoking at Tesla), but he is smart enough to let others do the hard-yards.
What Musk is not is the inventor his creation/founder myths purport him to be. He bought into PayPal (his first cash cow) and then into his other businesses, famously disposing of the forgotten founders of Tesla whose undiscovered bodies are no doubt moulding somewhere in the foundations of the Fremont Gigafactory… (Not true.. but he deposed them none-the-less.) Not being an inventor is not a problem – being a successful juggler and innovator of so many complex business is his success. Having the vision to spot the opportunities others create is perhaps the greatest skill of all.
None of the above means I like him.
I sold my Tesla position in 2018 after the mask slipped and he lashed out the British cave-diver who rescued trapped schoolkids in Thailand. Musk called him a paedophile – an insult guaranteed to raise doubts, cause hurt and reputational damage. The divers’ “crime” was telling Musk the obvious truth that a submarine in a complex cave system was a bad idea. Musk handles criticism badly – so he tried to destroy the guy.
Being deeply flawed in Finance is not unique. I’ve come across many “founders” trying to be Elon – exhibiting similar destructive, childish streaks, throwing tantrums and lashing out in frustration. Most of them inevitably fail, so I’ve learnt to walk away from them. Life is too short to deal with narcissists, windbags, liars and show-offs.
I’ve been expecting Musk to fail ever since the paedo-guy comment in 2018. It’s been my greatest investment mistake – I have been emotional in my response to Musk’s antics. I let my dislike override the fact the market clearly loves him and the results he’s generated.
I’ve missed upside gains in Tesla of some 1750% since I sold 7 years ago! My second greatest mistake was shorting Telsa in the mistaken anticipation Kamala Harris would win in the US election – my levered short wiped out by a further 62% upside to Tesla after Trump won! Ouch.
No matter.. Third time lucky?
I renewed by Tesla Short back in January because cracks in Telsa’s edifice are increasingly apparent. Tesla stock is no longer defying gravity – it’s down some 30% from the Dec top. Musk claims his firm is building cars cheaper and cheaper every year, reaping first mover advantage in production efficiencies – but the reality is margin improvements are being mopped up by increasing competition in the now maturing EY market. Other firms are doing it better and cheaper. Whatever Musk claims, Telsa has a very limited competitive “moat”.
The last set of numbers back in Jan highlighted Tesla is no longer a growth stock. It is selling fewer cars today than in 2022. Musk’s political populism (and the off-the-cuff Nazi salute) has offended much of bleeding-hearted, tree-hugging, liberal fan base he once so successful cultivated. Sales of Teslas in Europe have fallen out the window more swiftly than a Russian oligarch – Germany is down 59% (not helped by endorsing the AfD), Spain by 75%, and even Norway is down 38%. China sales are down 11% even as the Chinese EY market grew 35%! Tesla Profits are down 53%, revenue expectations have collapsed, but it still trades at a stock/earnings ratio more than 10 times higher than more profitable and large auto-makers!
The prospect of new model upgrades and better Autonomous Driving have kept the believers invested, but they really should be asking if Tesla can reap monopoly-like profits in what is an increasingly competitive market? Who really believes Tesla owners will let their cars be used as self-driving taxis, or that UBER won’t negotiate massive discounts from RoboTaxi makers? Telsa is not a monopoly anymore. And there is the threat Musk will dilute his 20% stake in the firm to finance acquisitions like his $97.4 bln bid for OpenAI.
Yet, only 16% of analysts believe Tesla is an overpriced “sell” – the rest all say “buy” or “hold”. I guess that makes me a contrarian.
Nor do I follow why Tesla has now jumped the tracks to present itself as an AI firm – it sells cars, and has a niche business in powerwall batteries. Oh.. because if Elon can persuade the market voters it’s an AI firm, a robotaxi maker, a self-driving power house, and that Optimus robots will be selling billions of units in a couple of years… please. He has another AI business.
One question is why the formerly Democrat Musk has swung so right? Let us not forget, Tesla’s success came on the back of Govt subsidies, and Space X has received some $17 bln of orders from the US government – don’t expect that budget to be DOGEd. Musk’s engagement with Trump, and his offer to do the heavy lifting at DOGE presents clear conflicts of interest, but apparently these don’t matter anymore. There is an obvious play for Musk – defenestrating the Department of Transportation which is overseeing multiple cases against Tesla where its auto-driving has failed and folk have died. If Musk could “disappear” these while reducing regulation of self-driving that’s a massive win.
In Musk’s mind the thing that is holding back the advent and upside of full self-driving for Tesla is not the fact that Waymo does it way better, or BYD is doing it for free – but that regulations are stopping Telsa unleashing self-driving cars and Robotaxis across the USA.
Where does Tesla go from here? There are all kinds of vulnerabilities ahead – and if next quarter’s numbers in April are as bleak as January.. then who knows… If doubts on Tesla suddenly become a rout what would that do to perceptions of his other industries, or his efforts to unravel US debt? The knockback would be significant and trigger all kinds of no-see-um consequences… including pushback at his DOGE efforts.
That said… Elon knows how to dance (in the financial sense – he is a terrible dad-dancer) and has wriggled out all his previous problems. This time might prove more difficult. Till then.. happy to stay short the stock..
The delivery of the Morning Porridge might be “variable” next week as I’m off on business in the Middle East. Some exciting deals may be coming to fruition. Anyone got multiple billion dollars to invest? Just asking…
Have a great weekend…
Out of time and off to do the day job…
Bill Blain
Author Morning Porridge
