Photo: Tesla/edited by autoevolution
Elon Musk recently laughed when he said that Tesla’s two new factories are money furnaces, burning billions of dollars. He also stated that he is concerned about how to keep Tesla working so that the company “can pay people and not go bankrupt.” Suppose he does not manage to pull that off and that Tesla goes bust. Then what?
If it sounds impossible for the carmaker with the most significant market cap nowadays to face that, remember that GM and Chrysler were not in such a bad shape when they went bust in 2009. They were lucky enough to be too big to fail. Tesla is only big enough not to disappear while it still retains a reputation for innovation that competitors are quickly eroding. Yet, Musk speaking about losing billions of dollars is not the only red flag in sight. Many other elements suggest this is a palpable risk.
Tesla has been adopting several strategies to make the most money from its sales. It removed radars, lumbar support, and mobile connector from its cars. It raised prices multiple times. It brought back Enhanced Autopilot for $6,000 because people are not buying the $12,000 Full Self-Driving (FSD) as much as they used to. For a company that bragged about having the highest profit margin in its cars, that all sounds contradictory and unnecessary.
Other issues the company is facing are several lawsuits related to racism, sexual harassment, retaliation, environmental violations, and, more recently, for breaking federal laws regarding layoffs involving more than 50 employees. The paradox here is that the company is firing employees at a moment when it should be hiring them for Giga Austin and Giga Grünheide, Musk’s money furnaces.
On top of that, Tesla bought $1.5 billion in bitcoins in April 2021. We have no idea how much money Tesla currently has invested in the crypto assets, but it is certainly worth a lot less now after bitcoin lost more than half of its value in the last six months. Don’t forget that Musk is being sued for $258 billion after allegedly pumping and dumping Dogecoin. These are only a few examples of how exposed the company is to Elon Musk’s bets and personal interests.
The Tesla CEO said that the EV maker almost kicked the bucket several times in the past, and he even made that possibility sound like a joke on April Fool’s Day in 2018, when it was a very concrete risk. Ridiculing that menace helped him convince his followers to ignore it. Now that he admits the concern, it implies that the situation may be more serious.
In other words, this is something Musk himself – the guy in charge of everything – said. Just imagine Tesla bites the dust after courting death so many times. What would happen? The only way for it to resurrect would be if another company bought its assets, factories, and projects. As an influential brand with a massive charging network, you may imagine that would be a given. What if it wasn’t?
Buying a company can involve pretty serious liabilities, especially when you don’t know what you'll find. They can be related to employees, taxes, or even to the products themselves. What if Tesla vehicles have problems with their battery packs that will eventually demand the EV maker to replace them? GM and Hyundai had such issues with LG Energy Solution cells and made recalls for vehicles with much lower sales than those Tesla achieved. Not that long ago, the EV maker released an OTA update that capped the cell voltage and restricted charging speed and range in thousands of its vehicles.
The update happened soon after spontaneous fires that Tesla never explained. Owners of the affected cars sued Tesla and accused it of concealing blaze risks in the U.S. and Norway. The American customers were willing to accept a deal to drop their lawsuit the last time we heard about that. The Norwegian ones – 30 Tesla customers – won 136,000 kroner ($13,803 at the current exchange rate) each. Tesla appealed the decision.
While it may look like only cars under warranty are subject to repairs, that’s not how it works. If the National Highway Traffic Safety Administration (NHTSA) discovers any defect in a vehicle, it can impose that the automaker fixes all of them regardless of still being under warranty or not. That happens because safety is what is at stake, and that lasts as long as any affected car threatens it on the roads.
The battery packs are the most expensive items in an EV. Unfortunately, that is not the only sign of issues with Tesla vehicles. Recently, Ángel Gaitán managed to cancel the purchase of his Model 3 in Spain because the car had welding problems that would demand its body to be extensively repaired – as if it had gone through a serious crash. Considering this was a manufacturing error, it is very unlikely that this is the only affected EV.
In order not to make this text longer than it should be, I’ll just mention a few defects I remember off the top of my head: heat pumps, phantom braking, MCU (which NHTSA already ordered to get a recall), bumpers that fall when hitting puddles, hidden manual releases for the doors, Autopilot crashes against emergency vehicles, rear glasses that break spontaneously, paint problems, and fragile suspension arms. You’ll find others if you search for them.
I have already written about how Tesla dealt with mass production in a way that may cause it more harm than benefits. Instead of using the large scale simply to reduce costs, Tesla seems to have multiplied the mistakes and liabilities with a lack of tests, the “deliver now, fix later” policy, and the idea that over-the-air (OTA) updates could solve anything. Tesla had multiple opportunities to get that mentality fixed. We wonder if it did not want to do so or if it realized at any given point it was too late to do that without risking its own existence. That would happen if it did not have the funds to fix all things that went wrong.
Curiously, something that the company’s advocates praise the most about it is another liability source for the EV maker: its Service Centers. Unlike the model legacy automakers follow with dealerships, all Tesla Service Centers are part of the company. If there is anyone to sue for the deficient services they offer, that’s Tesla. The amount of complaints they have been collecting for a number of reasons grows every day. Musk even made that worse by ordering untrained employees to service the vehicles.
If Tesla eventually goes bankrupt, these things are more than just what led it to such an outcome. They are also what could prevent the brand from being attractive to any buyer. If Tesla failed, it is doubtful that the brand would get back to life as it is, keeping business as usual, starting from where it stopped. It would probably be dismembered, and only its most attractive pieces, such as the brand or the Supercharging network, would be sold. If another carmaker bought Tesla, its dealers would service its vehicles. Bye, bye, Tesla Service Centers.
The only person able to prevent that from happening at this point is Elon Musk. Ironically, he’s also the only person who can be blamed for the company’s current state. He’s the one who decided to build two factories at the same time without knowing – or deliberately ignoring – that any industrial investment burns money until production is high enough to reach at least a break-even point. That takes months or even years to happen, and any automotive executive knows that.
Musk is also the one who decided it was not necessary to extensively test a vehicle before starting selling it, as Philippe Chain told us in July 2020. All other carmakers do that. The Tesla CEO is the one who fired everyone who dared to challenge his decisions, who pushed for falcon-wing doors on the Model X, for 4680 cells before they were mature enough, who wanted an “alien dreadnought” that led the Model 3 to be made in a tent, and the one who built it without preparing Tesla Service Centers to cope with much higher demand than they ever had before.
It is often said that Musk follows the Silicon Valley motto: “Move fast and break stuff.” Can you think of a worse slogan for a car company? Would you ride in a car that “moves fast and breaks stuff?” What if they broke beyond repair? What if fixing them will just cost too damn much for Tesla to stand it, despite all the warnings the press and safety specialists tried to give the company and its investors?
Nicholas Nassim Taleb tweeted some days ago that wild financial success such as the one Elon Musk experienced “is more likely to be the result of reckless betting, extreme luck, and the opposite of wisdom: folly.” Having two new factories that you don’t know how to keep running and buying bitcoins seems like reckless betting. Carbon credits fit in the “extreme luck” box. Buying Tweeter using Tesla shares as a guarantee for the business now sounds like folly.
Musk is the only person able to prove that none of the above apply to his case or Tesla’s. The deal is discovering if he is willing to admit he may have led the company to the brink of extinction or if he will just stick to the “move fast and break stuff” until the bitter end. Tesla fans and investors would be better served with the former option.
Tesla has been adopting several strategies to make the most money from its sales. It removed radars, lumbar support, and mobile connector from its cars. It raised prices multiple times. It brought back Enhanced Autopilot for $6,000 because people are not buying the $12,000 Full Self-Driving (FSD) as much as they used to. For a company that bragged about having the highest profit margin in its cars, that all sounds contradictory and unnecessary.
Other issues the company is facing are several lawsuits related to racism, sexual harassment, retaliation, environmental violations, and, more recently, for breaking federal laws regarding layoffs involving more than 50 employees. The paradox here is that the company is firing employees at a moment when it should be hiring them for Giga Austin and Giga Grünheide, Musk’s money furnaces.
On top of that, Tesla bought $1.5 billion in bitcoins in April 2021. We have no idea how much money Tesla currently has invested in the crypto assets, but it is certainly worth a lot less now after bitcoin lost more than half of its value in the last six months. Don’t forget that Musk is being sued for $258 billion after allegedly pumping and dumping Dogecoin. These are only a few examples of how exposed the company is to Elon Musk’s bets and personal interests.
The Tesla CEO said that the EV maker almost kicked the bucket several times in the past, and he even made that possibility sound like a joke on April Fool’s Day in 2018, when it was a very concrete risk. Ridiculing that menace helped him convince his followers to ignore it. Now that he admits the concern, it implies that the situation may be more serious.
In other words, this is something Musk himself – the guy in charge of everything – said. Just imagine Tesla bites the dust after courting death so many times. What would happen? The only way for it to resurrect would be if another company bought its assets, factories, and projects. As an influential brand with a massive charging network, you may imagine that would be a given. What if it wasn’t?
Buying a company can involve pretty serious liabilities, especially when you don’t know what you'll find. They can be related to employees, taxes, or even to the products themselves. What if Tesla vehicles have problems with their battery packs that will eventually demand the EV maker to replace them? GM and Hyundai had such issues with LG Energy Solution cells and made recalls for vehicles with much lower sales than those Tesla achieved. Not that long ago, the EV maker released an OTA update that capped the cell voltage and restricted charging speed and range in thousands of its vehicles.
The update happened soon after spontaneous fires that Tesla never explained. Owners of the affected cars sued Tesla and accused it of concealing blaze risks in the U.S. and Norway. The American customers were willing to accept a deal to drop their lawsuit the last time we heard about that. The Norwegian ones – 30 Tesla customers – won 136,000 kroner ($13,803 at the current exchange rate) each. Tesla appealed the decision.
While it may look like only cars under warranty are subject to repairs, that’s not how it works. If the National Highway Traffic Safety Administration (NHTSA) discovers any defect in a vehicle, it can impose that the automaker fixes all of them regardless of still being under warranty or not. That happens because safety is what is at stake, and that lasts as long as any affected car threatens it on the roads.
The battery packs are the most expensive items in an EV. Unfortunately, that is not the only sign of issues with Tesla vehicles. Recently, Ángel Gaitán managed to cancel the purchase of his Model 3 in Spain because the car had welding problems that would demand its body to be extensively repaired – as if it had gone through a serious crash. Considering this was a manufacturing error, it is very unlikely that this is the only affected EV.
In order not to make this text longer than it should be, I’ll just mention a few defects I remember off the top of my head: heat pumps, phantom braking, MCU (which NHTSA already ordered to get a recall), bumpers that fall when hitting puddles, hidden manual releases for the doors, Autopilot crashes against emergency vehicles, rear glasses that break spontaneously, paint problems, and fragile suspension arms. You’ll find others if you search for them.
I have already written about how Tesla dealt with mass production in a way that may cause it more harm than benefits. Instead of using the large scale simply to reduce costs, Tesla seems to have multiplied the mistakes and liabilities with a lack of tests, the “deliver now, fix later” policy, and the idea that over-the-air (OTA) updates could solve anything. Tesla had multiple opportunities to get that mentality fixed. We wonder if it did not want to do so or if it realized at any given point it was too late to do that without risking its own existence. That would happen if it did not have the funds to fix all things that went wrong.
Curiously, something that the company’s advocates praise the most about it is another liability source for the EV maker: its Service Centers. Unlike the model legacy automakers follow with dealerships, all Tesla Service Centers are part of the company. If there is anyone to sue for the deficient services they offer, that’s Tesla. The amount of complaints they have been collecting for a number of reasons grows every day. Musk even made that worse by ordering untrained employees to service the vehicles.
If Tesla eventually goes bankrupt, these things are more than just what led it to such an outcome. They are also what could prevent the brand from being attractive to any buyer. If Tesla failed, it is doubtful that the brand would get back to life as it is, keeping business as usual, starting from where it stopped. It would probably be dismembered, and only its most attractive pieces, such as the brand or the Supercharging network, would be sold. If another carmaker bought Tesla, its dealers would service its vehicles. Bye, bye, Tesla Service Centers.
The only person able to prevent that from happening at this point is Elon Musk. Ironically, he’s also the only person who can be blamed for the company’s current state. He’s the one who decided to build two factories at the same time without knowing – or deliberately ignoring – that any industrial investment burns money until production is high enough to reach at least a break-even point. That takes months or even years to happen, and any automotive executive knows that.
Musk is also the one who decided it was not necessary to extensively test a vehicle before starting selling it, as Philippe Chain told us in July 2020. All other carmakers do that. The Tesla CEO is the one who fired everyone who dared to challenge his decisions, who pushed for falcon-wing doors on the Model X, for 4680 cells before they were mature enough, who wanted an “alien dreadnought” that led the Model 3 to be made in a tent, and the one who built it without preparing Tesla Service Centers to cope with much higher demand than they ever had before.
It is often said that Musk follows the Silicon Valley motto: “Move fast and break stuff.” Can you think of a worse slogan for a car company? Would you ride in a car that “moves fast and breaks stuff?” What if they broke beyond repair? What if fixing them will just cost too damn much for Tesla to stand it, despite all the warnings the press and safety specialists tried to give the company and its investors?
Nicholas Nassim Taleb tweeted some days ago that wild financial success such as the one Elon Musk experienced “is more likely to be the result of reckless betting, extreme luck, and the opposite of wisdom: folly.” Having two new factories that you don’t know how to keep running and buying bitcoins seems like reckless betting. Carbon credits fit in the “extreme luck” box. Buying Tweeter using Tesla shares as a guarantee for the business now sounds like folly.
Musk is the only person able to prove that none of the above apply to his case or Tesla’s. The deal is discovering if he is willing to admit he may have led the company to the brink of extinction or if he will just stick to the “move fast and break stuff” until the bitter end. Tesla fans and investors would be better served with the former option.
Elon Musk illustrates my #FooledbyRandomness point: solid financial success is largely the result of skills, hard work, and wisdom. But wild success (in the far tail) is more likely to be the result of reckless betting, extreme luck, & the opposite of wisdom: folly.
— Nassim Nicholas Taleb (@nntaleb) June 7, 2022
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