By Gene Munster
Elon Musk’s desire to win every battle may cost him the war.
Last week, in an attempt to achieve some mental “victory” against the SEC after settling charges related to his go-private tweet earlier this year, Musk needled the agency by calling it the Shortsellers Enrichment Commission. On the surface, it’s easy to say Twitter is a problem for Musk. It’s been the center of all of his major issues over the past several months; however, Twitter is just a megaphone, albeit a dangerous one. Some have suggested he has a mental health issue. We don’t think that’s the case, but sleep deprivation and potential Ambien use certainly don’t help mental health as a general rule.
People don’t often change, so our goal here isn’t to give Musk advice about how to be better. He’s gotten plenty of that over the past several months. Our goal is to form a thesis around why Musk acts the way he does and leverage that perspective into how we should think about Tesla (TSLA).
With that in mind, it seems that Musk’s real problem is that he’s not able to control the downside of his greatest strength: his unwillingness to fail.
What Got You Here Won’t Get You There
Musk is a one in ten million-type person. There are only a few people capable of not only willing one game-changing company into existence, but at least two and maybe more, depending on how you count. The ability to build a Tesla or a SpaceX requires a mindset that no one can stop you. The concept of “no” can’t exist in Musk’s world, nor can the presumed authority of someone to tell him no.
Musk feels he has to win every battle because a loss could be an existential threat for his companies. That mindset is critically useful in the early stages of building game-changing companies, but in excess can turn detractors into arch rivals marked for destruction (short sellers) and those who otherwise interfere into collateral damage (Unsworth, the SEC).
If “Excessive Elon” didn’t attack those standing in his way, he wouldn’t be Elon Musk. If his superpower was turned down even a bit, he might not have been capable of willing Tesla and SpaceX to life. That doesn’t justify his recent behavior, but attempts to understand it.
To become a one in a hundred million-type person, Musk needs to learn to better harness the unstoppable nature that helped him create the companies he leads. As the adage goes: what got you here won’t get you there. The me-against-the-world mentality that enabled Musk’s early success isn’t as critical today as it was a decade ago when he started Tesla and SpaceX. It’s no longer about willing those companies to life, it’s about raising them into mature, sustainable organizations. Maturity starts at the top and trickles down.
Tesla’s Recruiting Challenge
Excessive Elon hurts Tesla most with team-building. One criterion we use for assessing private companies is whether or not we’d want to work for the founder. A year ago, we would have answered affirmatively here without much thought. Now, we’re not as sure, and it doesn’t seem like we’re the only ones. The list of high-level departures at Tesla is significant, and we believe well-qualified candidates for the critical COO role may be hesitant to work with Musk. The same can likely be said for adding more qualified board members. The volatility in talent is far more concerning to us for the long-term prospects of Tesla than the short-term moves in stock price.
Lose the Battle but Win the War
Musk’s response to the SEC lawsuit revealed that he felt the suit threatened his integrity; however, Musk’s inability to harness his superpower of being unwilling to fail has brought his integrity into question more than anything the SEC has done. We’re not ready to say that Musk lacks integrity yet, but picking petty fights with no upside and meaningful downside is making it harder and harder to support that view.
We’ve spent a lot of time considering the wildcard element of Excessive Elon and how it impacts Tesla. Long term, we’re still bullish about the prospects for the company. We still believe Tesla has the best electric vehicles on the market and will for the foreseeable future. However, it’s impossible to separate the short-term consequences of Musk’s actions from the company’s long-term prospects.
We’re hopeful that Musk can recognize his flaws and work to restore his integrity, but it will take him doing the hardest thing he’s ever done: losing some battles to win the war.
Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio.