What Elon Musk’s Message Really Means

You may have read about Elon Musk’s “bad feeling” the other day:

Tesla Inc. Chief Executive Officer Elon Musk said the electric carmaker needs to cut staff by around 10%, noting he had a “super bad feeling” about the economy, according to an internal email seen by Reuters.

First of all, isn’t it nice to think that if all billionaires have “super bad feelings” about the economy at the same time that, indeed, the economy will tank?

Back to Musk’s comments though, what does he really mean? Here’s what I think he means:

1. Tesla stock is over valued. Basically, Tesla would have to sell as many cars as Toyota and make as much profit on each as Apple does on iPhones. Possible, but with all the existing car makes building great electric cars and all of the new brands being launched, it’s highly unlikely that Tesla’s rather plain looking cars will be able to maintain a large price premium, let alone conquer 10% global market share of cars.
2. He is over leveraged. He already has borrowed $88 billion against the value of his Tesla shares and he’s looking to bring that to $150 billion with the Twitter deal. Remember, he’s worth $218 billion and most of that is the value of Tesla. If the stock tanks he could be racing to cover his debt.
3. Sales might be plateauing for Tesla. Sales in 2022 have been strong, but perhaps Musk sees trends that the strength slowing. Certainly looking at the big picture, US EV sales have been hovering around the same mark since the middle of 2021, suggesting that it will get harder to increase sales from here on out without a major leap in technology.
4. He thinks boosting profitability will make Wall Street look away from the faults in the company. One way that Musk can cover himself is by boosting Tesla’s short term profitability. A good way to do that is to borrow a method from Jacques Nasser and cut your salary expenses. It worked well for Nasser and Ford, until it didn’t. We shall see with Musk…