Elon Musk Is the Greatest, or Is He?
Dear Traders,
In 2019, I hosted a meetup in Singapore with some of our traders. One trader who attended was a major marketing expert who was working for Apple and many other big companies in the Asia-Pacific region. During our conversation, he told me that the future of success is “personal branding”, and he shared how people follow leaders and their brands. He gave me some recommendations on how I should present myself as a leader of Bear Bull Traders, ranging from my behavior to what I should wear. It was quite lovely to hear those comments, especially in 2019, since I was still a young entrepreneur and trader (I think I have grown significantly from those days!).
His comments were valid in many areas and Elon Musk is the perfect example of it all. He is THE BRAND of success. People love him, buy Tesla because of him, and believe in everything he touches. He is the perfect example of how a personal brand can drive a business brand. I learned a very important lesson from that meetup and from observing the successful people around me.
A personal brand has an effect on people. Let me give you an example. When I was climbing in Antarctica this month, I met a great climber, one of the legends of climbing, who is 70 years old and remains a very strong climber. During our dinner one night, he said he loves Elon Musk, thinks he is a genius, and that everything he touches gets turned around. He shared that he has all of his investments in either Tesla, X (Twitter), or SpaceX. Essentially, he was ALL IN in Elon Musk. It was terrifying to see how he, at the age of 70, is all in in Elon Musk. He mentioned how Musk changed X and is turning around that company. This experienced climber advised me that Musk is so smart that he is impacting all car makers and is the one responsible for car prices dropping. I listened, I was quiet, but I was also horrified.
Those like me who know enough about the financial market, know this is not really true. Elon Musk spent $100 million to get out of a bad deal he made on X. He was forced to pay $30 billion in cash, and $13 billion in loans secured against his 13% stake in Tesla. If he defaults on that loan, his positions will be liquidated. The interest on the loan itself is about $1 billion a year, or $3 million a day. And that is only the interest! After his comments about Jewish and white history, a majority of advertisers pulled out of his platform. He was under so much pressure that he had to make a trip to Israel and later publicly tell the advertisers to go fuck themselves.
Recently, he went public on X and said: I want 25% of the shares of Tesla now, I don’t have the motivation to work with only the 13% of shares left. How come Fidelity investors do not show up at work, given they have 10% more shares in Tesla? If the Board does not give me this 25%, I will take my AI and robotics entrepreneurship somewhere else.
Can you believe this? You can read all about it here.
So, he is under so much pressure that he publicly threatens his own company.
Right now, it is a scary time to be an investor in Elon Musk’s companies. Tesla is down over 12% today, 32% in the last 6 months, and in January alone down over 27%. The reason is that the company´s margin keeps going down, and even though sales of their cars have gone up 13% year over year, the margin is now merely 3%.
Why is Tesla selling off?
There are many reasons behind it. First are the tight conditions of financing for buyers. Secondly, Tesla has started a price war with other automakers, and no one is a winner in a price war. That is the first fundamental of running a big business: you do not start a price war with the other major players.
Tesla at its core is a car business with some energy and “services and other” revenue. Full-year automotive revenue reached $82.42 billion in 2023, rising 15% YoY. Ultimately, weakness in that segment continues to offset strength in smaller parts of the business like energy (+54% YoY to $6.04 billion) and “services and other” (+37% YoY to $8.32 billion).
At its core, the company sells cars, so it needs to address significant pressures on both the supply and demand sides of the equation. And that is beyond Elon Musk’s hands.
Elon Musk has a huge challenge ahead of himself. The competition is very nicely catching up with EVs. China’s economy is weak and expected to stay weak. Rates will stay up longer than expected, and it seems that a weaker demand for his EV cars will continue on longer too.
Returning to the climber I met in Antarctica, the moral of this story is that as an investor, you should not bet on one person, or on one company. No matter how much you believe in one person, and whether what you believe is true or not, you better not go ALL IN in one person. Let that one be Fidelity and their analysts.
The best investment for any individual is a typical 60/40 portfolio. Aim for 60% stocks, 40% bonds, and as you grow older, like that 70-year-old climber, increase your bonds so you receive cash income, and reduce your 60% equity, because you do not need much growth anymore.
VOO is a good position for 60% equity, and VCRB as a diversified bond ETF.
I personally think Elon Musk has seen his best times, and it is unlikely that Tesla will go back up to the prices we saw in 2021. Tesla is no longer the EV leader, and he’s way behind on AI and in many other areas too. You cannot be the best in everything, nor should you be. Elon Musk, as much as he has done a lot for our civilization, is under more and more pressure, and is now juggling more balls than he may be able to handle.
I am sure many people do not like hearing these types of comments about Elon Musk, and they are right. Who are we to bash him? But this newsletter was about not going all in on one company or one person, and staying away from dumb money hypes. In investing, it is best to diversify and wait for the compounding effect to do its wonders over time.
To your success,
Andrew
