Tesla Turning Point?

Sinking Shares Curtail Musk’s Dream

Tesla Motors CEO Elon Musk introduces the falcon wing door on the Model X electric sports-utility vehicles during a presentation in Fremont, California September 29, 2015. Tesla Motors delivered the first of its long-awaited Model X electric sports-utility vehicles on Tuesday, a product investors are counting on to make the pioneering company profitable after years of losses. REUTERS/Stephen Lam
Where next for Elon Musk?
  • Why it matters

    Why it matters

    Tesla’s sinking share price threatens to strip founder Elon Musk of the funding he needs for his other visionary projects.

  • Facts


    • Tesla’s Model 3 sedan is designed to appeal to middle-income buyers and transform the company into a mass producer.
    • The company has encountered production problems with its new Model X SUV.
    • Tesla has been instrumental in bringing innovative ideas into the auto industry.
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Tesla, the electric car company founded by Elon Musk, has shaken up the auto industry. He founded an automaker that not only stayed afloat, but earned a market valuation that lapped established competitors like Peugeot and Fiat Chrysler.

But right now that is changing. Tesla’s stock price declined by more than a third over the last month, marking a radical shift for the market darling.

There will always be price fluctuations. But a different danger lurks here: Investors are losing faith in the infallibility of the South African visionary.

Mr. Musk’s improbable successes with PayPal, Tesla and Space X long gave him a special aura and sent share prices soaring. Those prices enabled Mr. Musk to turn his visions of an electric car and his “giga factory” for batteries into reality.

But without this source of cheap financing, his plans could run into trouble, including in his core business.

Without this source of cheap financing, his plans could run into trouble.

For instance, Tesla is working on its Model 3 sedan, intended to win people over with average incomes for the company’s electric cars. It’s an expensive proposition, designed to transform Tesla from a niche player into a mass producer.

There are clear reasons for the sharp drop in the share price of Tesla, which is releasing sales figures on Wednesday.

The new SUV, with its falcon-wing doors and specially shaped seats is running into production problems. The company has been slow to get its Model X into the market. Inventing new products is all very well, but the established automakers and their recalls demonstrate what it’s like to produce thousands of vehicles without defects, week after week.

But anyone gleefully rubbing his hands together and saying that Mr. Musk has always been an arrogant dreamer is completely wrong. Tesla brought sorely needed movement into the industry.

Take General Motors, for example. A giant, bankrupt company until a few years ago, GM is now surprising the world with its innovative ideas on car-sharing, an investment in the Lyft ride-sharing service and its Volt electric car, which is more than impressive in terms of its price and range.

To a certain extent, Mr. Musk embodies change. Tesla was a wakeup call for many in the auto industry. The company was and remains proof positive of the mantra of GM chief executive Mary Barra: There will be more change in the auto industry over the next five years than in the last 50.

There are many incredible ideas floating around in Mr. Musk’s head: electric airplanes, a brain-computer interface, the ultra-high-speed Hyperloop transporter. The man is a walking science fiction novel.

But talking about these ideas is one thing, but making them a reality – like the Hyperloop – is another thing altogether. Investors are worried that Mr. Musk is overreaching and losing sight of the Model 3, which is critical to the survival of Tesla.

That concern is clearly unfounded. Until now, Mr. Musk has kept close tabs on every new vehicle, down to the last detail, and has driven employees and suppliers to the hilt. Their efforts have produced nicely designed and technically sophisticated cars, bought by tens of thousands of customers, not because of, but in spite of, their electric engine.

Nevertheless, Mr. Musk should not completely ignore the reversal of opinion among investors. He should simply keep some of his bold plans for the future to himself. They are not pipe dreams, which is what makes him so fascinating.

Rather, they are conclusions drawn from his environment. With crystal-clear logic, a high degree of technical expertise and long-term thinking, he analyzes the world’s problems and comes up with unusual solutions.

But he can’t do everything. He knows this, which, for example, is why he doesn’t want to build the hyperloop himself.

But there is one thing that Mr. Musk should not do: telling the market what it wants to hear and following its short-term wishes. Companies like Amazon show how much value can be created by taking a long-term approach. For many years, founder Jeff Bezos forewent profits in order to successfully acquire a lot of market share.

German automakers’ dispute with the German government over buyers’ premiums for electric cars shows how fragile the market is. Electric engines make sense. But more purchase incentives are needed to bring about real change to our mobility. And visionaries like Elon Musk are needed, too. It would be a mistake for investors to deprive him of the necessary funds.


To contact the author: jahn@handelsblatt.com

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