Date: 10/31/2022
Author: Mr. X
There’s no way to short Twitter [TWTR] at this point. Elon Musk is taking it private. However, if there was a way to do it, I probably would in the short-term. There are many people who are very unhappy about Musk’s takeover of the social media platform and Musk is vulnerable on several fronts.
The most obvious point is that Musk didn’t want to have to go through with this. You are entitled to think that he is making a sacrifice and showing great courage – but he did begin litigation so he wouldn’t have to go through with this deal.
Unfortunately for him, the case in Delaware Chancery Court did not seem to be going in his direction. One might argue that Musk was simply maneuvering to try to get a better price. That may even be true. However, it still shows that he had second thoughts before he moved in. He’s already scrambling to cut costs, reportedly scheduling layoffs this weekend in order to prevent having to give out stock grants that would have been dispersed on Tuesday.
Elon Musk has tweeted that his platform needs to be “even-handed.” The problem is that this may be an impossible task. The very idea that any platform can be value-neutral is delusional. Someone will always claim it is biased, because someone will always have an interest in saying it is biased. A quote attributed to Frank Herbert says: “When I am weaker than you, I ask you for Freedom because that is according to your principles; when I am stronger than you, I take away your Freedom because that is according to my principles.”
Elon Musk is already being dragged into defending his choices about this or that account; he’s already pinned the blame for restoring Kanye West’s account on the people before him. Unfortunately for him, these kinds of cases are never going to end. He could conceivably say all First Amendment protected speech should be allowed on the platform (meaning no imminent threats of violence and no porn), but that norm is no longer considered a mainstream American value. That’s tragic but true. Musk will be besieged with never-ending demands to act against “misinformation.”
Twitter is already an important part of American national security. Even as this is written, tech companies are being lobbied to help dissidents in Iran avoid censorship. At the same time, the European Union is warning Musk that Twitter will have to obey its own content moderation rules. When Elon Musk tweeted that “the bird is free,” European Commissioner Thierry Breton responded, “In Europe, the bird will fly by our rules.”
There is no First Amendment in the European Union and speech that might be considered simply in poor taste in the United States might be illegal on the Continent. Non-Governmental Organizations in the United States, which are increasingly becoming quasi-public entities, are also making their own demands on Musk.
Elon Musk has said that there will be a “Content Moderation Council.” This is not a solution to his problem, but merely another battleground. Though he claims there will be “widely diverse viewpoints,” we can anticipate that some on the council will want others on the council deplatformed altogether.
General Motors [GM] has already withdrawn advertising from the platform. “We are engaging with Twitter to understand the direction of the platform under their new ownership,” it said. “As is normal course of business with a significant change in a media platform, we have temporarily paused our paid advertising.” I doubt they will be the only company to pull out.
Companies do not want to be involved in controversy, especially as Elon Musk is increasingly identified (fairly or unfairly) with the political right. Despite Musk’s contribution to the defense of Ukraine with Starlink, his discussion of a peace plan has also made him powerful enemies.
Musk already seemed to be a target of the Biden Administration. In August 2021, the White House held a major event for electric vehicle manufacturers, and Musk was not invited. Musk has challenged the United Auto Workers to organize at Tesla, and President Biden is a major supporter of unionization efforts.
Musk is also vulnerable on numerous other fronts. Just two days ago, in what some might regard as a remarkable coincidence, reports emerged that both the Securities and Exchange Commission and the Justice Department are examining Tesla [TSLA] and its “Autopilot” program. The California Department of Motor Vehicles is also looking into Tesla. Tesla and Musk had a major falling out with the Golden State, with Musk moving TSLA HQ to Texas. However, though Musk may have fled some regulations, government entitles hostile to him have other ways of striking back.
Musk also has a record of saying things that will get him into trouble, making overly optimistic predictions, or exaggerating the capability of some of his products. For example, Autopilot does not literally pilot someone’s car for them. That, if regulators are determined or pedantic enough, could lead to fines or various restrictions on TSLA. The Department of Justice may even press charges against the company, accusing Musk of hiding the ongoing investigation from shareholders. Meanwhile, the Biden Administration could boost TSLA’s competitors via more White House events or contracts.
As politically incorrect speech increases on Twitter, expect more media attention on various lawsuits filed against Tesla. In April 2021, a black contract worker won $15 million after a lawsuit alleging racial discrimination. That was lucky for Tesla – the original award was $137 million. Tesla recently filed for an entirely new trial, but there has not been a ruling yet.
Fifteen black employees filed a lawsuit against Tesla in July, with the suit claiming Tesla’s “standard operating procedures include blatant, open and unmitigated race discrimination.” California’s Department of Fair Employment and Housing is also suing Tesla. In June, a Tesla shareholder sued Elon Musk over Tesla’s allegedly “toxic workplace culture.”
Musk’s SpaceX is now NASA’s second-biggest private vendor. However, that could change quickly. Jeff Bezos’s company, Blue Origin, is competing against SpaceX for another contract for a lunar lander. In August, a former SpaceX employee sued because he said the company fired him because he insisted on following mask mandates.
And lastly, Musk is facing a $258 billion lawsuit alleging that his promotion of Dogecoin is part of a pyramid scheme. Musk said Dogecoin will take over the entire financial system. Obviously, most people think he’s joking or simply making a point about what cryptocurrency could potentially do. However, if someone is absolutely determined to take everything he says or does in the worst light, a court could easily hold the TecnoKing accountable for some of his less well-thought out statements. Musk has already had to settle with the SEC in the past because of his impulsive tweeting.
The biggest thing that has changed for Elon Musk is that powerful people may now consider him an enemy. Though he’s not particularly conservative, he’s spoken in support of Florida governor Ron DeSantis, who may be the GOP nominee in 2024 if he wins his re-election race and Donald Trump doesn’t (or can’t) seek the nomination. Anything Musk has ever said or done can be brought up in both courts of law and the court of public opinion. You can also expect that if anyone on Twitter does anything, Musk himself will be held accountable.
Elon Musk is spread thin. He has the media against him. Twitter gives him a powerful tool for promoting his message, but it also increases his vulnerabilities. It also threatens to suck him into numerous disputes that offer major risks but little reward, especially over content moderation.
Of course, I would be the last to disregard Musk’s brilliance. Some of Musk’s plans for Twitter, including his musings about turning it into the “universal app” that’s cryptically referred to ask “X,” would be game-changing for the world.
Yet investors may become frustrated with Musk pursuing his dreams at the expense of short-term returns. Most businessmen don’t seek celebrity and for good reason. This isn’t Atlas Shrugged and there’s no Galt’s Gulch for Musk to flee to. Investors in Tesla [TSLA] should understand that Musk has entered a dangerous area. Even if his company performs perfectly and generates massive returns, those with political power may seek to take him down.
Just look at what China did to Jack Ma and other Chinese businessmen who thought they could be independent of the Party. We are increasingly moving in that direction in America. Perhaps the main difference is that the way power is exercised in this country is more concealed – which makes it even more difficult to predict.
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing.
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