Author: Mr. X
This year began with a triumph for Tesla (TSLA). The company delivered an incredible 308,600 vehicles in just the fourth quarter. In total last year, the company delivered over 936,000 vehicles. The stock rose more than 10% on the news when it was reported in early 2022.
However, now Tesla and its founder (and “TecnoKing”) Elon Musk find themselves under attack from multiple directions. First, other companies are catching up in the electric vehicle (EV) market. Ford (F) has said that it will double the production of its EV pickup, the F-150 Lightning. The company is now aiming to produce 150,000 units. The Mustang Mach-E also poses a formidable challenge to Tesla.
General Motors (GM) has unveiled its own weapon, the Chevrolet Silverado EV. It reportedly has already sold out. It contains new features, including a “frunk” which provides storage space under the hood. The company has vowed it will also outperform the F-150 in towing capacity and range. This will be critically important, as pickup trucks have historically been dominant among America’s top selling vehicles.
Tesla’s answer to this remains the rather unique looking “Cybertruck.” However, order specs and pricing have recently been removed from the company’s website, so we don’t know when Cybertrucks will be rolling down the streets, if ever.
GMC has brought back the Hummer in EV form, as obviously the problems with low gas mileage are no longer a concern. Featuring the “Ultium” battery cells developed in-company, the new Hummers will go for well into six-figures, just under $113,000 for a basic model. However, if you want a status symbol, there’s definitely an eye-catching one for someone who rebels against the “Cybertruck’s” unique appearance.
Rivian [RIVN] won plaudits last year for bringing EV pickup trucks to the general market. It has since been struggling. Its stock even fell below its IPO price earlier this week. Still, it represents yet another threat to Tesla.
Finally, there’s Mercedes-Benz. The Vision EQXX has an interesting aesthetic blend between classical and futuristic styles. It is being marketed as a “TSLA killer.”
Tesla faces many dangers. Unfortunately, Elon Musk is playing a risky game politically. He seems to delight in taking potshots at Washington DC. In August, Tesla was not at President Joe Biden’s electric vehicle summit. Some thought this was bizarre. However, Press Secretary Jen Psaki said that the event was actually for the employers of the United Auto Workers (UAW). Musk accused President Joe Biden of being controlled by unions.
Meanwhile, Tesla is also heavily dependent on the Chinese market. Yet here too he outraged the powerful when Starlink satellites almost forced two collisions with Chinese craft, at least according to the Chinese government. This is now being raised to the level of a major diplomatic incident, with China making a complaint to the United Nations. Interestingly, public opinion in China is also being directed against Musk and SpaceX, with the TecnoKing being accused of being the tool of the United States military. If the Chinese leadership did not agree with people saying this, it is very unlikely that it would be allowed on the Internet.
Is the solution for Elon Musk to move closer to the Chinese government? Well, he can’t do that either. He recently opened a showroom in Xinjiang, an area where the Chinese government has been accused of human rights abuses against the Uyghur population. Republican Senator Marco Rubio said, “Nationless corporations are helping the Chinese Communist Party cover up genocide and slave labor in the region.”
At a time when the government is heavily involved in determining winners and losers in the markets, the last thing you want to do is annoy both American political parties. Yet that is what Musk has done.
China may also not tolerate TSLA much longer. The Chinese and American governments clearly appear to be moving towards a zero-sum game of economic competition. The closer ties between Russia and China, including a deliberate attempt to undermine the dollar as the world’s reserve currency, suggest that America’s geopolitical competitors understand this will be a long-term campaign. The Chinese government is nothing if not patient. The accusation that SpaceX (and therefore Musk) is an American military asset and a target of (centrally directed, or at least permitted) nationalist outrage on social media should be a major concern to Tesla shareholders.
Elon Musk does have something of an independent popular base. Yet with cryptocurrency suddenly looking far more questionable, he’s lost much of it. His appearance on Saturday Night Live, rather than pushing him to new political heights, undermined his emerging populist position.
Obviously, no one should discount Elon Musk and Tesla. I certainly won’t – TSLA is in the RID Model Portfolio. Nonetheless, investors should go forward with eyes open. Trends simply don’t continue indefinitely. As Peter Thiel observed in his book Zero to One, real innovation is enabled by monopoly, not competition. As competition intensifies and more people fight for a limited market, the consumer benefits, but companies can take fewer risks with long-term research. As TSLA loses market share, it may come to resemble just another car company – which would be a tragedy for those who think it will be transformative for both America and humanity.
Yet neither hope nor despair substitute for analysis. There is one supreme practical reason for thinking that TSLA’s best days may yet be ahead of it. EVs are still vanishingly rare when it comes to most cars, but the political and economic momentum behind them in this country still seems unstoppable.
This is a growth market that is essentially being mandated by the government. Even if President Biden’s Build Back Better legislation is defeated, it doesn’t follow that the federal government won’t be offering tax credits or even direct aid to spur the transition to EVs. We may even see Republicans join this process – as can be shown by Texas’s joyful welcome to Tesla’s new factory and increasing concern about securing rare earth elements from China. Of course, this kind of aid is something that Musk himself has expressed opposition to.
He shouldn’t. TSLA as a growth stock still has potential. When it comes to hard numbers, it exceeded past analyst expectations. Yet the easy part, in some sense, is over. Now, established and yet resurgent automobile companies buoyed by political support are crowding in on the EV market. TSLA faces political enemies on all sides and Musk sometimes can’t get out of his own way. The best move for the company is to encourage the growth of the EV market as whole, essentially trying to grow the pie so rapidly that increased competition won’t hurt TSLA. TSLA already took a step in this direction when it opened up its charging network to other EVs in the fall. Other companies will need to do the same if they want to stay competitive.
Still, while pursuing this dramatically ambitious goal of recreating the entire automobile industry, Musk needs to become a bit more modest. He can’t take on the Republicans and Democrats at once – let alone the governments of both the United States and China. Musk may not want to be a political figure, but the sooner he realizes he is one whether he likes it or not, the better TSLA’s shareholders should feel.
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.