Twitter smashes Elon Musk's aura that fueled Tesla

Twitter smashes Elon Musk’s aura that fueled Tesla

The auto company’s value has plummeted by $644 billion this year as its billionaire CEO tends to his latest distraction.

Elon Musk’s initial motivational headline for the social experiment now referred to as “Twitter Staff” didn’t bury the lead:

Musk warns Twitter could go bankrupt as top executives exit

Overblown outbursts are, of course, Musk’s business — “unsecured finance,” as it were — which is why he made such an easy transition to Twitter in the first place. You could argue that this also makes him a natural owner of Twitter, but (a) I mean, just look and (b) we’ve all been warned of the consequences of people overloading their own supplies. There is an alternate reality in which Musk, earlier this year, apparently, on a whim, did not decide to buy Twitter and instead continued to use it for free, perhaps to an excessive degree, but, through his own spotlight, with success. In a way, our actual reality, showing a live broadcast of large-scale corporate sabotage by the richest man on earth, seems less plausible even though I can actually feel my fingertips hitting these switches.

I say “overkill,” but with Twitter’s new estimated interest payments equaling nearly a fifth of its returns, Musk may be about to take notice. And that was revenue before we got into this week’s turmoil, with an $8 avatar mask mask offering — full self-checkout, as it were — giving any advertiser considering cutting budgets before a potential recession hits enough reason to start.

I tend to be more interested in those other businesses that Musk runs, the ones that make cars. It has been a difficult year for the other shareholders of Tesla Inc. The stock fell by more than half, eliminating $644 billion, which is $600 billion more than what Musk and friends paid for the other thing. Keep in mind that this does not reflect a collapse in profits; Far from it: Tesla’s net income doubled, year on year, in the last quarter. Rather, it is just the air that is squeezed out of the price/earnings ratio.

Think of this ratio as an expression of faith. At the beginning of the year, Tesla shares traded 130 times forward earnings, while Ford Motor Co. made 10. The market has been effectively saying, sure, that Ford has been in this auto industry for a while and will probably continue to make a decent profit for the foreseeable future, but, man, Tesla will own this industry and more besides: self-driving, and solar energy robots. Ford may have an F-150, but Tesla has Musk.

Flee the faith. The current 35 times expected adjusted earnings ratio is lower than it was at the beginning of 2019, when Tesla was still essentially unprofitable on a post-graduate basis. Moreover, Tesla’s P/E ratio started the year six times compared to the S&P 500: although the latter also declined, today Tesla is just twice as much as the market.

Tracking this decline in financial belief for any one reason would probably be a fool’s job (or perhaps a columnist). Returning to the mean, and a little below average, after the massive rally is the oldest stock market narrative. Technology stocks, which many consider Tesla, have had a particularly difficult year. The personal and financial denominations of all kinds — crypto, metaverse, and yes, Musk himself — have dwindled in 2022. It’s probably all just a function of the 4% rate on fed funds a decade from scratch. The future generally becomes less futuristic when money costs something.

Is a live stream of Musk’s apparent cadence on Twitter making it worse? There is no definite answer. Musk has apparently challenged existential crises before; One thinks of the failed Model 3 launch back in 2017. Many people would give it the benefit of the doubt, expecting Twitter to rise like a blue phoenix on the back of some little-known genius plans. Sure enough, the bankers who had loans to finance the deal were very hopeful about it.

But I think it’s safe to say that the Twitter debacle — which, let’s not forget, involves the same shameful Musk takeover “process” — can’t be helped. On a direct level, Musk’s liquidation of Tesla stock to pay for his new distraction couldn’t help but undermine the stock. It also adds to the dissonance that often characterizes Musk’s statements. Illustration A: If, as Musk claimed only weeks ago, Tesla is ultimately worth $4 trillion, why sell stock when it’s less than $600 billion to fund an unprofitable social media site?

Above all, Musk’s combination of his obsession with Twitter, and what appears to be a failure, shows his fallibility — which is unhelpful when your car company is evaluated as an Edison-like moon-shooting factory. Tesla is profitable these days and has billions in the bank. So while Twitter will undoubtedly feature in many future business school case studies, it’s an exaggeration to imagine that these case studies will follow the path of some Tesla disaster. But for anyone who bought a Tesla when it was worth over a trillion dollars, that’s off topic. Tesla may do well as a car company even when the genius CEO is distracted, but a plain old car company doesn’t get their money back.

One last thought. Twitter has me in mind that Musk’s other shady acquisition, Tesla’s purchase of SolarCity Corp. In 2016. This was, in essence, a salvage for a failed project headed by Musk, run by his cousin, and owed to both (see this). Even one of the brightest-eyed Wall Street analysts covering Tesla later referred to the deal as a “controlled detonation” to protect Musk’s aura. That aura is everything and Musk felt at the time compelled to issue an update to Tesla’s “master plan” emphasizing the need to twin renewable energy with electric cars. I’m not saying that we might one day see a new update outlining the eight-dimensional rationale for a car company to have an internal social media post. I’m just saying that our current reality is producing some really strange results.

More from Bloomberg Opinion:

We may be watching Twitter explode in real time: Barmi Olson

Matt Levine Financial Things: FTX Had a Death Spiral

FTX is a feature, not a flaw, of financial innovation: Aaron Brown

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This column does not necessarily reflect the opinion of the editorial staff or Bloomberg LP and its owners.

Liam Denning is a columnist for Bloomberg Opinion covering energy and commodities. A former investment banker, he was the editor of the Wall Street Journal Heard and a reporter for the Financial Times’ Lex column.

More stories like this are available at bloomberg.com/opinion

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