The Last Temptation of Elon Musk

This column does not advise owning individual stocks. But if you are a shareholder in Tesla, should you support the call of good-governance types for

Elon Musk

to surrender his chairman’s title to an independent eminence who can be appointed to ride herd on him?

Our answer, strictly from the shareholder’s standpoint, is no. This good-governance nostrum, like many, is case-specific. It’s a good idea for a company for which it is a good idea. It’s not a good idea for Tesla because the main thing holding up the stock price is Mr. Musk’s image as a conjurer, and any move suggesting the board is questioning his magical potency could be fatal for the Musk bubble.

Mr. Musk has fenced with analysts lately over whether he needs to raise fresh capital this year amid struggles to get the Model 3 into production. The discussion is modestly irrelevant, though, because Mr. Musk keeps laying out grand plans that will certainly require gobs of fresh capital in future years.

All this rests on the stock- and debt-buying public adopting a hazy, not quite explicit belief that Mr. Musk represents the green future and that public policy will fall in line behind him and guarantee his success.

The importance of this factor is apparent when you consider a simple question: To a customer looking to get the most utility at the best price, will electric cars ever be able to compete with gasoline-powered cars, short of government interventions that raise the price of and eventually prohibit gasoline-powered cars?

The answer is no. Mr. Musk himself has opined that gasoline should cost $10 a gallon. His big commitment to lithium-ion technology is tantamount to a bet that no battery breakthroughs are in the offing to fix the range and charging drawbacks that are the main handicap of electric vehicles. His answer to every critic, as well as to the California Air Resources Board and the National Highway Traffic Safety Administration when they are less than fully obliging, has been: How dare you endanger the planet by erecting obstacles to the advent of green transportation?

Tesla in theory should be a beneficiary of the Trump administration’s rollback of fuel-mileage targets—it reduces the incentive of other auto makers to build electric cars and dump them on the market at a big loss. Yet one senses Mr. Musk’s ambivalence. If investors perceive that public policy no longer is hotly devoted to promoting electric vehicles, the Musk bubble could quickly deflate.

Electric cars are no solution to climate change, but having buyers believe they are, and having investors believe that government, media and green groups will treat them as if they are, is a key prop under Tesla’s stock.

Thus an ominous warning is the new Consumer Reports, which withholds a favorable rating from the Model 3 because of erratic braking and poorly designed touch-screen controls. Consumer Reports has apparently rediscovered its mettle. Three years ago, the magazine tossed out its traditional, objective criteria to sing the praises of another Tesla model as a shining tribute to green politics and policy.

If the air must come out of the Tesla bubble, we’re glad that civic culture is doing the job. There was never much hope or any great need for the Securities and Exchange Commission to go after Mr. Musk for pie-in-the-sky forecasts that investors knew were pie-in-the-sky and welcomed as Muskian gusts of hot air to keep the stock aloft.

There is no need now for the Federal Trade Commission to intervene in response to the gripes of those who put down $1,000 deposits for his alleged $35,000 Model 3 only to discover the fine print: Tesla is entitled to move them perennially to the end of the line in favor of customers who are willing to fork up for the fully loaded ($78,000) version.

Mr. Musk has discovered, or invented, a market for electric cars. And that’s great. Whether buyers really want electric cars, or just want high-end emblems of green virtue, it can be a good business either way.

Unlike the DeLorean, Mr. Musk’s vehicles live up to expectations as long as those expectations are reasonable. As this lesson is taken to heart, we expect to see fewer Teslas in Thanksgiving traffic on I-95 making the last miles to grandma’s house on the back of a flatbed truck.

What we have yet to see, from Tesla or any other manufacturer, is that customers are willing to buy electric cars at prices resembling the cost of making them. Here may reside Mr. Musk’s real missed opportunity. He could have aimed to become a niche maker of electric fetish objects, and done so at a price point that would not require endless subsidies from the taxpayer or stock investors.

He had a chance to show that an electric-car maker with realistic ambitions could be a profitable, self-sustaining member of the auto-manufacturing community. Right now, his fans are stuck with the hope that some combination of the Musk bubble plus public policy will make their bet on Tesla stock come out all right.


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