Tesla Technophilia and Little Miss Marker’s View
Tesla, Inc. is suddenly in deep trouble, with both its cars and its stock market valuation. Elon Musk has expanded far beyond the original Tesla Motors, created by two talented electrical engineers in the 1990s. They were eventually shoved aside by Musk, although they were responsible for putting Tesla on the map with the pretty ‘Roadster’ sports car, its design and construction drawing partly on the small but expert English Lotus company, while the Americans provided the electric motor and associated components. But Musk, their largest investor, soon began to build a far larger operation, not just making cars, but working on steadily improving lithium batteries and other high tech products, growing in the last four years to over 37,000 employees (see the fascinating account, ‘The Making of Tesla; Invention, Betrayal, and the Birth of the Roadster’ , Drake Baer, Business Insider, 11.11.14). But the firm, facing many technical and financial problems throughout it history, has been hit hard since the fatal and fiery crash of one of its cars testing the self-driving ‘autopilot’ last May, and Musk is now dealing with other failures, including a giant recall.
Replacement of new company founders by an arriving later, more ambitious and financially powerful partner is a familiar business tale. Musk held from the start a vision of a future grand market for more varied and newer products still only imagined. Still, the projected auto business was the great jewel in the crown. He continued the development of bigger and better ultra-high-performance sports cars with astronomical price tags, powerful enough to be very appealing as ‘muscle cars’ (the instant high torque of electrical power provides breathtaking acceleration). Such vehicles are often given free publicity by movie star purchasers: Clark Gable and Gary Cooper bought Duesenbergs in the 1930s; George Clooney bought one of the first commercially available Teslas. But Musk has always been interested in far bigger game: a future 21st century America, even a future world, completely given over to electrical power as a replacement for fossil fuels, in which Tesla would be the dominant manufacturer, as Ford was for a dozen years in the gasoline-fueled 20th century. This romantic analogy has been central to the Musk pitch to neophiliac potential customers and shareholders.
Teething problems could be treated as part of this exciting myth. Lots of roadblocks, bottlenecks, frustrating regulators, and death-defying flirtations with bankruptcy, all contribute to the romance. But this spring, the weight of last year’s fatal accident, and accumulating failures with both experimental testing and commercial production and deliveries, began to have more and more impact on company financing. Tesla stock was doing well last year, $389 per share. But Tesla has had trouble delivering Model 3, and declining demand for models S and X. The stock has now fallen below $260, and the two major rating agencies have downrated Tesla bonds.
In late March, John Thompson, of Vilas Capital Management, who has been a short-seller of Tesla for years, came forward again to remind everyone of this bad news (see ‘Tesla is just months from a total collapse, says hedge-fund manager’, Shawn Langlois, Marketwatch, 27.3.18). He was scathing: “As a reality check, Tesla is [market estimated as] worth twice as much as Ford…yet Ford made 6 million cars last year at a $7.6 billion profit while Tesla made 100,000 cars at a $2 billion loss…Ford has $12 million in cash held for ‘a rainy day’ while Tesla will run out of money in the next 3 months. I’ve never seen something so absurd in my career.” The NY Times, while using more temperate language, followed with much the same conclusion. Musk is now Tweeting his employees that they will prove ‘the haters’ wrong.
Thompson could have been drawing a lesson from a famous American short story writer. Damon Runyon’s tales of oddly likable and memorably nicknamed New York City gangsters occasionally touch on their violence and criminal activities, but are far more devoted to the frequently miserable lives of compulsive gamblers, eternally hopeful horse players and their bookies. Runyon’s best creation was Little Miss Marker, made into a successful film in the 1930s, then again, fifteen years later, re-named Sorrowful Jones, with Bob Hope playing its perpetually gloomy and cheapskate bookie hero, whose heart is melted when he accidentally acquires Martha Jane, a lovable little girl, left behind with him as a marker on a bet by a horse player who was later killed by one of the more ruthless gangsters.
What would nowadays be called a teachable moment in the story takes place after a long shot horse wins a race, bringing exultation to one of the bookie’s daily customers. The little girl, innocently intending to congratulate him on his good luck, and displaying a stereotypically feminine incomprehension of speculative male dreaming, points out that a success like this might even come near compensating the winner for all the losses she has observed him making most of the time. The winner and the whole betting shop clientele are thrown into gloom by this sensible assessment, and Jones has to explain to Martha Jane that it is very bad manners to remind gamblers of these discouraging overall statistics.
Musk likes playing long shots, including the compensation scheme he has managed to get with Tesla, Inc. He doesn’t bother to collect his modest annual salary, but if he grows the company from its present size to $100 billion in assets, and also increases its adjusted earnings by at least 70%, he would collect stock options worth a billion dollars, and that would just be the first step in a twelve-step Technicolor dream of expanding the company eleven-fold by 2028, giving it a market value of $650 billion. With profits rising in the same measure, his additional stock options would give him control of over a quarter of the firm, a net worth of $184 billion, and – unless Jeff Bezos managed a similar stunt with Amazon – make him the richest man in the world.
One is bound to imagine Martha Jane looking puzzled and then stamping her little foot. There is undoubtedly something beautiful about the design and performance of Tesla cars, but then, that was true of past attempts to go beyond tiny specialty firms and create a real major rival to the Detroit giants: Kaiser, Tucker, Bricklin, and DeLorean, all of them handsome, technologically innovative, and driven forward by visionary individuals much like Musk. And in these cases as in Tesla’s, successive months of news from the plant lines and cheerleading executive offices would sound less and less like a series of painful but ultimately triumphant forward leaps, more like an ever-multiplying series of horse race bets with their investors and bankers. .
Hollywood couldn’t bear the unsentimental conclusion of Runyon’s original story, which had the little girl eventually being turned over to more respectable authorities, and the bookmaker going back to being as ‘Sorrowful’ as before. In the 1949 film, Sorrowful restores the health of Martha Jane, hospitalized by a serious injury, by trotting a race horse, loved by the little girl, into her hospital room; then he and his girlfriend get married, adopt Little Miss Marker, and depart for a happy future. But not even Hollywood offered a similar improbable salvation to the long-shot-fond horse player. Bond traders and increasingly impatient shareholders and customers (Clooney had to keep calling from his immobilized Tesla Roadster), may now be changing from cheering onlookers to disillusioned bookies and moneylenders. Tesla is in hospital, Musk perhaps hoping that Donald Trump will arrive with a miracle horse.