First Principles | 2023 could well be the year of this Musk-eteer
There is a view that while Musk may be a tech visionary, his competence lies in creating “hardware”. But to build and sustain “software” companies is a different game. The consensus view was that he is a bored, rich man. But bored, rich people aren’t stupid to blow up $44 billion to stay in the news
If one were to crystal-gaze into 2023, the one name that will be all over the headlines, is Elon Musk’s. Private equity grapevine has it that he is likely to be compelled to exit Tesla, the electric vehicle company that he founded.
This would be so, the rumors have it, is because Morgan Stanley and nine other bankers have placed a ‘margin call’ on the company’s stock after its price got hammered and its value stands eroded by 70% since November 2021. A margin call is triggered when the percentage of a company’s value-- in a combination of stock and cash-- in its brokers’ account falls below a certain threshold. At its current stock price, this appears inevitable – if not this weekend, then over the next few days.
“Bullshit!” counters a technology analyst who tracks Musk and the EV space from his base in New York. Speaking off-the-record, he argues that when the numbers are looked at, all of Wall Street including Musk’s competitors are in deeper agony. As compared to most, Musk is not just better placed, but has connects to fund the margin requirements to fulfil statutory requirements.
How then do we decode the argument that Tesla is slipping because consumers have better choices when it comes to EVs? Or that Musk is ‘asleep on the wheel’ and that much of it is because his time and energy is spent on managing Twitter? In fact, that Twitter isn’t Musk’s cup of tea is also an argument I had made on these pages as recently as last month. “Ignore the noise. There is no chaos. Musk is already pulling off the impossible by getting users to pay $8 to stay on Twitter in the US and is attracting more users as well. It is most likely to become the norm world over. The place has become more active,’ the New York analyst argues.
This argument resonates with Prashant Krishna of Portfolio Yoga, a Bengaluru-based investment research firm who has been following Musk’s trajectory across his ventures in EV, space transport, and now Twitter. “Unlike at SpaceX where failures went unnoticed, here even small failures get ridiculed widely. But without trying out ideas, there is no way he can turn Twitter around. While some advertisers may have left, I’m pretty sure he can fill that up.” If evidence be needed, suffice to say that Apple has resumed advertising on Twitter after differences with Musk over content moderation. Word on the street is Amazon will be back as well.
These arguments cannot be wished away because contrary to what most people expected, Twitter, hasn’t imploded since the time Musk took over. This, despite Musk letting go of 50% of the company’s workforce in an ugly public spat.
If Twitter gets through this phase, the second order outcomes will reverberate across the technology ecosystem world over. To begin with, coveted people such as engineers and coders may find the carpet yanked from under their feet. Then there is advertising revenue that fuels business models and powers social media. Some rumblings being heard are that Twitter will morph into a different beast, and it is a matter of time before social media as we understand it now dies and begins to look completely different.
How this battle pans out will be interesting to watch because it has a political background as well. Tik Tok is owned by the Chinese tech giant ByteDance. Earlier this week, the US government banned political representatives from using the app on phones issued to them. If this ban extends across the US, Krishna reasons, “The focus will once again be on Twitter, Facebook, and Snapchat.”
This isn’t how things appeared as recently as last month when the most compelling arguments were that while Musk may be a tech visionary, his competence lies in creating “hardware” to build cars such as Tesla and re-usable rockets that take tourists for space jaunts. But to build and sustain “software” companies such as Twitter is an altogether different game. The consensus view, mine included, was that he is simply a bored, rich man who needs to be in the news. But bored, rich people aren’t stupid to blow up $44 billion to stay in the news. If anything, they think through first principles.