Posted on 05/10/2022 4:32:03 AM PDT by MtnClimber
The news of the past few weeks has been all aflutter over Elon Musk’s purchase of Twitter.
The main issue for discussion has been, what does this mean for the future of free speech in the American public square? That’s an important issue, to which I don’t have the answer. I think that there are reasons for both optimism and pessimism. More on this issue later.
A second issue is what Musk’s Twitter venture signals as to progressive fantasies about net zero utopia. This second issue has been little discussed, let alone recognized at all, in the recent press coverage. So let me open the door.
The most logical way to look at what Musk is up to is that he is getting money out of Tesla in advance of an almost certain huge decline in its value, while placing his next bet on something else with a much better chance for major future growth. I think that he has recognized that the net zero utopia necessary for Tesla to have continuing exponential growth is impossible and not going to happen.
According to Forbes, Musk is currently the richest man in the world, with net worth in the range of $255 billion. That puts him far ahead of the next richest, who could be either Jeff Bezos or Bernard Arnault, each at around $140 billion, depending on current stock prices for Amazon or LVMH.
But the problem for Musk is that his wealth may be mostly a market bubble that could burst literally overnight. Most of Musk’s wealth derives from the very speculative values of two companies, Tesla and SpaceX. According to Barron’s here on April 21, Musk owns about 17% of Tesla. Even after recent market declines, Tesla has a market cap of close to $1 trillion, which would thus account for about $170 billion of Musk’s net worth. The other big contributor, SpaceX, is not traded publicly, but Barron’s says that it is valued at about $100 billion “based on its recent capital raises.” Musk owns “between 40% and 50%” of SpaceX. The entire revenue (not earnings) of SpaceX in 2021 was about $1.6 billion, which should give you an idea of how speculative that $100 billion valuation is.
So let’s consider how solid is the approximate $1 trillion current value of Tesla. In January, Tesla reported earnings for the full year 2021 as $5.5 billion. That’s quite an increase from only $721 million of profit in 2020. But still, compared to a market cap of $1 trillion, the $5.5 billion in earnings makes for a price/earnings ratio of around 180. For comparison, the average P/E ratio for the S&P 500 is running around 18, based on yesterday’s close of 4128 and 2022 projected earnings of $228.
There’s nothing inherently crazy about a P/E ratio of 180 for a company with excellent prospects for huge and rapid growth in the next few years. Indeed, all of Google, Facebook and Amazon went public at huge valuations before they had much or any earnings at all. The markets bet that they would shortly show large earnings acceleration, and in each of these cases the markets were right. (There are plenty of other examples where the markets placed big bets on companies and turned out to be wrong.)
Are Tesla’s prospects really that good for massive growth within just a few years? I’m willing to concede that the Tesla is a great car (I’ve never driven one) and that Musk is a genius. But the truth is that even Tesla’s current sales are heavily dependent on government subsidies. And to believe that Tesla’s sales will shortly mushroom by a factor of 50 or 100, you need to believe a series of increasingly implausible things:
That government subsidies will continue at current or even increasing levels. (This one is plausible, if a bad idea.)
That more and more people will be willing to pay premiums of $10,000 or $20,000 or more to get a vehicle that shows off climate virtue, even if it has limited range and other performance shortcomings. (Much less plausible than the previous proposition, but not yet completely ridiculous.)
That Tesla and others will be able to ramp up battery production by orders of magnitude over the next very short number of years, without running into supply constraints for things like lithium and cobalt that either limit production to much lower levels or alternatively drive prices through the roof. (The amounts of production of things like lithium and cobalt that are implicit in plans to electrify automotive transport are complete fantasies.)
And finally, that sufficient amounts of electricity, supplied almost entirely by wind and sun, will emerge to power a mostly-electric automotive fleet. To electrify the automotive fleet will require, by itself, almost doubling the current supply of electricity. The idea that this can be done with wind and sun is completely ridiculous.
I have little doubt that Musk himself has figured out that the value of the Tesla company is ready for a big fall. Musk sold something in the range of $18 billion of Tesla stock at the end of 2021, and now just sold another $8.5 billion in connection with raising equity for his purchase of Twitter. Clearly he is limited in his ability to just walk away from Tesla, but he is certainly doing his best to diversify.
For the diversification project, Twitter is an inspired choice. Twitter has an excellent chance of seriously enhancing its future growth in new hands, for reasons that I think are obvious. Over the past several years, in the grip of its woke young staff, Twitter has intentionally driven away or limited the reach of easily half of its potential users. Now, if Musk follows through, it can be fully open to everybody.
But is Musk actually committed to free speech? Musk has recently said that he is close to a free speech absolutist, but his record is not so clean. Tesla has long been the subject of a group of financial skeptics who have pointed out its inflated valuation and even recommended shorting the stock. One of the most severe and long-time critics of Tesla’s valuation is a guy who has written under the name Montana Skeptic at a site called Seeking Alpha. Montana Skeptic, using that same name, has also been a commenter at this site from time to time. Montana Skeptic also corresponded with me personally several times, but requested that I not reveal his identity, because he suspected that he might become the subject of retaliation, and that his job as a money manager might be at risk. It turns out that exactly that happened. According to this piece at Mediaite on April 26, in 2018 Musk figured out the identity of Montana Skeptic and called his boss and threatened to sue:
A colleague relayed the billionaire’s [telephone] message. “Elon Musk says that you’re a very bad person and you’re writing bad things about him,” [Montana Skeptic] recalled the colleague explaining. “He’s going to have to sue you and he’s going to have to drag our boss into it.” . . . After the phone call, [Montana Skeptic] told his employer he would stop writing at Seeking Alpha and deactivate his Twitter account. He stated that while Musk had no valid claim, “I’m not going to drag my boss into a lawsuit he shouldn’t have any part of.” With one weird, but nevertheless heavy-handed phone call, Musk silenced a prominent online critic. . . .
It’s just not in the nature of narcissistic big ego people to enjoy getting criticized.
So will Elon Musk turn Twitter into an upstanding free speech platform? It’s hard to imagine that he will do a worse job than the prior management, but there are limits to what we can hope for.
I don’t follow Twitter, but from what I occasionally see , I don’t see how it could get any worse.
The writer of this article has succumbed to the fallacy of static innovation. He assumes that the Tesla of today will be the Tesla of ten years from now and wonders why people would continue to purchase such an overpriced and underperforming vehicle.
It would be like somebody writing an article in 1992 stating that the personal computer industry is about to crater because there are only so many people willing to pay over $2,000 for a sluggish device that constantly needs to be restarted and chugs away for minutes just loading the contents of a floppy disk.
The fallacy there is that the author would have made the assumption that computers would forever run on a 386 processor and just over a half a megabyte of RAM.
Ten years later, personal computers were nothing like those of 1992. And so it will be with electrical vehicles.
Yes, the flaw of the argument is this line:
“That more and more people will be willing to pay premiums of $10,000 or $20,000 or more to get a vehicle that shows off climate virtue”
EVs have a fraction of the complexity of ICEs and the costs of EV components are steadily falling.
In 10 years a Tesla may by $10K cheaper to buy and $10K cheaper to operate than a traditional vehicle.
At that point Tesla becomes the world’s most valuable company.
“Ten years later, personal computers were nothing like those of 1992. And so it will be with electrical vehicles.”
The fallacy there is that components for computers get cheaper as performance also increased. Tesla and EVs have not shown a Moore’s Law to their costs and performance like computers have.
Teslas are beautiful cars and that is why people like them.
Just a FYI ... the processor was probably an 8086 or 8088.
It’s not the car that needs advancement , it’s the battery .
The fallacy here is that there is a high probability that the Musk wealth will grow rather than dissipate.
The author is mostly ignorant on the subject of Tesla. Tesla barely is and by the end of this year will be more valuable than at present.
Finding based on observations
Just as a matter of interest, several years ago I read a story about a man’s whose sole job was to sell X amount of Bill Gate’s Microsoft shares. Gates was diversifying. But his ownership in Microsoft was so great he could not sell more than a certain amount at a time without impacting the price of the stock. Why it required someone to do this each day as his job wasn’t clear.
“It’s not the car that needs advancement , it’s the battery .”
I think we get that.
By the early 1990s, PCs were mostly running 80286 and 80386 CPUs. In 1993, I bought a 486 based computer which was fairly new at the time. Pentiums came out not long after that.
Gain market share as the technology improves.
————————————————————————-
The entire EV concept is based, almost entirely on our government picking winners and losers that started with tax breaks for rich folks that bought Tesla’s.
I’m no computer nerd but the world of computers and PCs was fueled by capitalism. The US government didn’t pick one company over another and there was ZERO interference from outside entities.
1. I don’t have an issue with EVs or the folks that buy them. But, if you’re going to go GREEN, go GREEN and recharge your battery via the renewable energy route. No more plugging it into an outlet that transfers electricity from a fossil fueled power plant.
2. There shouldn’t be ANY tax breaks/incentives for folks to buy an EV and the $7500 folks get now is a complete slap in the face.
3. The government shouldn’t be spending over $7billion to install charging stations around the country. No more than they should be giving Exxon or BP money to build a gas station.
4. It’s funny that most EV owners love to talk about how it’s FREE. starter putting a meter on the charging stations and making them pay for the service and we’ll quickly see all the liberal hipsters that own them
Throwing tempter tantrums.
5. Even Musk is reverting back to old technology as the information about how disastrous the environmental effects are due to the mining, deforestation, and slave labor/child slave labor is finally coming out and being acknowledged.
6. And of course, we shouldn’t forget that the Chinese control about 80% or more of all the mines that produce the metals needed for the batteries.
So yeah, EVs are here to stay.
That's a nice thought, but wishful thinking. The amount of stored energy required to move a car of a given weight a given distance isn't going to change by orders of magnitude. There might be one or more breakthroughs in electric energy storage technology, but any significant increase in electric car performance will depend on exactly that: A breakthrough. As in, more than just an incremental improvement in the batteries we currently have.
The availability of lithium for lithium-ion cells is problematic. Nickel-iron and lead-acid cells don't currently have the required energy storage density, and face theoretical limits on watt-hours per pound that make them impractical.
So unless we can come up with the "Mister Fusion" from Back to the Future or some similar world-changing tech, there won't be any automatic order-of-magnitude improvements in EV performance any time soon.
What appeals to me with an EV is the lower maintenance costs (less moving parts), the performance (0-60mph in just over 3 seconds), and not having to deal with gas stations (I can charge it in my garage at night).
What's keeping me from buying one now is the range and the charging times. If I can get 600 miles plus on a charge and can get a full charge overnight at my home, I'll be ready to buy.
I agree that there should be no government spending and no government mandates concerning EVs. Let the market decide.
Also, are you sure those charging stations are free? The ones I see at rest areas, hotels and such require that you put a credit card in them to charge your vehicle.
” The amount of stored energy required to move a car of a given weight a given distance isn’t going to change by orders of magnitude.”
You may have missed it, but batteries have improved by an order of magnitude:
2010 $1100 per kWh
2020 $130 per kWh
Limiting factor right now is lithium, but several huge new mines coming on line in the next decade that will cause that price to plunge.
“The amount of stored energy required to move a car of a given weight a given distance isn’t going to change by orders of magnitude.”
sounds like
“Everything that can be invented has been invented.”
Charles H. Duell - 1889 - Director US Patent Office
Reduce weight by half?
MagLev the car and it doesn’t weigh as much.
Add in Nuke power and the supply thing is moot.
There is so much that can and will be done.
There is another problem with Twitter, Musk might lose 50% of his subscribers simply because he let conservatives back in.
...and you double your acceleration, boost your top speed somewhat, and almost (but not quite) double your range (because entropy). None of those increases by an order of magnitude, though I'll admit that going from a 200-mile to 375-mile range would certainly be worth doing.
MagLev the car and it doesn’t weigh as much.
Magnetically levitate the car and the energy required to move it from point A to point B becomes the LEAST of your problems. The level of power consumption of a portable MagLev system would dwarf the requirements of a simple rolls-on-tires EV.
Add in Nuke power and the supply thing is moot.
...now we're back to a breakthrough. Portable nuclear power generation small enough to put in an EV is a really significant breakthrough, which is exactly what I said would be required.
sounds like
“Everything that can be invented has been invented.”
Charles H. Duell - 1889 - Director US Patent Office
I would disagree. There's plenty of breakthroughs in our future. My premise is that you can't depend on them like clockwork, and without such there's no reason to believe that there will be anything like a More's Law for electric vehicles... which was the context of my original post, remember.
good assessment.
I’m not totally bought into the idea that EM is going to finalize the twitter purchase. I know he says it repeatedly, yada yada, but some of the things he says point directly away from him believing this is a viable purchase. I like tweeting that twit is dying and half of the subscribers are fake. Or that no one is using it. then he lets it leak that he’s firing 1000 people. These are NOT things you say before you spend top dollar on a company. He’s creating mayhem there.
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