Please Do Not Incentivize Elon Musk to Focus on Being a Meme-Stock Booster
Originally published June 11, 2024, 5:03 a.m. ET in the "New York Times"...
Elon Musk is not just another inconsequential Silicon Valley billionaire.
Most of his inconsequential peers have two primary accomplishments: showing up at the right place at the right time and being sufficiently arrogant to continue the course rather than diversify. Had their shoes been empty, someone else would have stepped into them, and things would have been much the same.
But Mr. Musk changed the world.
He wanted to jump-start the decarbonization of human civilization’s energy. He succeeded. He drove Tesla to create the electric vehicle industry as we know it. Yes, he overpromised. But he often overdelivered and overdelivered spectacularly. Truly wonderful things happened with Tesla’s performance as a technology inventor, deliverer and deployer.
But “happened” is in the past tense. Much has changed since 2018, the year Tesla dreamed up an unorthodox pay package that, in theory, tied Mr. Musk’s pay to the company’s performance. Problem is, the performance was not for making high-quality cars or making affordable cars or making cars at scale. The performance was for pushing Tesla’s stock price up…
Bio:
J. Bradford DeLong teaches economic history at the University of California, Berkeley, and is the author of Slouching Towards Utopia: An Economic History of the Twentieth Century <http://bit.ly/3pP3Krk>. He was a deputy assistant secretary of the Treasury in the Clinton administration and is on the advisory committee of Birnam Oak Advisors, an investment adviser.
Reference:
DeLong, J. Bradford. 2024. "Restore Elon Musk (& Tesla) to Greatness." New York Times, June 11. <https://www.nytimes.com/2024/06/11/opinion/tesla-elon-musk-pay.html>.
My point? Briefly:
Tesla is five things:
For the world: Tesla is a beacon of hope, a carbon-transition technological spearhead propelling the world towards a more sustainable future with less damage from global warming via a rapid build-out of electric vehicles and power.
For its stakeholders: Tesla is a production enterprise being built that will reward its suppliers, workers, engineers, and customers.
For its long-term shareholders (if any): Tesla is a profit-making business in the process of being built.
For Wall Street's speculators: Tesla is a bouncing ball in a roulette wheel.
For meme-stock enthusiasts: Tesla is an opportunity to pledge allegiance to a vision of the cultural and technological future that they believe Elon Musk embodies.
Back in 2018 Elon Musk convinced Tesla's board of directors to vote him an outsized pay package that gave him enormous incentives to focus every hour he spent on the company on Tesla (5). But the world very badly needs Tesla (1) and Tesla (2) for its future—a Tesla that is really, really good and getting much better by the year at making very high quality affordable EVs at scale.
A functional capitalism would create powerful incentives to focus on building Tesla (1) and (2). Normal modern financial capitalism—make that abnormal financial capitalism—rewards financiers and executives for (3) and a little bit of (4). John Maynard Keynes worried about this. He wrote with characteristic British understatement back in 1936: "When the capital development of a country becomes a by-product of a casino, the job is likely to be ill-done".
But when it is not the tug-of-war between long-term fundamentals-based investors and short-term speculators that is (3) and (4), but rather meme-stock enthusiasts pledging cultural allegiance that is (5)?
That is what we have had. Consider Musk's current focus on Tesla as unlikely HODL moonshots: Robots! Imminent full self-driving! Armies of Tesla taxis real soon now! An AGI supercomputer made up of all the idle Teslas in the world networked together! That is not what the world needs from Elon Musk.
Reference:
DeLong, J. Bradford. 2024. "Restore Elon Musk (& Tesla) to Greatness." New York Times, June 11. <https://www.nytimes.com/2024/06/11/opinion/tesla-elon-musk-pay.html>.
Keynes, John Maynard. 1936. The General Theory of Employment, Interest & Money. London: MacMillan & Co. <https://archive.org/details/generaltheoryofe0003keyn>.
Edited and Republished June 13, 2024:
To Understand Elon Musk’s Descent, Look at His $46 Billion Pay Package
June 11, 2024
By J. Bradford DeLong
Dr. DeLong teaches economic history at the University of California, Berkeley, and is the author of “Slouching Towards Utopia: An Economic History of the Twentieth Century.”
This article has been updated to reflect news developments.
Elon Musk is not just another inconsequential Silicon Valley billionaire.
Most of his inconsequential peers have two primary accomplishments: showing up at the right place at the right time and being sufficiently arrogant to continue the course rather than diversify. Had their shoes been empty, someone else would have stepped into them, and things would have been much the same.
But Mr. Musk changed the world.
He wanted to jump-start the decarbonization of human civilization’s energy. He succeeded. He drove Tesla to create the electric vehicle industry as we know it. Yes, he overpromised. But he often overdelivered and overdelivered spectacularly. Truly wonderful things happened with Tesla’s performance as a technology inventor, deliverer and deployer.
But “happened” is in the past tense. Much has changed since 2018, the year Tesla dreamed up an unorthodox pay package that, in theory, tied Mr. Musk’s pay to the company’s performance. Problem is, the performance was not for making high-quality cars or making affordable cars or making cars at scale. The performance was for pushing Tesla’s stock price up..
Here I need to back up and tell you what meme stocks are. The standard example is GameStop, a company that runs about 4,000 video game and electronics stores. Trading at $5 a share at the start of December 2020, its price rose to a staggering roughly $150 a share at the end of January 2021. Mr. Musk joined the fun by tweeting one word — “Gamestonk!!” — and the shares soared to $483 two days later, before beginning a long, jagged decline. As of the start of 2024, it was almost $17 a share after a four-for-one stock split, far above the $5 of 2020, even though nothing much had changed about its (struggling) business. And a recent revival of GameStop mania has since pushed it up to $30 a share.
Who is behind all of this craziness? It is not people who want to invest in a slice of Gamestop’s business over the long term. It is, rather, that people who are buying GameStop as a way of pledging allegiance to an idea, a meme, a cultural-technological movement of some kind — and a few hoping to get rich by tagging along and selling at the top. Past stock manias and bubbles involved people who believed that the company involved would be profitable or at least that they would be able to make money selling their stock to a greater fool than them who had just arrived in the marketplace and still believed. But GameStop stock became all but disconnected from the profit-and-loss statements of the 4,000 GameStop stores.
And so it has become with Tesla. It was no longer about getting better at making high-quality electric vehicles for which there was strong demand. For Mr. Musk, incentivized by his pay package, it became about a stock price that must go up.
After 2018, Mr. Musk went all in. He made noise, particularly on Twitter. He still overpromised, but he no longer overdelivered; instead he jumped from moonshot theme to moonshot theme to boost the meme-stock association of Tesla. Humanoid robots! Cybertrucks! Fleets of Tesla robotaxis! An artificial intelligence supercomputer whose brain would be all the idle Teslas in the world, networked! And the share price did zoom, making him the richest man on earth, from about $20, give or take, around 2018 to over $400 in late 2021 before beginning a jagged and often interrupted decline to its still lofty $182.
Tesla had always had build-quality problems. But it used to have a road map for fixing them. And it used to have a road map for gaining manufacturing expertise, adding capacity, introducing models to crawl down from the rarefied technoexperiment and luxury car markets into the enormous market of providing what Americans see as their basic transportation. But those seem to have fallen away. The idea that there would soon be a truly affordable mass-market Tesla receded from “real soon” to “maybe someday.” Instead we got the Cybertruck, for which demand is rather limited, as it is not set up to do the things that people who use pickup trucks need them for. And meanwhile, in China, BYD’s blade-battery technologies and process-manufacturing expertise grew by leaps and bounds.
Unlike GameStop, Tesla sells products a bit more critical to our future than games like Call of Duty. For the world, Tesla has been nothing short of a beacon of hope, a carbon-transition technological spearhead to a more sustainable future with less damage from global warming, via a rapid build-out of electric vehicles and power. For our shared future, the world very badly needs to return to the Tesla before 2018, when it was showing how to design and efficiently build electric vehicles at a truly ferocious rate.
A management focused on the actual business Tesla is engaged in is far better for society than a management focused on what the pay package incentivizes Mr. Musk to focus on every hour he spends working on the company: continuing the run of Tesla as a meme stock.
John Maynard Keynes wrote in 1936, with characteristic British understatement, “When the capital development of a country becomes a byproduct of a casino, the job is likely to be ill done.” That shareholders voted for the pay package validated this focus, and that is a damned shame, for Elon Musk is truly consequential. And that is a big deal.
The divergence between what the economy needs from companies, especially technology companies, and what financial capitalism incentivizes managers and venture capitalists to pursue is a substantial weak point in our system for advancing our society. Incentivizing our captains of technological industry by offering them great wealth if they become celebrity internet and flame war-provocateurs will turn out to be significantly worse for growth and prosperity than even the neoliberal financial capitalism we once knew.
J. Bradford DeLong teaches economic history at the University of California, Berkeley, and is the author of “Slouching Towards Utopia: An Economic History of the Twentieth Century.” He was a deputy assistant secretary of the Treasury in the Clinton administration and is on the advisory committee of Birnam Oak Advisors, an investment adviser.