Can Elon Musk’s “Adventurous Sprint” Continue?

[Market Economy Op-Ed] Constantly Taking on Next-Generation Advanced Industries Such as Electric Vehicles, the Private Space Industry, and Brain-Computer Interface Devices

The reasons for Tesla’s success: Elon Musk’s personal brand value + expectations between reality and idealism

The sincerity between dreams and reality will ultimately be judged by the market

It is no exaggeration to say that Elon Musk is currently the most talked-about figure among CEOs around the world. Among balding, pot-bellied men in their 50s and 60s, Musk stands out as truly distinctive with his 188 cm height and striking appearance. His unusual background of having dropped out of graduate school at Stanford further adds to his personal appeal.

Musk is constantly testing his luck by taking on next-generation advanced industries such as electric vehicles, the private space industry, and brain-computer interface devices. Yet there are also those who believe his moves are not merely reckless bravado. Can Elon Musk’s sprint continue?

His electric vehicle company, Tesla, hit an all-time intraday high of $968.99 per share (about 1.15 million won) on February 4, 2020. Considering that after its 2010 listing, it suffered continued losses and a liquidity crisis, at one point falling to $178 per share (about 210,000 won) in 2019, this is a tremendous reversal. Expectations for improved performance driven by its successful entry into the Chinese market and the return to profitability of its battery joint venture with Panasonic have been cited as the reasons.

Expectations suspended between reality and idealism are the most important factor supporting Tesla’s stock price. A more than fivefold increase in less than a year is difficult to explain through favorable developments alone. Tesla ranks second in market capitalization in the auto industry after Toyota, but its sales volume in all of 2019 totaled only 360,000 vehicles. That is far behind market-cap leader Toyota’s 9.6 million and third-place Volkswagen’s 6.3 million. Not only is its production capacity woefully inadequate relative to orders, but quality issues with finished products, including a self-driving accident involving the Model 3 in December 2019, are also reasons for skepticism toward Tesla.

Moreover, when purchasing a Tesla vehicle, the average wait time after placing a reservation order is well over two years. In other words, it looks stylish and so-called “cool,” but still lacks substance. The dominant assessment is that Tesla’s stock price and even its survival would have been impossible from the start without the brand value of Musk himself as CEO.

The electric vehicle industry remains, to this day, a beneficiary market marked by government regulations and subsidy benefits. Tesla saw sales plunge in Hong Kong and Denmark when tax reductions for electric vehicles were withdrawn. Musk’s private space company, SpaceX, also benefits heavily from the support of NASA, which has championed the privatization of the space industry. The cold reality for SpaceX is that it has received as much as $5 billion in government investment and generates 80% of its revenue through government contracts. Unless it creates private demand and pioneers the market, SpaceX’s survival remains uncertain. The more Musk and his businesses gain popular attention and support, the more generously governments back them. But when that support and investment eventually disappear, the long-term viability of those businesses inevitably becomes unclear.

There is no denying the success of PayPal, Musk’s debut venture. PayPal still exerts an overwhelming influence in the U.S. online payments market and has secured a dominant position. As of 2020, Musk’s wealth amounts to about 27 trillion won.

But the businesses he launched afterward, despite attracting investment through polished presentations and Musk’s personal charisma, are still unable to escape losses even after more than a decade. Because the value of Musk’s companies rests on promises of future success, their stock prices fluctuate sharply in response to both major and minor events, vividly exposing their fragility.

America is a country thirsty for storytelling. Even in college admissions, students with their own distinctive stories are often valued more than those with high standardized test scores and grades. This culture of emphasizing individual value and personal narrative is part of the American Dream. Steve Jobs, who could introduce his products wearing nothing more than a black turtleneck sweater, jeans, and New Balance sneakers, was likewise an icon standing atop this cultural foundation. Now that Jobs is gone, America is looking for another hero.

Elon Musk is a refreshing figure who perfectly satisfies that thirst. But blind adoration of heroes can also produce side effects, as seen in Theranos founder Elizabeth Holmes, the central figure in a startup fraud worth 9 trillion won. Of course, that is not to say Musk is such a fraudster. The sight of him welling up with tears in response to an interview question about Neil Armstrong criticizing his space business shows his sincerity.

Still, it is clear that many obstacles remain before Musk’s dream can become reality. To establish himself as a new standard-bearer of the American Dream like Bill Gates and Steve Jobs, he will need something beyond mere style. Between such ambition and reality, the sincerity of Musk’s vision will ultimately be judged by the market.

Sijin Kim, President of LEAD, University Students’ Association for Legal Studies

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Original title: 일론 머스크의 '모험의 질주'는 계속될 수 있을까

Author: Si-jin Kim

Date: 2020-02-21

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=22&idx=22406