US corporate superstar Elon Musk is learning the hard way the hazards of extensive diversification and playing politics when you are involved in a vigorous corporate war in your base business.
Musk and Tesla picked the electric car movement brilliantly and emerged as America’s largest electric carmaker and quickly gained a global footprint. Musk’s pioneering captured the imagination of the early buyers of electric vehicles.
But, Tesla has now reported weaker-than-expected earnings for the June 2024 quarter as automotive sales dropped for a second straight period.
The Tesla report came after Wall Street had officially closed but in extended trading Tesla shares slid more than 4 per cent.
Tesla easily remains the top US seller of electric vehicles, but is losing market share to a growing number of rivals, due in part to its ageing line up of sedans and SUVs and the impact of chief executive Musk’s political commentary on EV buyers who have a different viewpoint.
We saw in Australia how dangerous it can be for corporations to become involved in political issues when their customer base is divided on those issues.
Qantas backed the “Yes” case in the referendum when around 60 per cent of its customers supported the “No” case. The storm which erupted contributed to the resignation of CEO Alan Joyce, and his resignation led to controversy over his retirement package.
Similarly, Musk received a huge package negotiated many years ago which reflected his initial incredible growth achievement, but did not adjust for what is happening now.
Woolworths played politics on the referendum, and it too lost its CEO.
Yesterday, I set out how the American presidential election is looming as a referendum on climate, migration, education, gender issues and abortion.
When Trump was fighting Biden he was well ahead in the polls, but now his opponent is Kamala Harris the opinion polls show the two are neck and neck.
In this environment, Musk’s political stances, which are multiplied by his diversification into Twitter (now X) become high risk for Tesla shareholders.
And, in the marketplace, the warning signs are loud and clear. In the first six months of 2024, non-Tesla brands sold 294,921 electric vehicles in the US — a 33 per cent jump on the 221,485 EVs they sold during the same period in 2023. Tesla’s US sales decreased 9.6 per cent in the same period.
Tesla’s EV market share was just under 50 per cent in the June quarter, so its decline is dragging down numbers for the total US market.
The rest of the EV industry is growing at a fair clip, albeit helped by price-cutting. US motor giants, General Motors and Ford, were slow starters but are starting to make inroads on the market.
According to the motor analytics group Cox Automotive, General Motors Cadillac sold 13,094 Lyriq’s in the first half of this year, a 465 per cent increase over the same period last year. Ford, the distant number two EV brand to Tesla, is up 72 per cent. Kia and BMW are also increasing, while Porsche is attacking Tesla’s position at the very top end.
With this sort of competition, no company can afford to have its CEO impacting market share by playing politics and concentrating on non-car matters.
A core part of the Trump strategy to win the presidency is to foster low-cost oil, gas and coal energy sources to decrease inflation and interest rates. There will be no mandate for carmakers to produce an increasing percentage of electric cars.
The Harris stance will be the reverse of Trump, and the opinion polls have the two candidates running neck and neck.
Tesla is caught in the middle. On the one hand, if Trump wins, Tesla faces much more competition from petrol driven cars, but if Harris wins the traditional US motor makers will be forced to compete even more vigorously for the electric market.
This presents Musk with a very difficult CEO task. To add the very costly space exploration and the X social media battles makes no sense. And then comes the right wing views which find their way into X.
In contrast, Alphabet — which reported at the same time as Tesla — is also pressing into new markets, but they are all related to its base technology and the development of artificial intelligence.
It’s making gains in driverless car technology and the cloud but is struggling with its Gemini products, intended to compete with ChatGPT.
The problems Alphabet are having in this area show how difficult it is for large corporations to expand in new technologies and markets. But, in Alphabet’s case, they have to take those risks to maintain their position.
What Musk is doing is totally different.
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