How to explain Elon Musk’s very bad feeling about the economy

By Liam Denning

I’m not saying one should not worry when the richest man in the world says he has a “super bad feeling” about the economy. It’s just worth taking the time to look at both the messenger and the wider context.

If Jamie Dimon can fly left-right proportions in stormy weather, then Elon Musk is naturally free to use Silicon Valley’s favorite “super” prefix, albeit in a non-“super” way. Dimon’s comment about the “hurricane” caught his attention because it contradicted his previous comments and, mainly, because he runs the largest bank of the largest economy on the planet. JPMorgan Chase has myriad fingers on many pies (including the one currently being baked by Musk on Twitter).

Musk is the CEO of the most valuable and most talked about car brand in the world, with large-scale operations in the US and China. That said, Tesla accounted for less than 2% of the global car market last year. Musk’s premonition is an additional fact, which may to some extent confirm what Dimon said, but it is not a revelation of any kind. After all, Musk’s foresight did not stop him from escalating a Twitter takeover bid, which he has now clearly regretted. Also, “the increase in jobs in the US exceeded expectations”, as you heard in the news bulletin.

Significance

Of course, it still matters, as Musk’s share of the collective “brain” in the market is much higher than 2%. If the CEO of this fast-growing car company, valued at about $ 800 billion – more than double the market capitalization of JPMorgan – suddenly wants to cut 10% of Tesla’s workforce, then things must logically be very bad.

In a sense, US car sales figures for May agree with this estimate. The seasonally adjusted annual rate of 12.7 million units fell by 11% compared to April – and this is an element that usually foretells a recession. However, we are in a strange moment for the US car industry due to the supply chain disruption associated with the pandemic.

Over the past year, car sales have been limited due to limited supply and not due to low demand – try buying a car and see how difficult it will be for the dealership until you get one of its sparse lot models.

Despite declining sales, already low inventories actually fell slightly in May. The industry had just 22 days of demand at the end of the month, one day less than April and about a third of the level before Covid. Earlier this week, Ford Motor announced a $ 3.7 billion investment plan that would create more than 6,000 jobs.

Tesla may have specific reasons for cutting jobs. First, its workforce has more than doubled in the last three years to around 100,000 employees. While incomes increase by 36% on an annual basis, during this period the corresponding percentage per employee is 7%. Both of these numbers are respectable, but perhaps not enough to be worth a $ 800 billion capitalization “respect.”

Contradictions

Musk caused another one of his own “hurricanes” earlier this week, when he demanded that Tesla employees stop “telephoning” while working from home, prompting speculation that he simply wanted to reduce their ranks by forcing hardliners. telework to leave the company. The “super bad” email to staff seems to give credibility to this interpretation. What I like about it is that, in practice, he asked the staff to devote more hours just before he told them that there was not enough work to do.

Conflicting messages are in line with Musk’s logic. The front page also claimed that Tesla “could” – perhaps – have a working prototype of the humanoid robot Optimus ready for a slightly delayed presentation of artificial intelligence (AI) in late September. Those who watch him regularly may remember that Musk introduced the idea of ​​Optimus with the help of a spandex-clad colleague who was touring the scene at an event last August, so I guess we’ll have to wait.

I wonder, though. If I were to unveil a work robot that would make physical work a “choice”, heralding a fundamental change in the very experience of being human, would I not feel overjoyed? Would I worry about staff costs and try to limit severance pay by encouraging people to resign?

Such questions may be my own quirks. Of course, it is quite possible that some weakness in the demand for high-end vehicles, combined with the Covid-related malfunctions in China, have affected Tesla’s growth this quarter, which is badly combined with a $ 800 billion market capitalization. so something has to be done.

This is obviously not a super intriguing interpretation, but it is worth considering.