For All You Pigeons: Musk Has Announced Master Plan II
Elon Musk just announced his “Master Plan, Part Deux,” AKA boob bait for geeks and posers.
It is just more visionary gasbaggery, and comes at a time when Musk is facing significant head winds: there is a connection here. What headwinds? The proposed Tesla acquisition of SolarCity was not greeted, shall we say, with universal and rapturous applause. To the contrary, the reaction was overwhelmingly negative, sometimes extremely so (present company included)–but the proposed tie up gave even some fanboyz cause to pause. Production problems continue; Tesla ended the resale price guarantee on the Model S (which strongly suggests financial strains); and the company has cut the price on the Model X SUV in the face of lackluster sales. But the biggest set back was the death of a Tesla driver while he was using the “Autopilot” feature, and the SEC’s announcement of an investigation of whether Tesla violated disclosure regulations by keeping the accident quiet until after it had completed its $1.6 billion secondary offering.
It is not a coincidence, comrades, that Musk tweeted that he was thinking of announcing his new “Master Plan” a few hours before the SEC made its announcement. Like all good con artists, Musk needed to distract from the impending bad news.
And that’s the reason for Master Plan II overall. All cons eventually produce cognitive dissonance in the pigeons, when reality clashes with the grandiose promises that the con man had made before. The typical way that the con artist responds is to entrance the pigeons with even more grandiose promises of future glory and riches. If that’s not what Elon is doing here, he’s giving a damn good impression of it.
All I can say is that if you are fool enough to fall for this, you deserve to be suckered, and look elsewhere for sympathy. Look here, and expect this.
As for the “Master Plan” itself, it makes plain that Musk fails to understand some fundamental economic principles that have been recognized since Adam Smith: specialization, division of labor, and gains from trade among specialists, most notably. A guy whose company cannot deliver on crucial aspects of Master Plan I, which Musk says “wasn’t all that complicated,” (most notably, production issues in a narrow line of vehicles), now says that his company will produce every type of vehicle. A guy whose promises about self-driving technology are under tremendous scrutiny promises vast fleets of autonomous vehicles. A guy whose company burns cash like crazy and which is now currently under serious financial strain (with indications that its current capital plans are unaffordable) provides no detail on how this grandiose expansion is going to be financed.
Further, Musk provides no reason to believe that even if each of the pieces of his vision for electric automobiles and autonomous vehicles is eventually realized, that it is efficient for a single company to do all of it. The purported production synergies between electricity generation (via solar), storage, and consumption (in the form of electric automobiles) are particularly unpersuasive.
But reality and economics aren’t the point. Keeping the pigeons’ dreams alive and fighting cognitive dissonance are.
Insofar as the SEC investigation goes, although my initial inclination was to say “it’s about time!” But the Autopilot accident silence is the least of Musk’s disclosure sins. He has a habit of making forward looking statements on Twitter and elsewhere that almost never pan out. The company’s accounting is a nightmare. I cannot think of another CEO who could get away with, and has gotten away with, such conduct in the past without attracting intense SEC scrutiny.
But Elon is a government golden boy, isn’t he? My interest in him started because he was–and is–a master rent seeker who is the beneficiary of massive government largesse (without which Tesla and SolarCity would have cratered long ago). In many ways, governments–notably the US government and the State of California–are his biggest pigeons.
And rather than ending, the government gravy train reckons to continue. Last week the White House announced that the government will provide $4.5 billion in loan guarantees for investments in electric vehicle charging stations. (If you can read the first paragraph of that statement without puking, you have a stronger stomach than I.) Now Tesla will not be the only beneficiary of this–it is a subsidy to all companies with electric vehicle plans–but it is one of the largest, and one of the neediest. One of Elon’s faded promises was to create a vast network of charging stations stretching from sea-to-sea. Per usual, the plan was announced with great fanfare, but the delivery has not met the plans. Also per usual, it takes forensic sleuthing worthy of Sherlock Holmes to figure out exactly how many stations have been rolled out and are in the works.
The rapid spread of the evil internal combustion engine was not impeded by a lack of gas stations: even in a much more primitive economy and a much more primitive financial system, gasoline retailing and wholesaling grew in parallel with the production of autos without government subsidy or central planning. Oil companies saw a profitable investment opportunity, and jumped on it.
Further, even if one argues that there are coordination problems and externalities that are impeding the expansion of charging networks (which I seriously doubt, but entertain to show that this does not necessitate subsidies), these can be addressed by private contract without subsidy. For instance, electric car producers can create a joint venture to invest in power stations. To the extent government has a role, it would be to take a rational approach to the antitrust aspects of such a venture.
So yet again, governments help enable Elon’s con. How long can it go on? With the support of government, and credulous investors, quite a while. But cracks are beginning to show, and it is precisely to paper over those cracks that Musk announced his new Master Plan.
Is there a chance Musk personally will face consequences for hiding the Autopilot accident? From all I know about the SEC, I’m guessing no, but would like to hear your opinion.
Comment by aaa — July 23, 2016 @ 10:18 pm
The government “pigeons” need Tesla desperately to maintain the facade that their anti-fossil-fuel policies are “futuristic” and “advanced.” Musk has done them the immense favor of spraying a coat of glamour on their otherwise hairshirt-seeming obsession with electric cars, solar, and wind power.
An interesting sidelight here is that there is an imitator coming on stream that also is named after a 19th century scientist famed for his work on electricity and magnetism, also teaming up with a luxury British sports car brand to launch its first model, and hiring engineers away from Tesla. I refer to “Faraday Future.” Can there be enough subsidy dollars to support a second rent-seeker?
http://www.latimes.com/business/autos/la-fi-hy-faraday-auto-factory-plan-20151105-story.html
Comment by srp — July 24, 2016 @ 6:33 pm
Marginally-ethical financial practices aside, I think the Prof is too hard on Musk:
I know that SpaceX depends almost entirely on the government as customer, but this is no different to any other heavy-lift launcher. The difference is that SpaceX is taking on the development risks themselves (instead of the “cost-plus” model usually used for this kind of work), they are doing it SUPER-cheap, and they are using the windfall to develop exciting new technologies (specifically re-usability) instead of just sitting around getting fat by milking the governmental cow. Working in aerospace myself, I can’t stress enough what a difficult technical challenge they are slowly but surely overcoming.
Tesla also has achieved something extraordinary: Three successful model launches from a brand new company, while the past has seen a single botched model send bigger, older car companies to the wall. Yes, they have needed heavy subsidies to do this, but subsidies have their place in the world: To help valuable new technologies to become established. German subsidies helped the domestic solar industry to advance to the point that in a new house that I will start building tomorrow (wish me luck!), I am going to attempt to do without a grid connection and to do so cost-effectively without any subsidy at all.
With those two remarkable achievements (In particular The Falcon 9 and the Model S), I think he deserves some slack until the Model 3 comes out. If this is as big a success as initial deposits suggest it could be, and if (and only if) it can survive without subsidy, I believe it would validate the concept (I refuse to call it “masterplan”).
Gasolene spread quickly because it didn’t have to compete with an entrenched, politically-powerful, fully-amortized network of existing distributors. Charging points will spread as more and more electric cars are produced – I think it’s unfair to demand a coast-to-coast network immediately, while it is still such a niche product. I think it will be like domestic solar: If we can get help it to achieve critical mass, it will become self-sustaining and we will all reap the benefits.
That said:
-As an electrical power engineer, I don’t see the attraction of the Powerwall. It just seems expensive – I mean, whose house is so small that they can’t just stick a stack of cheap lead-acid batteries somewhere?
– I’m not really qualified to comment on the finances involved in achieving the above (one of the reasons I come to this blog!)
Comment by Hiberno Frog — July 27, 2016 @ 6:22 am