Volkswagen was apparently the automaker that wanted in on Tesla, questions arise about Elon Musk, we all died years ago and actually live in hell now, and more on The Morning Shift for Monday, Aug. 27, 2018.
1st Gear: Where Do We Begin?
So I was just on vacation in France, and I picked an insane time to do it, because I missed part two of the Azealia Banks vs. Elon Musk drama, and Musk’s nearly tearful “being CEO is really hard” story in the New York Times, and his late-night acquiescence that taking the company private wasn’t in the cards right now. What a crazy August it has been!
Anyway, over the weekend the Times attempted a dive into what really happened with Musk’s surprise reversal after weeks of trying to take Tesla private. The long and short of it is Musk jumped the gun: When he tweeted that funding was secured for such a move, it was really quite far from that, and now the Securities and Exchange Commission is investigating whether those disclosures were improper. And that story had a few interesting tidbits, emphasis mine here:
In that time, according to five people close to the events, Mr. Musk came to realize that his thinking had been overly simplistic. While going private might have removed some problems, it would have introduced new ones.
Among his concerns were ceding too much control to private investors — including conventional car companies and Saudi Arabia, a symbol of big oil — and shutting out smaller investors who might be unable to retain a stake.
Those were issues both symbolic and substantive for Tesla, which has staked its future on making electric vehicles the transportation of choice — a vision that has made it the nation’s most highly valued car company. Even with its shares worth $55 billion, it faces concerns common to many young companies, including its vulnerability to the whims of public shareholders.
[...] And while several big carmakers approached Tesla about funding a deal, people familiar with the discussions said, there were issues there, too. Some of those companies have their own reputational baggage. And Mr. Musk, proud that Tesla’s cars are made in America, did not want to let foreign interests dictate his decisions about manufacturing.
Which traditional car companies would want in on Tesla? Especially ones with... baggage? That’s a pretty loaded word, but at the time I immediately wondered if it rhymed with “schmiesel-gate.”
Lo and behold, it was in fact Volkswagen, at least according to a more in-depth story by the Wall Street Journal, which details how the go-private plan unraveled, emphasis mine here again:
A buyout, even if accomplished, would force some of the technology mutual funds that had been ardent supporters to trim their stakes. It might mean allowing competitors inside his tent—one of the investors his bankers had lined up was Volkswagen AG, people familiar with the matter said.
[...] By Wednesday evening, they had a presentation for Mr. Musk, proposing a roster of deep-pocketed investors, including Volkswagen and Silver Lake itself, that had agreed to contribute as much as $30 billion, people familiar with the matter said.
They weren’t the kind of investors Mr. Musk had in mind. He was deeply suspicious of rival car companies, believing they wanted to piggyback on what he called the “Tesla halo.” He also was lamenting a loss of small investors, who had been his most vocal champions.
Finally, the deal team advised him, the money would likely come with strings attached: The new investors would want a lot of say in the company, and each would likely want to hammer out terms of their own.
(Update: Volkswagen emailed us to say it declined to comment.)
Interesting, right? Granted, it’s not the first time Tesla’s been in that situation; both Mercedes and Toyota were investors for a time. But clearly, Musk was worried about handing some control to a car company desperately trying to clean up its image and launch an electric car offensive after a pollution scandal.
There’s also the matter of the Saudi Arabia sovereign wealth fund, which Musk cited as the key source of his “secured” funding to go private. According to the Journal, that was basically like taking someone out for a drink and then declaring on Facebook that you’re in a relationship, and it didn’t sit well with the country’s leaders:
In an Aug. 13 blog post, Mr. Musk cited Saudi Arabia’s sovereign-wealth fund as the source of his secured funding: “Obviously, the Saudi sovereign fund has more than enough capital needed to execute on such a transaction.”
That rankled some senior officials in the kingdom, according to people familiar with the matter. Prince Mohammed bin Salman has big ideas to turn his petrostate into a technology and solar-power hub as part of his plans to develop its economy. And he was interested enough in Tesla to consider being part of a take-private transaction; the Saudis had already bought a near 5% stake in Tesla in the public market. But the Saudis never made a formal proposal. A Saudi government official and an adviser familiar with the talks said the country’s senior leadership was divided.
Mr. Musk’s tweets and the blog post didn’t help. The government official said his behavior worried some officials about his health as well as the role he would play in the company.
And that’s before we get to all the stuff with Banks. I am almost terrified at how loopy this story is, and I hope it goes away soon while any of us have any sanity left.
2nd Gear: Tesla Without Musk?
All of this—the late-night tweets, the tearful Times story, the personal drama, the go-private misfire—begs a big question: Is Musk really up for running Tesla? Also, can the company survive without him?
Conventional wisdom is that much of Tesla’s value and valuation is wrapped up in Musk himself, and in investors’ faith in his genius personally. But this is a guy who runs three companies, works all the time and hasn’t hired a Chief Operating Officer to help get things done at Tesla. He has his limits, even if he is a genius. At what point does it all get to be too much?
In some ways, it may depend more on access to market capital than who’s in charge, some sources argue to Automotive News:
The challenge, [analyst Sam] Abuelsamid says, is in balancing the organization’s need to become independent of Musk’s control and build a more balanced culture and in keeping investors happy by maintaining his leadership over the strategic direction of the company. “If he could be chairman and chief visionary officer, investors would know the guiding principle of the company is still there while allowing the operational culture to break free. But I don’t know if he has it in him to give up that kind of control, so I’m not sure that’s actually a workable plan.”
Meanwhile, vocal Tesla critic and short seller Jim Chanos is unconvinced that Tesla’s operations can be made profitable, no matter who is at the helm. A new CEO wouldn’t be able to fix the underlying economics of the business, and Tesla will be dependent on raising money through the capital markets.
“Tesla has been able to defy their unsustainable economics because of Musk’s access to capital markets,” he said. “In any environment other than dot-com Bubble 2.0, this company probably would have been dead and buried a couple of years ago.”
Neither Musk nor a new CEO will be able to withstand a cyclical downturn in financing, Chanos said.
“The fact that Musk has been able to access billions and billions of dollars to finance his vision is as much about the market environment as it is him,” he said. It almost doesn’t matter if Musk stays or goes; it’s all about the capital markets, he said. “I think that’s what investors are underestimating.”
One thing’s for sure: The world won’t end if he takes a vacation and stops tweeting for a while.
3rd Gear: Regular Cars Are Luxury Cars Now
Let’s move away from Tesla before I start hitting the wine and the Ambien myself. Over at Automotive News, they have an interesting story on a trend we’ve seen across the industry for a while now: the death of the shitbox.
Basically, nearly all new cars now are pretty nice, or can at least be had with features once the exclusive purview of expensive luxury brands: technology suites, advanced safety systems, heated leather seats, and so on. A great example of this is Kia, which these days makes some really nice cars, and even some fairly expensive ones like the Stinger sport sedan. It’s all happening while traditional luxury marques move “downmarket” into more mainstream segments:
Meanwhile, luxury staples Jaguar and Mercedes-Benz moved downmarket in recent years, edging more into mass-market territory. Jaguar released the F-Pace crossover and XE sedan, while Mercedes introduced the CLA, its first front-wheel-drive model in the U.S., with a sticker price around $30,000.
Nonluxury brands that pack upper trim levels with high-end perks have a chance to widen their consumer base, said Cox Automotive analyst Michelle Krebs. Kelley Blue Book research found that one-third of luxury intenders said they would consider a nonluxury vehicle if it had the upscale features they wanted.
“Luxury is being redefined by consumers and automakers,” Krebs told Automotive News. “Consumers who are interested in premium or the upper levels of nonluxury, they want luxury-type features, but they want it at a perceived value price with this idea of increased practicality. Clearly, the automakers want to make more money by offering them, but consumers are already thinking of luxury a bit differently.”
Kia’s portfolio has a wide range. Its manual Rio sedan starts at $14,795. But the youthful brand has positioned the K900 rear-wheel-drive cruiser, which delivers 420 hp, among the luxury heavyweights. The V-8-powered 2017 K900's Luxury trim has a starting price of $62,850. All prices include shipping. Kia said in 2014 that if luxury brands could come downmarket with entry-level models, why couldn’t it move up into their space?
So is it worth it to spring for the luxury badge? As that story notes, you can get a Kia Stinger GT for about as much as a base Audi A5, and with a hell of a lot more power in the Kia. What a world we live in, let alone what a world Audi lives in.
4th Gear: Ford Is Spreading The Mustang Love
Many of us have wondered why Ford doesn’t use the current Mustang’s rear-wheel drive platform on any other cars, like a Lincoln performance sedan or—I hate myself for saying this but you know it’d probably sell well—some kind of crossover.
Turns out that’s probably in the cards, Automotive News reports. Or not that the Mustang will share platforms, but that Ford’s new rear-drive platform will encompass several vehicles, including the Mustang:
A redesigned Mustang now is expected in 2021. The car rides on an exclusive rear-wheel-drive platform but could move to one of the company’s five new modular architectures, presumably the RWD/all-wheel-drive unibody underpinnings it would share with utilities such as the Explorer and Lincoln Aviator.
That would give Ford the option of building an AWD pony car for better handling in winter and to compete with the AWD version of the Dodge Challenger that launched in 2017.
Widmann said the move won’t fundamentally change the car.
“The general layout of RWD has morphed over time, but it’s still the general architecture that it has been,” he said. “In the architecture world of a RWD — which you’re going to end up with a RWD architecture — I think these pieces of it are pieces that will always work. As you tune it and put a top hat on it, you can get different combinations and can define a lot of the emotion.”
An AWD Mustang, or a Mustang-inspired crossover? That’s certainly how Ford would want us to think of it. The other look at it is we’d have a Ford Explorer-based Mustang. Not that this is unprecedented. Don’t forget the Fox Body, which worked off the same platform as what you’d find under a Fairmont station wagon.
5th Gear: Volkswagen Could Do Better
As part of the reparations for the diesel cheating shenanigans, VW has been ordered to make changes at the corporate level so this kind of thing doesn’t happen again. How far has it come in that regard? Not far enough, the attorney appointed to do so told the New York Times:
Nearly three years after Volkswagen admitted to a vast emissions cheating scheme, the company has only just begun to take steps necessary to prevent future scandals.
That was the main takeaway from a report issued Monday by a prominent American lawyer appointed to monitor the company’s behavior. Among other things, Volkswagen still has work to do to create an adequate whistle-blower program, the lawyer, Larry D. Thompson, wrote in the report.
In interviews before the report was issued Monday, Mr. Thompson said it was not intended as a criticism of the company but rather to offer recommendations for future action.
“My mandate is a forward-looking one,” he said in Wolfsburg, Volkswagen’s base.
Still, the implication was that Volkswagen has made insufficient progress toward repairing the shortcomings in company culture and internal controls that led to one of the biggest corporate scandals ever.
[...] The report released on Monday, which dealt solely with the company’s compliance with the civil settlements, also underscored how much Volkswagen continues to struggle with the consequences of the scandal, which came to light in September 2015. In a report in April that dealt with the criminal charges, Mr. Thompson faulted the company for failing to hold executives accountable and moving too slowly to remake the corporate culture.
“The wrongful acts and crimes that were committed in the United States were enormous,” Mr. Thompson said. “The cultural change is going to be enormous and it’s going to require lots of work on the part of the company.”
It takes time to right a ship that huge, and we’ve seen stories like this popping up for months. You can’t blame Musk for being wary there, I suppose.
Reverse: 345.49 mph
Neutral: Yea Or Nay To Tesla Without Musk?
I personally think the guy could run Tesla just fine if he hired a COO, divided up his responsibilities a bit more and brought on some manufacturing experts from a company like Toyota or VW. (The non-cheating kind.) Do you think that’s enough, or is it time for him to go? And can the company survive and thrive without him?