So much of the value of the company is tied to Elon Musk's vision. If you think he's going to fail in bringing about that vision, then you should think the correct value of the company is much lower. In which case, you shouldn't have enough of a stake to vote Elon out.
There are many good reasons to think that regardless of the person(s) involved, the chairman of the board should have oversight responsibilities over the CEO.
Yes, in a public company it’s just basic good governance that the CEO and chairman should be separate people, not just separate hats for one unquestioned leader.
Case in point: Nokia was enormously successful in the ‘90s with Jorma Ollila as CEO. In 1999 he was also named Chairman of the Board. That is essentially when Nokia started its downward slide of coasting on past successes.
> Case in point: Nokia was enormously successful in the ‘90s with Jorma Ollila as CEO. In 1999 he was also named Chairman of the Board. That is essentially when Nokia started its downward slide of coasting on past successes.
Thanks for your service, Pointless Statistics Bot.
Nokia is an example of a corporation where concentrating power at the highest level led to the undesirable outcome of suppressing criticism and innovation. Ollila has basically admitted as much.
I think part of the difference in perspective is that many people would say that it didn’t matter who the CEO was; Nokia didn’t have the DNA to do smartphones. In the same way that Motorola didn’t.
I think any possible governance issues are really overshadowed by the intrinsic difficulty of dealing with paradigm shift.
Expertise in radio, hardware, baseband and all sorts of other great stuff didn’t translate well into phones getting bigger than computers used to be and managing the software complexity that came along with it. They did the old school engineering super well but it wasn’t enough.
Yes there’s enormous history there and they did a bunch of things that presaged the modern smartphone but it needed a different kind of company and a different engineering culture to build the things that took over the market.
Maybe they could have done it with a visionary type CEO but it would take an extraordinary person to have turned that ship around. In retrospect the iceberg and the flaws in the ship are obvious but Nokia was a very successful company and those are the hardest to change.
In any case this is why I would argue that comparing Nokia with Tesla is wrong; Tesla has its flaws but it seems likely that it’s on the right side of the paradigm shift.
The expression "case in point," like the expression "exempli gratia," explicitly offers that a certain thing is an example of a phenomenon, not justification for it.
Therefore, while it is extremely interesting to ask if concentrating power is a cause or consequence of institutional rot, I don't think we can complain about a sample size of 1 if the argument doesn't say that this one case proves the effect.
But yes, it is extremely interesting to ask whether removal of oversight causes rot, or if it is a consequence of rot. In other words, if we randomly appoint certain successful CEOs to chair their own boards, will their companies do worse than a control group that retain separate governance?
Hard to conduct that experiment, but it would be interesting. Thanks for the suggestion.
There are two things I would like to understand about the 'correct value of the company', both of them related to battery technology:
1. I previously thought that Tesla/SolarCity built their own technologically advanced batteries which would give Tesla cars a competitive advantage. It turns out Tesla run on (something similar to) generic 'laptop batteries'. Do Tesla have some special, secret knowledge about how to build car-sized battery packs from these, or is it a solvable engineering problem for someone else to emulate this?
2. Is there a lot of risk to the battery technology? Is it possible/likely for Tesla to suffer a series of battery fires the way Samsung did?
Ultimately, I am trying to understand the residual value of the company if they fail at making and selling cars. If the short thesis is correct, their car doesn't set the world alight, and they run out of money, is there something valuable related to building batteries that other electric car builders will definitely want to salvage from the company? Or is their battery technology something that a group of smart people at BMW or Chrysler could easily replicate?
If making use of those rights ends up being a distraction to the company that hurts it more than leaving well enough alone, then you're only losing money for yourself. Just because a shareholder has decided to exercise shareholder rights, it doesn't mean it's actually a good idea. Sometimes activist investors have the right idea. Often they don't.
> * If you don’t want other people to have a say in your company, why would you make it public?*
It's a trade-off. You get money in return for greater public transparency and oversight. You don't have to like it to see the need to go for it.
Not if you have the multiple share classes with wildly different voting rights - though in the UK that will get you kicked out of the FTSE index if you take the piss that way.
Now look at it from the other side. You're the 20% owner of that car and you begin to realize the primary owner is neglecting oil changes and abusing the engine. Just because you use it on weekends doesn't mean your complaints are unreasonable.
Activist investors aren't always wrong. It may have lead to Ballmer's ouster at MS for example. Or earning Dell shareholders more money when Mr. Dell took it private.
This a complex topic so I won’t fully develop the point but I can see a rational basis for CEOs to not treat their companies as a “shared” resource and I would argue that when an investment is made in a company there is an implicit understanding that you are being invited to participate in the economic opportunity but not so much in the control.
To work off your analogy, it is akin to “going along for the ride” as opposed to sharing the car. Yes, you own 20% of the car but you agreed that someone else would do the driving and chart the course. If you don’t like the way they are driving, get out and hop into another car. I think it is a bit much to be a minority investor and expect the entire operation to retool when that is a significantly more expensive proposition for the company than it is for you to simply exit the position and buy someone else’s stock.
When we hear the word "owner" we associate that with full ownership, as if you own a car, house or whatever and take care of it and use it.
This kind of ownership is much closer to lending money to someone. While they are technically owners, emotionally speaking the arrangement is much more as if Elon Musk owns the company and the "owners" lent him money.
Elon Musk is the person who has built the company and spent a considerable amount of time working in it, putting his heart and soul into the company. An investor can jump in at any time and become an "owner". Does not mean an investor has the same emotional attachment to the company.
Say you build a house with lots of efforts over many years and live there for decades. To pay the bills you sell ownership shared in the house to investors. What happens to that house is going to matter a lot more to you than the investor.
It is not without reason that family run companies often outperform stock owned companies. When you have an attachment to a company beyond mere short term profit, that is a stronger bond.
> This kind of ownership is much closer to lending money to someone.
No it isn't. It's 'fractional ownership', a mechanism designed to defray the risks of a single venture across multiple people because the risks were larger than any single individual could bear. The case that created it was the India runs with ships that could carry more valuable cargo than any individual could afford to buy or insure.
Spreading that risk through fractional ownership eventually led to the stockmarket. So it absolutely not at all like lending someone money.
And also to the railroads a lot of the capital that built Americas railroads was from UK Investment Trusts (some of which still exist) with mainly middle class shareholders
I thought it was abundantly clear that I know that. In context it should have been clear that I was referring to the psychological aspects of it. To the person starting a company, it will not "feel" very different from borrowing money from someone.
What you are talking about are the concrete technical differences. We have no disagreement on those.
From the perspective of a person starting a company, he has to decide how to obtain money for building the company. He can borrow or he can issue stocks. Both methods give him money. The difference is in how the risk is spread and how the benefits are spread.
The person starting a stock company can't pay profits to himself without also doing so in equal measure to other stock owners. With the bank he only has to pay the interest on the loan.
Common wisdom around here is that the founders of a private company are generally in a much better position to decide what's best for the company than the investors/VCs. (Which I agree with, though as with everything, there are certainly exceptions.)
If anything, that should be more true when dealing with most investors in public companies, not less.
>"Tesla CEO Elon Musk has rebuffed a shareholder attempt to overhaul the electric car maker's board and strip him of his role as chairman"
Actually, the shareholders rebuffed a shareholder attempt to strip him from chairman role. The article makes it sound like shareholders are in contention with Elon when the opposite is true.
> shareholders rebuffed a shareholder attempt to strip him from chairman role
Do we have a vote breakdown for independent shareholders? Musk owns 22% of Tesla [1]; a majority of shares are held by people who are his family or close personal friends. The measure could have passed with a minority of independent shareholders' support.
> a majority of shares are held by people who are his family or close personal friends
Show me the evidence that the majority of Tesla is owned by Musk + his family and or personal friends.
Institutional ownership is 61%. They hold ~$30 billion of the company. Firms like Fidelity, T Rowe Price, Baillie Gifford, Vanguard, Blackrock, Bank of Montreal, etc. all control dramatically more than Musk's family and friends.
I'm glad the vote didn't pass; if Musk were to be ousted, Tesla's stock would crash and the company would be dead. Not dissimilar to Apple, except I get the feeling Musk has a much bigger influence on the company than Jobs had at the time he was ousted.
Really? What makes you conclude that? Elon Musk is kind of like Steve Jobs and Wozniak molded into one person. Musk has deeper technical knowledge than Jobs ever had while he also has some of Jobs intuition about design and products.
Nothing to do with Musk credentials, I just think in the context of car / factories there's a lot of people as knowledgeable as him. Jobs was dealing with a different field, computer tech is a little weirder, and a lot more to do with culture / brand, which Jobs exuded.
For SpaceX probably especially since SpaceX's president has started to become more visible. However for Tesla I doubt it, at least not yet. Musk wouldn't be sleeping at the factory if he didn't need to micromanage.
I based my comment on SpaceX actually. But I may be wrong, it's just easy to equate Musk with Tesla when you only see him. But he's not alone. About the factory couch .. I wouldn't conclude that his presence is a sign of greatness (nor the contrary)
You can find Tesla's' advertising spend easily in their quarterly findings. As for using it to have people monitor/post on social media, you'll regularly see job postings from them that explicitly list this as part of the job, like [1].
[1] Under 'Selling, General, and Administrative Expenses', you can easily see that Tesla spends around 2.5B a year on expenses relating to 'personnel and facilities costs related to our stores, marketing, sales, executive, finance, human resources, information technology and legal organizations'. They don't give more detailed breakdown, but they only have to include the marketing term in the overview if its a material amount (which is obviously at least millions per quarter given that the total is in the billions).
This is true -- but almost every company monitors social media and has people post on it in an official fashion. There's no harm in watching twitter mentions for "my Tesla is broken" and reaching out to people.
>You can find Tesla's' advertising spend easily in their quarterly findings.
Musk played Trump's "fake news" card. If you now try to say anything negative about this company, the fans will brush it off as "fake news" and ignore it.
Remember when the HackerNews crowd told us they were too smart to fall for such things?
Besides opt out not really being ok, the processing took a good minute or two. As in the progress meter arbitrarily increased. That must be bullshit right? And after completion, the request to set preferences failed anyway!
Wow, yeah I had the same experience. Looks like they do some network requests to 3rd parties (I guess to notify them as well of my consent preferences?). Total time took about 3 minutes, which ultimately resulted in a failed request.
There are a lot of subtle errors in that comment. Many points contain part of a truth, and some are outdated or based on speculation. I can’t go through it point-by-point now, but just thought I would point out it might not be as insightful as it seems.
If you have an actual response you should take the time to write it or not respond at all. Just saying “don’t have time to explain but this is wrong” doesn’t do much good.
One not-so-subtle error: At most they've got 500,000 reservations for Model 3 @ $1,000. That's $500 Million.
$500 Million is less than 25% of $2.1 Billion.
Another: A German tear-down firm calculated the cost of building a model 3 at $28,000, all-in. So they would make a 20% gross margin on a sale of the base model when it's available. At the moment, you can't buy one for under $46,000.
The writer conflates gross margin profit and net profit. As long as the gross margin is healthy, Tesla will have a fighting chance. For example, if they average $10,000 gross margin on those same 500,000 reservations, they make $5B in gross profit $. That's enough to pay back all their debt and finance a large portion of their capital spending.
It's all about getting the production line running smoothly, which is why Musk slept on the factory floor for a couple of weeks.
>You completely excluded (sg&a) operational and (r&d) research costs.
For some reason people think that R&D will go down to nothing, even though the other major players spend multiples on R&D than does Tesla.
We've been hearing for years that as Tesla "scales up", these costs will diminish. We're now at, what, 150,000 cars annually? And costs are increasing at an increasing rate. Still waiting to see those economies of scale.
>You completely excluded (sg&a) operational and (r&d) research costs.
The grandparent ignored these, but didn't exclude them. Neither line item is included in gross profit.
>I don't see why gross margin is enough to judge profitability.
While you're right that it's insufficient to judge overall net profitability, it does make sense as a refutation of OP's claim:
>Around 40% of their cash in hand is from refundable deposits, many from people who thought they would get a $35k car
>Tesla cannot make $35k Model 3s at a profit(this is generally accepted, and even Tesla hinted at it), they'll probably lose money even making $42k cars.
They're not-so-subtly implying that Tesla's gross margin on vehicles under $42+k is negative so Tesla would lose money making each unit, and thus those reservation holders hoping for a $35k car will never receive it, depleting Tesla's cash position when they cancel their reservations. It's an erroneous conflation of net and gross margin - Tesla's marginal cost per unit is (presumably) significantly lower than when you factor in fixed costs. That's why we see them making expensive cars first, not because they're precluded from making cheaper cars once they have the spare production capacity by losses on each unit.
In other words, OP is claiming that Tesla's Model 3 strategy is "we lose money on every sale, but make it up in volume," when in fact it's a conventional scenario of increasing volume covering the fixed costs at scale with margin baked into each unit.
I'm already quite excited about the likely documentary that will follow in a few years. There are just so many elements that one can't see from just reading the news.
Tesla shareholders are either socialists or thieving (crony) capitalists, so it's only reasonable that they condone of Musk's management style and behavior
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[ 7.0 ms ] story [ 163 ms ] threadCase in point: Nokia was enormously successful in the ‘90s with Jorma Ollila as CEO. In 1999 he was also named Chairman of the Board. That is essentially when Nokia started its downward slide of coasting on past successes.
sample size 1
Correlation != causality
Nokia is an example of a corporation where concentrating power at the highest level led to the undesirable outcome of suppressing criticism and innovation. Ollila has basically admitted as much.
I think any possible governance issues are really overshadowed by the intrinsic difficulty of dealing with paradigm shift.
Expertise in radio, hardware, baseband and all sorts of other great stuff didn’t translate well into phones getting bigger than computers used to be and managing the software complexity that came along with it. They did the old school engineering super well but it wasn’t enough.
Yes there’s enormous history there and they did a bunch of things that presaged the modern smartphone but it needed a different kind of company and a different engineering culture to build the things that took over the market.
Maybe they could have done it with a visionary type CEO but it would take an extraordinary person to have turned that ship around. In retrospect the iceberg and the flaws in the ship are obvious but Nokia was a very successful company and those are the hardest to change.
In any case this is why I would argue that comparing Nokia with Tesla is wrong; Tesla has its flaws but it seems likely that it’s on the right side of the paradigm shift.
Therefore, while it is extremely interesting to ask if concentrating power is a cause or consequence of institutional rot, I don't think we can complain about a sample size of 1 if the argument doesn't say that this one case proves the effect.
But yes, it is extremely interesting to ask whether removal of oversight causes rot, or if it is a consequence of rot. In other words, if we randomly appoint certain successful CEOs to chair their own boards, will their companies do worse than a control group that retain separate governance?
Hard to conduct that experiment, but it would be interesting. Thanks for the suggestion.
1. I previously thought that Tesla/SolarCity built their own technologically advanced batteries which would give Tesla cars a competitive advantage. It turns out Tesla run on (something similar to) generic 'laptop batteries'. Do Tesla have some special, secret knowledge about how to build car-sized battery packs from these, or is it a solvable engineering problem for someone else to emulate this?
2. Is there a lot of risk to the battery technology? Is it possible/likely for Tesla to suffer a series of battery fires the way Samsung did?
Ultimately, I am trying to understand the residual value of the company if they fail at making and selling cars. If the short thesis is correct, their car doesn't set the world alight, and they run out of money, is there something valuable related to building batteries that other electric car builders will definitely want to salvage from the company? Or is their battery technology something that a group of smart people at BMW or Chrysler could easily replicate?
I'm not sure if this attempt is just a pathological need to show off or just some MBAtitis.
Activist investors are an annoyance of public companies.
If you own shares of a company, you have certain rights, and I don’t see anything wrong with making use of them.
$$$
> * If you don’t want other people to have a say in your company, why would you make it public?*
It's a trade-off. You get money in return for greater public transparency and oversight. You don't have to like it to see the need to go for it.
Say you buy a car with someone, you'll use it for 80% of the time, and the other person would use it for the remaining 20%
Would you agree if the other owner would spend his 20% driving recklessly, redlining the engine just because the car is his?
And in public companies you don't even get to pick who is buying that minor percentage
Activist investors aren't always wrong. It may have lead to Ballmer's ouster at MS for example. Or earning Dell shareholders more money when Mr. Dell took it private.
https://www.forbes.com/sites/nathanvardi/2013/09/03/valueact...
This a complex topic so I won’t fully develop the point but I can see a rational basis for CEOs to not treat their companies as a “shared” resource and I would argue that when an investment is made in a company there is an implicit understanding that you are being invited to participate in the economic opportunity but not so much in the control.
To work off your analogy, it is akin to “going along for the ride” as opposed to sharing the car. Yes, you own 20% of the car but you agreed that someone else would do the driving and chart the course. If you don’t like the way they are driving, get out and hop into another car. I think it is a bit much to be a minority investor and expect the entire operation to retool when that is a significantly more expensive proposition for the company than it is for you to simply exit the position and buy someone else’s stock.
Again, I am not totally confident in this view...
This kind of ownership is much closer to lending money to someone. While they are technically owners, emotionally speaking the arrangement is much more as if Elon Musk owns the company and the "owners" lent him money.
Elon Musk is the person who has built the company and spent a considerable amount of time working in it, putting his heart and soul into the company. An investor can jump in at any time and become an "owner". Does not mean an investor has the same emotional attachment to the company.
Say you build a house with lots of efforts over many years and live there for decades. To pay the bills you sell ownership shared in the house to investors. What happens to that house is going to matter a lot more to you than the investor.
It is not without reason that family run companies often outperform stock owned companies. When you have an attachment to a company beyond mere short term profit, that is a stronger bond.
No it isn't. It's 'fractional ownership', a mechanism designed to defray the risks of a single venture across multiple people because the risks were larger than any single individual could bear. The case that created it was the India runs with ships that could carry more valuable cargo than any individual could afford to buy or insure.
Spreading that risk through fractional ownership eventually led to the stockmarket. So it absolutely not at all like lending someone money.
What you are talking about are the concrete technical differences. We have no disagreement on those.
From the perspective of a person starting a company, he has to decide how to obtain money for building the company. He can borrow or he can issue stocks. Both methods give him money. The difference is in how the risk is spread and how the benefits are spread.
The person starting a stock company can't pay profits to himself without also doing so in equal measure to other stock owners. With the bank he only has to pay the interest on the loan.
Investor = owner
If anything, that should be more true when dealing with most investors in public companies, not less.
Most likely, the guy is just highly concerned about what's going on with the company. He may be in danger of losing a lot of money.
Bubblicious times can end suddenly, any moment now.
Yes, you may have seen people saying that for several years. That doesn't mean it's not true.
Silicon Valley mentality, right there.
Actually, the shareholders rebuffed a shareholder attempt to strip him from chairman role. The article makes it sound like shareholders are in contention with Elon when the opposite is true.
Do we have a vote breakdown for independent shareholders? Musk owns 22% of Tesla [1]; a majority of shares are held by people who are his family or close personal friends. The measure could have passed with a minority of independent shareholders' support.
[1] https://corpgov.law.harvard.edu/2018/04/23/elon-musk-and-the...
Show me the evidence that the majority of Tesla is owned by Musk + his family and or personal friends.
Institutional ownership is 61%. They hold ~$30 billion of the company. Firms like Fidelity, T Rowe Price, Baillie Gifford, Vanguard, Blackrock, Bank of Montreal, etc. all control dramatically more than Musk's family and friends.
https://www.nasdaq.com/symbol/tsla/institutional-holdings
https://www.forbes.com/sites/chuckjones/2018/04/15/tesla-has...
Tesla is not worth 50B. But Elon musk as a brand is worth billions.
He created a cult with spaceX. Even if his company is dead, his cultists will die with him.
[1] https://www.indeed.com/viewjob?jk=e0d97bcb4da6ad04&tk=1ce4ru...
That role looks the same role as any medium/large company would have for social media engagement.
[1] http://ir.tesla.com/secfiling.cfm?filingID=1564590-18-2956&C...
Nah, /r/news is a much better use of resources.
Musk played Trump's "fake news" card. If you now try to say anything negative about this company, the fans will brush it off as "fake news" and ignore it.
Remember when the HackerNews crowd told us they were too smart to fall for such things?
Besides opt out not really being ok, the processing took a good minute or two. As in the progress meter arbitrarily increased. That must be bullshit right? And after completion, the request to set preferences failed anyway!
Does anyone have an explanation?
Here's a video capture if anyone else can weigh in on this: https://www.dropbox.com/s/3944v7137opknty/Kapture%202018-06-...
It also has an obscene valuation. Beware stock pumpers.
$500 Million is less than 25% of $2.1 Billion.
Another: A German tear-down firm calculated the cost of building a model 3 at $28,000, all-in. So they would make a 20% gross margin on a sale of the base model when it's available. At the moment, you can't buy one for under $46,000.
The writer conflates gross margin profit and net profit. As long as the gross margin is healthy, Tesla will have a fighting chance. For example, if they average $10,000 gross margin on those same 500,000 reservations, they make $5B in gross profit $. That's enough to pay back all their debt and finance a large portion of their capital spending.
It's all about getting the production line running smoothly, which is why Musk slept on the factory floor for a couple of weeks.
Reservations are taken for roadster and semi too.
You completely excluded (sg&a) operational and (r&d) research costs.
I don't see why gross margin is enough to judge profitability. You excluded both operational and research costs, which you can't ignore.
For some reason people think that R&D will go down to nothing, even though the other major players spend multiples on R&D than does Tesla.
We've been hearing for years that as Tesla "scales up", these costs will diminish. We're now at, what, 150,000 cars annually? And costs are increasing at an increasing rate. Still waiting to see those economies of scale.
The grandparent ignored these, but didn't exclude them. Neither line item is included in gross profit.
>I don't see why gross margin is enough to judge profitability.
While you're right that it's insufficient to judge overall net profitability, it does make sense as a refutation of OP's claim:
>Around 40% of their cash in hand is from refundable deposits, many from people who thought they would get a $35k car
>Tesla cannot make $35k Model 3s at a profit(this is generally accepted, and even Tesla hinted at it), they'll probably lose money even making $42k cars.
They're not-so-subtly implying that Tesla's gross margin on vehicles under $42+k is negative so Tesla would lose money making each unit, and thus those reservation holders hoping for a $35k car will never receive it, depleting Tesla's cash position when they cancel their reservations. It's an erroneous conflation of net and gross margin - Tesla's marginal cost per unit is (presumably) significantly lower than when you factor in fixed costs. That's why we see them making expensive cars first, not because they're precluded from making cheaper cars once they have the spare production capacity by losses on each unit.
In other words, OP is claiming that Tesla's Model 3 strategy is "we lose money on every sale, but make it up in volume," when in fact it's a conventional scenario of increasing volume covering the fixed costs at scale with margin baked into each unit.
I lol'd at this simplification.
I get the feeling Tesla stock is owned by children, while the older folks are shorting this.
https://news.ycombinator.com/newsguidelines.html