Tesla is on the wrong path. Musk needs to go to save the company.

Why is Tesla CEO Elon Musk smoking marijuana in public and sipping whiskey while taping a podcast? Sure, it’s legal in California. But it’s not a good look. And it makes Azealia Banks’ claims look credible that Musk was tweeting the “taking Tesla private at $420. Funding secured” stuff while high on LSD.

Is this who you want running a multibillion-dollar company you’re invested in?

A lot of people are now saying no. And so the stock price is down to near $260 a share today.

Executive Departures

What’s more, this morning, Tesla revealed that its chief accounting officer Dave Morton, had already resigned on Tuesday, citing “the level of public attention placed on the company”. He had been at the company for only one month. That sounds fishy to me. Is that the only reason he left?

And to top it off, Gaby Toledano, Tesla’s head of HR, is now also leaving the company. Already on leave when all of the Elon Musk escapades started to hit the news, she decided to resign.

Coincidentally, Friday happens to also be the last day for Sarah O’Brien, Tesla’s vice president of communications, hers is a planned departure. But it still means we are seeing three top executives leave Tesla at the same time the CEO is imploding in public before our very eyes.

Facing the German Menace with no economic moat to protect itself

I am concerned about the Germans – both Audi and Mercedes – unveiling competing electric car products. There’s the Audi E-tron Electric SUV and the Mercedes Benz EQC Electric SUV both coming online now. I see this as the beginning of an onslaught from all directions.

So this is crunch time for Tesla. And all indications are it has missed the 6,000 car production target for August (link in German). So it still cannot ramp volume. And frankly, Tesla has no competitive advantages, no economic moats to speak of. Here’s how Benedict Evans puts it:

There are other cool things that come from the de novo model. Outside the car itself, Tesla can sell direct on a fixed price instead of going through dealers. OEM dealers often have contracts around who can install new software (so no OTA updates allowed) and those dealers make most of their profits from repairs. Something around half of repair spending is on things directly linked to the ICE – no ICE means no oil leaks or broken fan belts. Dealers also play an important role in setting pricing and incentives, and driving demand to specific models. These are all more things that are hard for the incumbent industry to adapt to.

However, again, it’s unclear to me how central these things are. The counter-argument, perhaps, is that that this is comparable to things like the Apple Stores, or the on-device activation of your phone account when you buy an iPhone. These are nice, and a selling point, and hard for Samsung to match, but do we think Apple’s market share would collapse without them?

This is of course very subjective (“how much does this cool thing matter?”) – so here’s a thought experiment: if these factors were the only difference between a Tesla and a BMW or Mercedes, and the drive train, acceleration etc was identical, would they be enough? If BMW suddenly started selling direct and doing seamless OTA firmware uptakes, would Tesla’s share price collapse? Probably not.

Less subjectively, it’s not clear there will be winner takes all effects here. There might be a developer ecosystem on the car itself, but it’s just as likely that the proper place for apps in your car is on your phone, or in the cloud. Certainly, it’s too early to be sure.

Finally, as really should be obvious, there will be chargers everywhere. Once the actual motivation is there, all sorts of companies will build charging stations everywhere they can. The barrier is only capital – there’s no competitive moat here.

Elon Musk is a liability to the company

It’s clear to me that Elon Musk is not focused. He’s erratic and impulsive. Those are not the traits you need in a Chairman and CEO, when you have a cash crunch staring you in the face just as competition in your space is heating up.

If he stays on in this dual role, I believe Tesla will fail and the stock will go to zero. The board needs to act quickly and find some steady hands to take Tesla forward or it will get very ugly for the company in short order.

Both Tesla bonds and stock are a sell.

 

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