In “‘Super Bad Feelings’ About A ‘Strong-As-Hell’ Economy,” I referenced Elon Musk’s vague recession remarks delivered at a June summit in Miami Beach.
The US economy was “probably” already in a recession, he said, adding it’ll likely “get worse,” and could be “tough going for a year, maybe 12-18 months.”
He was referring to a real recession, not the sort that market participants rushed to declare on July 28, when the first read on Q2 GDP printed in negative territory.
I brought up Musk preemptively Wednesday. Tesla reported after the bell, and in addition to a few scattered remarks about Twitter, Musk weighed in on the economy during the call, and particularly on demand for his cars. Recall that although Elon has been somewhat vocal about the elevated odds of an economy-wide downturn, he’s not been especially quick to suggest that a recession (in the US or globally) would impact Tesla. He reiterated that on the call in characteristically brazen fashion.
“We’ve got a lot of questions about demand in recent weeks. I can’t emphasize enough, we have excellent demand for Q4, and we expect to sell every car that we make for as far into future as we can see,” Musk said. “The factories are running at full speed, and we’re delivering every car we make and keeping operating margins strong.”
Tesla’s revenue was a bit short of estimates in Q3, but earnings managed a small beat. The company cited delays for an expected miss on its delivery target, and at 27.9%, margins missed analysts’ estimates (28.4%). Musk seems to think the quarter to quarter specifics are mostly unimportant. Tesla is likely to have “knock on wood, an epic end of the year,” he said.
During the Q&A, Musk did address economic headwinds, albeit somewhat briefly. Asked how Tesla would “adjust” in the event of a prolonged recession, Musk insisted they wouldn’t. Adjust, I mean. “Well, to be frank, we’re very pedal to the metal come rain or shine,” he mused. “So, we are not reducing our production in a meaningful way, recession or no recession.”
As I put Wednesday afternoon, prior to Musk’s remarks, he’ll be loath to suggest that a “Tesla recession” is possible, irrespective of what happens to the broader economy.
He also addressed China’s troubles and briefly mentioned the Fed, which in his opinion, is on the brink of overdoing it with rate hikes. “China is experiencing… a recession of sorts simply from the property market mostly, and Europe has a recession of sorts driven by energy,” he told listeners. “North America is in pretty good health, although the Fed is raising interest rates more than they should, but I think they’ll eventually realize that and bring [rates] back down again.”
But the real fireworks (and this is what tipped the scales for me when it came to deciding whether Musk’s remarks were worth featuring), came when Elon took his notorious Apple boast to another level entirely.
“I’m of the opinion that we can far exceed Apple’s current market cap,” Musk declared, on the way to delivering the following somewhat remarkable assessment,
In fact, I see a potential path for Tesla to be worth more than Apple and Saudi Aramco combined. So, that doesn’t mean it will happen or that it will be easy. In fact, I think it will be very difficult. It will require a lot of work, some very creative new products, expansion [management] and always the luck. But for the first time, I am seeing — I see a way for Tesla to be — let’s say, roughly twice the value of Saudi Aramco. And I think that’s — I haven’t quite seen that yet. I mean, this is the first time I’ve seen that potential.
To be fair, I almost don’t doubt Musk. Certainly, his portfolio of companies (sans Twitter anyway) is developing technologies that may prove critical to the survival and advancement of the human species. If SpaceX realizes all of its ambitions, no valuation is too high. How much is a company worth that colonizes Mars? A lot. Infinity, probably.
The problem with comments like those Musk made about Tesla, Apple and Armaco on Wednesday evening is that they’re irrelevant in the near-term, and mostly in the medium-term too. Tesla’s market cap is around $700 billion. Combined, Apple and Aramco are worth more than $4.4 trillion (figure below).
Yes, Tesla is undoubtedly working on things that are more important than phones and gadgets, and in addition to poisoning the biosphere with its products, Aramco is run by an increasingly hostile monarchy, which, Mohammed Bin Salman’s pretensions to reform aside, holds an austere sword over a captive populace.
So, sure, Tesla is arguably the more important company. But for now, comparisons are almost meaningless. Tesla’s revenue in Q3 was $21.5 billion. Aramco made $49 billion — in profits.
As Musk himself conceded, “market themes revolve around the short-term.” It’s “very important,” he said, “to focus on the long-term.”
I must be daft because I still don’t get the ‘let’s go to Mars’ thing versus ‘let’s save earth’. I must have played hooky the day that lecture was given. Also, I see no path for Tesla to outsell all other car makers combined on EV’s, petal to the metal or not. And what happens when another environmentally friendly technology, say hydrogen, becomes cost effective and scaleable. I’m sure Musk is a genius in some way(s), but genius can get carried away with its own reflection.
I don’t pretend to know Musk’s thinking about this but, if he’s a fan of sci-fi like I am, he’ll be thinking of x-risks more than of the problems due to climate change or anything else.
As long as Humanity remains a planet specific species, we remain liable to die out if anything happens to our one planet. Say, an asteroid. As soon as we’re a multiplanetary species, that risk disappears. Even having an self sufficient habitat somewhere in space would be an improvement from that perspective.
Maybe if we all went to Mars, Earth would eventually be ‘saved’ as it reverts to an interplanetary Yellowstone/Jurassic park.
Aramco could very well be a penny stock following a Sunni & Shia hot war that irradiates their oil fields. Then there’s Apple’s iPhone, an overhyped and overpriced Chinesium status symbol that could become unaffordable during the coming depression. So, all Mr. Musk has to do is survive and Tesla could very well be worth more than Aramco and Apple with Tesla at $0.47 per share.
…going back in the box now.
I do not own a Tesla or even have a direct position in Tesla, however, I have experienced the pure fun of driving a Tesla.
As of October, 2022, only 3.2M Teslas have been sold worldwide (of which .9M were in YTD 2022). I completely understand his comment, “we expect to sell every car we make for as far into the future as we can see”.
Definitely interested to see the semi-truck, which will come with 82,000lb weight capacity, a 500mile range and a battery that recharges to 70% in 30 minutes.
It is hard (for me) not to be a fan of the person who is not only responsible for Tesla (including the advancement of battery technology needed to get to a clean energy solution), but is also providing internet access to Ukraine and Iran (global access to the internet would be a huge positive for peaceful globalization).
If the government has to provide tax credits to “pay” for some of this cost, then that is a public-private partnership which I support.
I just don’t understand the Tesla hype. The traditional car manufacturers may not be as newsworthy, but they are very good at making cars. Consumer Reports ranks Tesla in 9th place on their list of recommended electric vehicles. Cadillac is also doing advanced sales of the Lyriq that have yet to be produced. Another pedal to the metal.