Elon Musk officially owns Twitter -- and now the hand-wringing about his ability to oversee the rest of his empire has begun again. Of all the concerns around Tesla, however, Musk's ability to manage his time is probably furthest down the list.
Musk likes to think of himself as a problem solver, and he has a big one to solve in Twitter. The social-media company is far from profitable, and Musk loaded it up with debt to make the acquisition. Finding a way to cut costs while generating new revenue from the largest tech leveraged buyout ever is a challenge that will test his problem-solving skills and pull his attention away from Tesla (ticker: TSLA), SpaceX, The Boring Co., and Neuralink, the four other companies he controls.
But the days of any one of these companies needing Musk's full attention are slowly fading. Tesla is now a very profitable auto maker, with less demand for a visionary leader and more for managers who have an operator's touch. SpaceX has become a dominant, if not the dominant, player in the new space race, while Neuralink and Boring are the rounding errors in Musk's massive portfolio. What's more, Musk is a better manager than he has been given credit for, and the culture he has built at his companies should be strong enough to stay the course, even if he's distracted.
"This is a tricky tight-wire balancing act for Musk, given how large and diverse his empire has become," says Wedbush Securities analyst Dan Ives, adding that it "is a near-term storm that will pass."
Musk's empire is huge. There's Tesla, of course, which is worth some $700 billion based on a stock price of about $220, three times more than the next most-valuable auto maker. SpaceX, which pioneered reusable rockets and space-based high-speed internet, is worth another $125 billion based on its August capital raise, making it one of the five most valuable aerospace companies on the planet. The Boring Co., which is worth $6 billion, aims to solve the problem of urban traffic congestion by digging tunnels faster and cheaper than in the past. Neuralink, meanwhile, is investigating machine-brain interfaces and is worth about $1 billion.
Add it all up and the companies were worth $832 billion before Musk decided to add Twitter to his domain.
The market value of Musk's companies isn't the only thing that's large. Tesla employs some 110,000 people, while SpaceX has a payroll of about 12,000. Neuralink and The Boring Co. each have 200 workers on staff. Twitter, even after layoffs that could total half of its pre-Musk employees, would still have almost 4,000 on the payroll. That's 125,000-plus who work for Musk, nearly as many as the roughly 157,000 General Motors (GM) employs or Boeing's (BA) 142,000 workers. Tesla's employees work in places as far-flung as Fremont, Calif.; Nevada; Austin, Texas; Buffalo, N.Y.; Berlin; and Shanghai.
It's nearly unprecedented for one person to manage such a large and valuable group of companies. Steve Jobs tackled Pixar and Apple at the same time, though Pixar was relatively small and was bought by Walt Disney (DIS) for $7 billion in 2006.
Liberty Media's John Malone controls more than a few companies via tracking stocks, including Formula One (FWONK), the Atlanta Braves Major League Baseball team (BATRA), satellite-radio company SiriusXM (LSXMA), and home-shopping leader QVC, as well as Liberty's other media companies. Together, though, they employ roughly 45,000 people and have a combined market capitalization of an estimated $27 billion.
Warren Buffett's Berkshire Hathaway (BRK.A) might be a better comparison. Berkshire owns more than 60 companies, employs 370,000 people, and is worth $625 billion. But there is a key difference between Musk and Buffett. Buffett is an investor and a delegator. He buys companies with strong management teams and then lets the managers run the businesses. He also has long had Charlie Munger to help him, and a deep bench of talent to call on -- deep enough that investors have spent years speculating about who will run Berkshire once Buffett steps down.
Musk, on the other hand, doesn't delegate like Buffett or Malone. When Tesla was smaller, his desk was on the factory floor in Fremont, and he still wades into Tesla technical and engineering decisions. Outside of SpaceX, which is run day-to-day by Gwynne Shotwell, most observers would be hard-pressed to name the executives and managers that are essential to Tesla, Neuralink, and The Boring Co. That makes sense for the smaller, privately held Boring and Neuralink, but Tesla has only three executives listed in its proxy filing -- Musk, Chief Financial Officer Zachary Kirkhorn, and engineering chief Drew Baglino.
The Twitter distraction comes at what looks to be a critical time for Tesla, which is ramping up production at two new assembly plants, in Berlin and Austin. Tesla wants to deliver 50% more vehicles a year on average, which would mean it has to ship some five million cars in 2025.
Hitting those numbers will probably require a new plant, more company-owned battery capacity, and, very likely, a new low-price model, as well. There's also the risk that Tesla can deliver those volumes but that demand for its cars just isn't there as EV alternatives from Ford Motor (F), GM, and just about every other auto maker become available.
Musk's full attention, however, might not be as important as it once was. At SpaceX, Shotwell isn't afraid of making hard decisions and has a reputation for persuasiveness -- she sold SpaceX launch services to customers such as NASA before the company had successfully launched a rocket -- and for optimism. The Boring Co. and Neuralink are overseen by Jared Birchall, who worked at Merrill Lynch, Morgan Stanley, and Goldman Sachs before taking over Musk's investments in 2016. He's someone Musk trusts with everything from managing his considerable pile of money to managing his life.
And at Tesla, Musk has built a bench -- and a culture -- that should be able to handle his absences. Musk likes to create cross-functional teams, populated with engineers, to solve problems. It's a collaborative environment, but Musk also has very high expectations and little patience for excuses. Musk is also an intensely logical person, says an executive at a large industrial firm who once worked with him in an executive capacity at SpaceX. When Musk attacks problems, "there is no guessing; there is no subjectivity. [He] always tries to get to the objective root of [problems]."
Musk also requires people to work on problems outside their immediate expertise. Many of the engineers hired at SpaceX, for instance, came from outside the aerospace industry. That decision turned out to be a boon for SpaceX, which completely upended the then-current space industry by doing things in a way existing players couldn't imagine. Likewise, Konstantinos Laskaris, Tesla's principal motor designer, was the one tapped to explain actuator design for the joints on Tesla's humanoid robot at the company's second annual Artificial Intelligence Day.
In fact, Tesla's bench may be deeper than it's given credit for. Kirkhorn, the CFO, is "super competent" and "so smart" as a manager, says Gerber Kawasaki Wealth Management President Ross Gerber. Baglino, whose official title is senior vice president of powertrain and energy engineering, took over for co-founder and former Chief Technology Officer J.B. Straubel in 2019 and has played a prominent role in earnings calls and at Tesla's 2020 Battery Technology Day, though he remains something of a mystery to investors. Investors and analysts mostly deal with investor-relations head Martin Viecha, who Gerber describes as "almost like a chief of staff."
Others who could be tasked with doing more as Musk's attention turns to Twitter include Franz von Holzhausen, Tesla's design chief; Ashok Elluswamy, who oversees driver-assistance software; and Lars Moravy, vice president of vehicle engineering, who has been taking apart cars since he was a teenager. They should be able to handle it. "Tesla is now a very big company with a lot of capable talents, executing very autonomously," says New Street Research analyst Pierre Ferragu. "This makes the Twitter distraction a limited risk to Tesla."
Damage to Tesla's brand from the Twitter acquisition, however, might be a problem. Tesla has become the world's most valuable car company without spending on traditional advertising. That was possible thanks to Musk's personal brand as a someone working to save the environment. Now, Musk's reputation is at risk as he wades into social-media management -- and occasionally tweets conspiracy theories. To counteract that, Tesla may need to start considering how to separate its brand from that of its CEO.
"The best thing Tesla can do right now is to focus on branding Tesla as Tesla," says Gerber. "Tesla should not just be Elon."
Doing so could be expensive if it relies on advertising. GM and Ford spent more than $6 billion on marketing in 2021 combined, while earning roughly $24 billion in operating profit from $253 billion in combined sales. At a similar ratio of sales and earnings, Tesla could spend $3 billion to $4 billion on ads annually, or about 15% of expected 2023 operating profit of $22 billion.
If investors become convinced that Tesla is just another car company, it could trade at valuations closer to Porsche (P911.Germany) shares, which go for almost 18 times estimated 2023 earnings, or Toyota Motor (TM), at about nine times, rather than the 37 times it currently fetches.
Of all the risks Tesla faces, maintaining brand strength may be the one to worry about the most.
