Why Elon Musk doesn’t want you to work from home
In May, Elon Musk sent an e-mail to all his employees declaring that:
“Remote work is no longer acceptable … Anyone who wishes to do remote work must be in the office for a minimum (and I mean *minimum*) of 40 hours per week or depart Tesla”.
Other companies aren’t as set on the return to the office. Apple is just now considering bringing workers into the office 3 days a week, but many employees are pushing back.
When questioned about his policy, Musk threatened to fire people, saying “they should pretend to work somewhere else”.
In the era of covid, there are a lot of advantages to working from home. The pandemic isn’t over, it looks like people will catch a new strain of covid every few months. Some people catch covid and are fine after a few days, others get sick for weeks, a few get long covid and end up disabled for a year or more.
There’s no guarantee that situation will get better. Friends of mine caught both BA.1 and BA.5 and got sicker the second time. BA.5 has gotten better at infecting lung tissue. As I’ve written before, viruses don’t always get less deadly, they just do whatever they can to infect a lot of people.
Beyond that, working from home gives benefits besides the pandemic. There’s less commute time, less pollution. In theory, you can work from anywhere, so you could leave an expensive city and buy a cheaper house in the suburbs or the countryside. And, honestly, my office was always too noisy to concentrate, things are a lot quieter at home.
Tesla is often described as a green energy company. You’d think Musk would be excited that less people are commuting, traffic is reduced, and CO2 emissions are down.
But Elon Musk doesn’t make his money from saving the environment. He makes it from selling cars.
If you work from home, companies like Zoom and Microsoft get your money. Maybe Amazon makes money on delivering things to you.
That’s not in Musk’s self interest. He needs more people buying cars. He wants you driving to work.
Even more importantly, he wants to start selling autonomous vehicles.
I like driving my car. If I go for a weekend trip, I’d rather drive where I’m going. But I don’t like commuting. I would gladly let the car drive itself in a traffic jam.
For Tesla’s value to take off, Musk doesn’t just need to take over most of the car manufacturing market. He needs to win the race to produce self driving cars. And to win that race, he needs traffic to be bad enough that people want self driving cars.
Musk also pictures building a suite of products you can use while your car drives itself:
“I think actually as we go to a more autonomous future, the importance of entertainment and productivity will become greater and greater. I mean, to the degree that if you’re just basically sitting in your car, the car is fully autonomous and driving somewhere, the car is essentially your chauffeur and then the things that become important are, okay, well let’s have good entertainment and if you want to do some productivity stuff, then that actually starts to become much more important because you’re no longer spending your attention driving the car. So it will be extremely important in the future.”
But that whole vision depends on millions of people being stuck in traffic.
Hence, Musk fought coronavirus lockdowns in April, 2020.
And now he’s trash talking the value of working from home.
Why is Tesla stock so expensive?
To understand how important autonomous vehicles are, we need to understand Tesla’s stock price.
Tesla only sold 2% of the new cars in the US, in 2021.
Despite that, Tesla is a trillion dollar company, worth more than the combined value of every other car company in America:
This isn’t about 2021 profits, it’s about what the market expects in 5 or 10 years.
If Tesla is making a large fraction of the world’s cars, 10 years from now, maybe that price is justified.
For the most optimistic forecast, let’s turn to ARK investments.
ARK is an investment company run by Cathie Wood. Cathie had an amazing run in 2020 by betting on Tesla and other high growth, low profit tech companies:
Cathie didn’t do as well in 2021 and 2022. ARK crashed and lost all of its gains, as the Fed raised interest rates and the tech bubble popped.
Cathie still made tons of money, she gets her cut from management fees whether or not the funds do well. It was only her investors that got killed.
Early ARK investors ended up below where they’d be from buying an index fund. The people who bought at the peak lost 70% of their money.
I’m too contrarian to follow most fads, so I never bought into ARK.
I saw that people were buying overpriced green energy companies in 2020 and saying that fossil fuels were dead. So I bought a lot of stock in oil companies.
Eventually, the green energy fad crashed, pandemic fears eased up, Putin invaded Ukraine, and I made some good money this year as oil prices soared.
So, we know that ARK’s view of tech companies is probably too optimistic, and their price target is probably too high.
But it’s interesting to see their numbers, for the bull case.
ARK thinks Tesla stock will go up 400% in the next 4 years.
Here’s ARK’s model of Tesla’s stock price:
To justify the high price target, ARK thinks Tesla will sell between 10 and 17 million cars in 2026, up from less than one million in 2021.
That’s not going to happen in the US — 10 million cars would be 66% of the entire US car market. It would have to include other countries.
The auto market in Europe was only 10 million cars in 2021, so it’s not going to happen there, either.
China is the largest auto market in the world, with 24 million vehicles sold. So there is plenty of room for Tesla to grow there, but there’s also a lot of competition with Chinese companies.
There are markets beyond that — 3 million cars in India, millions in Latin America, but those are mostly poorer countries, the EV transition won’t start there.
ARK is either predicting a 50% take over of the US and European markets or substantial growth in China.
A different brokerage (CFRA) predicts Tesla will only be selling about 3 million cars by 2026, not 10–20 million.
Plug those numbers into ARK’s model and Tesla stock gains no value in the next 5 years.
ARK also thinks that Tesla will double their margins, making twice as much profit on each car. But margins usually go down as companies compete with each other.
If the margins stay where they are now and Tesla sells 3 million cars, then the stock could go down 50% in the next 4 years.
If Tesla’s going to grow, they’re going to have to sell 10 million cars or start a new business.
ARK predicts the main opportunity will be in robotaxis:
The robotaxi business won’t be a majority of the revenue. But it could be a majority of the profits and the company’s stock price.
To pull off more stock growth, Tesla has to either take over a huge portion of the world’s car sales or win the race to produce self driving cars.
Will Tesla win the self driving race?
The company sells a feature called “autopilot”, which is cruise control with steering and braking.
They offer another another called “full self driving”. Neither of these products are really autonomous yet. “full self driving” requires the user to take over at times, when it gets confused.
There have been at least 15 deaths associated with the autopilot feature.
The actual number might be higher, it appears that Tesla shuts off the autopilot mode one second before it crashes. That way they can legally claim a crash was the driver’s fault. I’m imagining this like you’re on a plane and the pilot gives an announcement that he’s no longer responsible for the rest of the flight.
Tesla’s self driving mode appears to have trouble stopping for children:
It also has trouble stopping for deer. It hits stationary objects, mistakes red company signs for stop signs, stops on railroad tracks, and hits other cars while self parking.
One analysis found the self driving software makes a mistake every 8 minutes and fails badly enough to crash every 36 minutes if the user doesn’t take over.
I’m not sure, but I think full self driving is going to take years to roll out.
And I think Google/Waymo is more likely to solve self driving first.
Which companies are worth buying?
Google has an amazing monopoly on search and ads that’s not under any threat. Google’s Price/Earnings ratio is pretty good. They might eventually win the autonomous vehicle race.
I think they’ll keep growing. I have no fears with holding Google stock. But they’re already a huge company, so I don’t know if they’ll grow faster than the rest of the stock market.
Several other car companies seem like a better value than Tesla.
Volkswagen should do well in Europe.
They make electric cars like the ID.4 which compete with Tesla. Tesla’s cars win with better features but Volkswagen’s cars win at price.
Tesla’s value as a luxury good might go down once they start selling more cars. Right now, the cars are a status symbol. If they start selling millions per year, with some cheaper models, then the only status will be the model letter printed on the back of the car.
So, where would the high end buyers go? Maybe to Porsche. Maybe BMW.
BMW has plans to compete in the EV market and a chance they’ll keep some brand value.
Tesla is unlikely to win in rural America.
Right now, the best selling vehicle in red states is Ford’s F-150 truck.
Pickup trucks are a functional vehicle for some workers. They’re also a sign of identity.
One book describing America’s political divide was called “Pickup or Prius?”
Part of this choice is because liberals care about global warming and conservatives don’t.
But liberals and conservatives also have broad personality differences. I wrote about this a bit, before, talking about how liberals and conservatives prefer different TV shows.
Conservatives prefer simplicity, while liberals like complexity. Conservatives don’t like change.
Here’s a good medium writer living in Montana. I’m pretty sure he’s a conservative — he is worried that not enough Americans own guns.
When it comes to cars, he doesn’t really want his car to drive itself, it works fine the way it is. He doesn’t want an electric car because he’s afraid it’ll break down in winter and grizzly bears will eat him.
If you’re going to design an electric truck for conservatives, it should be as traditional as possible. It should look like a conventional truck.
Tesla’s Cybertruck does not look familiar:
Trucks are an expression of your identity.
They’re also an expression of masculinity.
People like the size of the vehicle. The wide mirrors. The noise the thing makes.
It’s not done for function, it’s done to demonstrate masculinity.
Sometimes, people even take this too far and hang truck nuts:
Though, technically, you have to wonder if that makes the truck transgender:
Will the Cybertruck appeal to these drivers?
The design looks kind of aggressive. Maybe it’s masculine, I can’t tell. It lacks the wide mirrors. It probably doesn’t make enough noise. You could hang truck nuts from it, but that would ruin the sleek aerodynamics.
It’s an electric vehicle designed for saving the planet. But it’s marketed towards people that could care less about gas mileage or global warming.
It is not conventional. It’s not marketed towards people that don’t like change.
It seems directed at a market that isn’t very large: tech savvy progressives that like change but want a truck instead of a car.
My guess is that Ford will win in America, with whatever electric pickup they make. Or they’ll just keep selling gasoline powered trucks for much longer and continue to profit that way. Red states aren’t about to mandate electric vehicles, and gas could become cheaper as urban drivers switch to electric.
Ford has a lot of debt, but I think the company will do okay, going forward.
There are a few car companies I wouldn’t buy. Toyota is huge, second only to Tesla in market cap. But they have a lot to lose if they can’t keep up. It seems they aren’t trying that hard with electric vehicles. They’ve put a lot of effort into developing hydrogen powered vehicles, which might be a technological dead end.
I’m also skeptical on GM. GM is also large enough right now that they have a lot of room to lose. To date, they’ve made unpopular EVs like the Chevy Bolt.
I think it’s possible that urban buyers will go with Tesla, rural with Ford.
As far as Tesla goes, I’m not shorting the stock. They’ve surprised people and outperformed in the past. But I’m not buying in, either.
Not intentionally, that is.
Who bid Tesla shares up to this level?
Tesla is either overpriced or just has many years of future growth already priced in.
For it to be overpriced, someone must have bid the price up too high.
How did it get there? Who bought those highly priced Tesla shares?
You did.
If you’re an average person saving for retirement, you probably have a 401k with an S&P500 fund in it. That contains a little bit of the 500 largest companies in the US. Normally, when a small company gets big enough to join the club, it gets added to the fund, and then you benefit from any further growth.
Tesla got big so fast that it didn’t get added to the S&P500 until it was already $900 per share. Suddenly every retirement fund had to buy the expensive stock. So, about 1.5% of your retirement money got spent on Tesla shares. You made no money on the run-up to it becoming a trillion dollar company. And the price has gone down a little bit since then.
Your retirement money went to prior Tesla investors and helped make Elon Musk the world’s richest man.
To say thanks for that, he wants you back in the office, so that your commute is shitty enough that maybe you’ll buy one of his self driving cars.
