Tesla’s $1 Trillion Bet on Elon Musk’s Leadership

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2:02Tesla's shares are getting a boost from their CEO. The stock rose more than 3.5 % in regular trading. The world learned about that purchase in a regulatory filing on Monday. But Musk actually bought those shares on Friday, September 12, indirectly through a revocable trust. That was the same day Robin Denholm, the chair of Tesla's board, told Bloomberg TV how optimistic she is about Tesla's future with Musk in the driver's seat. He's a generational leader. There aren't any other people out there like Elon who can actually lead the company over this next decade or so. That interview came on the heels of a big announcement earlier this month that Tesla's board wants to offer Musk an unprecedented compensation package valued at$1 trillion.

2:51Well, he's already one of the world's richest people, but Elon Musk could become the first ever trillionaire. It's all possible under Tesla's new pay package. But behind these headlines, these eye-popping numbers are some serious challenges Tesla's facing. Elon Musk warning that the cuts to EVs and other clean energy credits would be incredibly destructive to the country. When Teslas lose power, crashes can turn into deadly races against time. Reporting by Bloomberg News has found that regulators have been slow to act and complaints about Tesla's doors have piled up. I think this is a matter of being able to sort of in your head think this guy has done it before.

3:31Maybe he can do it again. Craig Trudell oversees Bloomberg's coverage of the auto industry. These covered Elon Musk and Tesla for years. Craig says what's really reassuring them and Tesla's board is having Musk out of government with a new financial incentive to focus more on the company. There's a sort of concerted effort to message on the part of this company that, you know, Musk is coming back. He's putting his head back down. He's putting politics aside. He's left the White House. He's going to hunker back down and get down to business. and people are even using really sort of over-the-top language, like a wartime CEO.

4:09But what's unclear is if Musk himself has gotten that message, and if that$1 trillion pay package, provided it's approved by shareholders, will work.

4:22I'm David Gura, and this is The Big Take from Bloomberg News. Today on the show, what could have been a bad year for Tesla isn't looking so bad to Tesla's investors and board, who are convinced that with more of Elon Musk's attention, the company will be back on track.

4:432025 has been tumultuous for Tesla. After years of remarkable growth, its shares plunged because of lackluster sales and increased competition, along with concern over Elon Musk's politics. But in the months since, Tesla's stock has been trending higher. And this month, it's all but erased those losses. Bloomberg's Craig Trudell says it's been vibes as much as fundamentals driving the company's share price. This is a company that, you know, all of its here and now fundamentals are sort of flashing red. And yet you have Musk talking up this future of humanoid robots. And this is, of course, you know, sort of running contrary to these years of efforts on the part of other very valuable companies with really smart engineers who have tried to sort of make humanoid robots a thing and really struggled doing so.

5:34The other sort of half of the reason for optimism, I would say, would be robo-taxis. And, you know, there's maybe more tangible signs of real progress on that front for Tesla to a degree in that they have launched this very limited service in Austin, Texas, where they're headquartered. But it's really important to sort of keep in mind that there are still humans in the front row of those vehicles that are sort of keeping an eye on things. And this was, you know, far from a sort of auspicious start for these vehicles where from day one, when they launched this service, you had cars driving in the wrong lane and in sort of the wrong direction.

6:11And the National Highway Traffic Safety Administration coming right out and telling us at Bloomberg, yeah, we're watching, we're noticing these things, and we're in touch with the company. So, you know, have they figured out robo-taxis and gotten their cars to a point where they can safely navigate the streets without anyone behind the wheel or in the passenger seat. Even Tesla, I think, by its actions can be judged to be saying no. For so long, the narrative was that Elon Musk was distracted by the role that he was playing in the Trump administration at the helm of Doge. He wasn't paying attention to this company and others that he runs.

6:48It did seem like Tesla's board wanted to limit Elon Musk's political activity. And then it seemed to walk that back. This is what Robin Denholm said on Bloomberg TV. What he does from a personal perspective in terms of his political motivations, etc., is up to him. I mean, clearly from our perspective as a board, we're measuring him on results and measuring him on what he does as a CEO of Tesla. What is the board's position on Elon Musk and politics? Yeah, our colleagues Ed Ludlow and Caroline Hyde really sort of pressed Denholm on this on Friday to really sort of get a hard and fast sense of what do we mean by winding down his political activities?

7:28Because there was some language within the proxy to that end that Musk had made some assurances. And we really did not get firm answers from Denholm. I think, you know, just reading between the lines, it seems as though we've already gotten to the point where they're happy, where he's, you know, left Doge, he's left the White House, he's no longer a special government employee. And yet there doesn't seem to be any limits placed on, you know, he's thrown out this idea of maybe starting a political party in the US. There's also been real substantial weighing in on UK politics, on German politics.

8:03And there doesn't seem to be any sort of line being drawn by the board, at least publicly, in terms of what's okay and not okay for him going forward. And as you look at your remit, the car companies that you cover, how different is this board, the Tesla board from, say, the board at Ford or the board at GM. They have a really difficult job. I will give them that, right? You know, you don't have another CEO who's pulling the kind of stunts that he is on a day-to-day. And you have heard Robin Denholm sort of speak to this idea that she wishes that he wasn't quite the way he is on Twitter. This is a board that really has its hands full.

8:41And yet also on the other side of that coin is it is true that this is a generational leader from the perspective of we haven't seen somebody, you know, turn a car company into a trillion dollar enterprise. We haven't seen a car company even come close to that. And, you know, we can sort of debate until the cows come home whether or not Tesla is worthy of that valuation. But the sort of hard and fast truth is that, you know, he is convinced enough people that it is worth that. And even if this is more than just a car company, by any metric, you know, in terms of where they're valued on a sort of fundamental basis, a price to earnings ratio going forward, this is a really rich stock.

9:21And if Musk were to be sort of out of the picture or in any way perceived as sort of stepping back from Tesla, we've seen over the last few years that that can be hugely destructive to this company's valuation. Elon Musk's plans for Tesla go beyond cars. They include robots and AI. But Musk's dream of turning Tesla into the most valuable company in the world won't be easy. The challenge is facing Musk and Tesla after the break.

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12:38When Tesla posted its quarterly earnings back in July, a big headline was a 12 % drop in revenue compared to a year earlier. On a call with investors, Tesla leadership didn't comment much on that decline. But CEO Elon Musk did acknowledge the next few months are likely to be rough. I mean, does that mean like we could have a few rough quarters? Yeah, we probably could have a few rough quarters. I asked Bloomberg's Craig Trudell what that admission tells us about Musk's vision for the company and what's to come. Yeah, I think it's going to be the case that this quarter is going to be boosted by the fact that in the U.S.

13:15you have a phasing out of electric vehicle tax credits. there's going to be a sort of pull ahead of people who are maybe considering buying an EV that are going to accelerate that decision to take advantage of the fact that they could be eligible for a$7 ,500 tax credit. The real concern is that after those tax credits go away, that Tesla and everyone else selling EVs is really going to have a hard time for months to come. On top of that, You also have a deregulation agenda on the part of the Trump administration to take away penalties for fuel economy standards and for emission standards that Tesla for years has really benefited from.

13:56You know, more than$12 billion worth of regulatory credits. You have BYD going from strength to strength in terms of continuing to outsell everybody there. You have Xiaomi, China's version of Apple, making a real concerted effort to go into the EV space. And then here in Europe, a sort of falling apart of Tesla's position in really major markets, including Germany, France. And so across the globe, we're seeing real weakness in Tesla's core car business. And I should also mention, too, just to go along with that, this is a company with an energy business that sells storage batteries for utilities.

14:33That, too, is going to be hit by the fact that the Republicans have gutted a lot of what was in IRA. Right. During the throes of the early days of Trump's second term, we saw Tesla sales decline. How much of that decline is attributable to politics? And how does he change that part of Tesla's story that sales have been dropping and they really haven't recovered? It's a really good question. And it's something we've struggled with. Right. There are very clear signs that Musk is at least a major contributing factor to the challenges that this company has had, you know, all year long, really. And some of those signs are that early in the year, the company was kind of using this excuse that seemed to have some merit, that they were changing over their most important product, the Model Y, to a new design.

15:16They were making it better in a lot of respects, upgrading the design. And in order to sort of change over to that new vehicle, they needed to temporarily shut down production at factories around the world. But what we've seen is that since the new Model Y has arrived in showrooms, that we've not seen a recovery in this company's sales. I would say particularly here in Europe, things have just continued to be really weak. But in the U.S. as well, I think the sales numbers that we see in California, a sort of liberal bastion in a place where Tesla has dominated for so long, they have fallen from a position of extreme strength to it's now a much more competitive space with a lot more alternatives.

15:58Craig, another set of challenges have to do with the vehicles themselves and how they're designed. And your team has done some incredible investigations of the doors on Tesla models, for instance. I think anybody who's bought one or rented one or ridden one has to figure out how to open a car door on a Tesla. It's even more complicated on a Cybertruck. This has actually proven to be hugely problematic when there are car accidents. And these doors are incredibly difficult to open if the car no longer has power. What did Bloomberg learn over the course of that investigation? And how have federal regulators responded to that problem.

16:30Yeah, this all started actually internally with one of our colleagues having read about and heard about a crash involving four college students who were in a cyber truck around the time of Thanksgiving last year. And these students were in a crash where only one was pulled out of the vehicle and the three others did not survive the fire that followed this crash. All three of the young people who died in this incident survived the initial crash, but died of thermal injuries and smoke inhalation because they were unable to get out of the vehicle. And this really sort of begged questions for us of, you know, a simple question of why couldn't they get out?

17:10And this is an issue that has been raised for years going back to the Model S, the first vehicle that Tesla built itself from the ground up, where they designed their doors externally to have flush door handles. I think it was for understandable reasons of improved aerodynamics, reduced wind noise, and also just a sort of cool factor. And yet, from the beginning, there were real issues with how these door handles worked, both from the outside and from the inside, where some of the pushback that we've gotten for this piece is, well, they have mechanical releases to get out of these vehicles. They're also very difficult to find.

17:49There's also differences from model to model as to whether or not there's mechanical releases in the backseat, which is obviously hugely problematic if you happen to be in the backseat in an instance where your Tesla has lost power, and particularly if your Tesla has lost power and it is on fire. And also, I just should point out, from the outside of Teslas, you know, they advise within their sort of rescue tip sheets for first responders, the doors just don't work from the outside. If the vehicle doesn't have any power, you're going to have to bash the window and or cut the doors open to get to people.

18:24Musk and other Tesla executives didn't respond to Bloomberg's inquiries about the doors or to Bloomberg's requests for comment. And we found incidents of people complaining to the National Highway Traffic Safety Administration about their doors not working for them that Nitsa says it's aware of not only those complaints, but also the incidents that we wrote about last week. And they're considering whether or not a full investigation of this issue is warranted. It highlights this tension between Elon Musk's Tesla and regulators. And you can hear this on quarterly calls. He often says that the engineering is up to snuff or they've developed something or it's ready to go.

19:04They're just waiting for regulatory approval. I think about this in the context of another investigation that Bloomberg did about the self-driving system on his cars, which operate differently than other car companies' self-driving apparatuses. Help me understand how that is kind of framing Elon Musk's timeline for the advancements he says are coming. So I think of, for instance, the robo-taxis he's talked about, as you mentioned, have been in Austin where Tesla's based, a few other cities as well. He's very eager to expand it. How realistic is that in light of that tension I just mentioned between what regulators are thinking and allowing versus what Tesla says it's able to do?

19:39Yeah, it's interesting. at NHTSA has clearly demonstrated that they're paying attention. In terms of just how much they've really stood in the way of this company, I guess there's not necessarily huge issues in terms of the ways in which they could be sort of perceived as holding Tesla back. Musk has referred to them as the fun police, I should note. And yet, this is also an agency that is not particularly well-resourced, not particularly well-staffed. And that was before Doge came in and did what it did across the U.S. government. And we've also just taken an approach in the U.S. of allowing and being more permissive of this technology on the grounds that it has this potential to bring down the roughly 40 ,000 traffic fatalities that we see on U.S.

20:22roads every year. There's been this concern going back to the Obama administration of we shouldn't be too prescriptive or too tough on this technology or set hard and fast rules. We should allow this to sort of proceed and sort of set guidelines and come in afterward. And to the extent that issues come up, we'll do defect investigations, we'll subject these companies to scrutiny, but we're not really going to stand in the way. Whereas in Europe, it's a very different story. You have not seen Tesla be allowed to put what it refers to as FSD on the roads. And even in China, there was a sort of limited ability to sort of start to pilot that earlier this year that didn't last particularly long.

21:03And there's been real concerns about Tesla and its competitors, just how sort of ready that technology is and the extent to which companies perhaps have maybe oversold the capability of this technology. Just lastly, here to recap, Tesla has issues with sales being down, the sun setting of these electric vehicle incentives by the U.S. government, problems with safety that have come to light in the media. Given all of that, how is it that Tesla investors retain the level of optimism we've seen them have? I think Musk has this uncanny ability to sort of set agendas and command narratives and his ability to sort of talk about the future in this really exciting way and put out these indications that everything's going to change.

21:53He's going to deliver something that we've never seen before. And we've seen him sort of make good on a lot of those things, right? This is a guy who shoots rockets off into space and lands them back on barge ships, right? His ability to leverage that as, don't worry about the here and now, forget about the challenges that I'm having. I've done it before and I can do it again. And it has proven to be really sort of sticky and effective, even in spite of the damage that he himself has been doing to his own company.

22:30This is The Big Take from Bloomberg News. I'm David Gurra. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you like this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

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