Today, Explained - elon r u ok

Episode Date: September 20, 2018

Elon Musk is having a bit of a week, a month, a year. Now the Department of Justice is investigating him, as is Today, Explained. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Support for this episode of Today Explained comes to you from Tom's. They sell shoes and also eyewear. And for a limited time, you can get 15% off podcast The Vergecast called This Week in Elon. I hear it's now a newsletter, too. Is this true? Yeah, that's right. There's just so much news about Elon Musk that it can be hard to keep up. Carmaker Tesla is now facing a criminal investigation over statements made by their CEOs, Elon Musk. Elon Musk's bombshell tweet last month about taking Tesla private has set off an investigation.

Penalties for that is potential jail time as well as millions of dollars of fines. Musk under fire after taking a hit of marijuana mixed with tobacco. He's the only game in town. He's the best thing we've had since Thomas Edison. Well, here's like a big, broad question that I want to ask you before we talk about all the news. Does Elon Musk matter? I would say yes. And I'll tell you why. A lot of what he's doing does indirectly or directly affect people, even people who don't necessarily buy cars like Tesla or who aren't necessarily into rocket launches, because he tends to be somebody who uses a lot of government money and government money comes from all of us, the taxpayers. Can you give me like some of his sort of moonshot ideas? What are the craziest

things that Elon Musk wants to do? Because he is a dreamer, right? His whole thing is that basically after he made his fortune from PayPal, he was like, I don't think people are dreaming big enough. And so he sort of moved into the transportation sector. So you have SpaceX, which pioneered reusable rockets. SpaceX has announced it's sending a Japanese billionaire up around the moon. You have Tesla, which made the electric car sexy. This is the new Tesla Model 3, and it is the coolest car that's coming out this year. And then there's some other things that have been sort of floating around.

So he released a design for something called the Hyperloop, which is very fast transit. And it's basically a train in like a vacuum tunnel. It allows youloop, which is a very fast transit. And it's basically a train in like a vacuum tunnel. It allows you to get to very, very high speeds so that you could potentially go like 760 miles per hour. So it's able to move you from Los Angeles to San Francisco within 36 minutes. Perhaps it's like a subway on steroids. He recently founded the Boring Company, which is a tunnel boring endeavor that's meant to help with decreasing traffic. In a city notorious for traffic congestion and gridlock, Elon Musk's Boring Company today got the mayoral nod to Dig Deep, a tunnel for a high speed trip from downtown Chicago to O'Hare Airport. And then also there's sort of the sci-fi company Neuralink, which is about brain machine interfaces, basically about putting implants in your brain so that you can talk to a computer. Wow. Very impressive. So this guy who spends his time

dreaming about space exploration and revolutionizing transit and modifying our brains is in a whole lot of shit right now because of a tweet. Yeah. I mean, look, if there's only one thing that I can like get you to come away from this with, it is the danger of tweeting and that the smartest thing we can all do is just never tweet. Because social media is such a huge part of this story. And like so much of what has happened has happened on social media that it feels a little surreal, even for Elon Musk. Well, let's start with that tweet, which Musk says he sent while he was driving. Never a good sign when you tweet while driving. And it's particularly true if the thing you're tweeting about is the largest buyout in, you know, corporate history. In his post, Musk said, quote, I'm considering taking Tesla private at $420 funding secured. At $420. That's $420 a share. When did he tweet that? August 7th. Now, this is material information. When you make

a go private offer, that's a material public disclosure that you have to tell the SEC about. And he just tweeted this. What made it, you know, even crazier is the fact that it appeared that he basically didn't have any money to do it, which is fine. Like if you or I say, oh, I'd like to buy, you know, that car. But, you know, he has investors. The SEC is now involved. Didn't bother discussing this with his board, apparently.

And then there was nothing for several hours. And then there was this blog post on Tesla. And my initial reaction to that tweet was like, I thought it was a weed joke, like 420 a share, huh? But then it turned out based on the blog post that this was actually to some degree serious. It was the most elaborate weed joke you'd ever heard. So there was just like, it was just pandemonium. Shares of Tesla, they're down since CEO Elon Musk tweeted that he wanted to take the company private.

But some investors are pushing back on his plan, urging him to keep this company public. Just in case it's unclear, he's taking this company private. It's a publicly traded company. It was before that, obviously, private. What does that really mean? A private company isn't traded on public stock exchanges.

And that's a really, really good way, being traded on a public stock exchange, to raise capital if you need it. And that's ultimately why Tesla went public about 10 years ago, was to get a capital infusion. But there are regulations about how a company that is traded like that can behave and how much they have to disclose. So for instance, every publicly traded company discloses its financials every quarter that's required. There are, again, I mentioned certain forms that the company has to file with the SEC whenever it makes a public statement, basically just to try to prevent insider trading.

How does Elon Musk react to the sort of chaos that ensues after he sends this tweet? Well, this is, again, going to be a cautionary tale about social media. According to Azealia Banks, who, for those of you who do not know, is a musician who sort of shot to fame with the song 212 several years ago. Hey, I can be the answer I'm ready to dance when the vamp up Then when I hit that dip, get your camera You can see you've been that bitch since the Tampa

She was actually staying at Elon Musk's house because she was planning to record a song with Musk's girlfriend, who's also a musician, named Grimes. And so Azealia Banks, she made a number of accusations about Musk and about what was going on. What was she saying about Elon Musk at the time? She alleged drug use was involved when he had been tweeting. So that was pretty explosive. And shortly after that, the New York Times does this interview with him where they mention that the board is concerned by Musk's use of Ambien

and possibly other recreational drugs. And she was actually confirmed to be at Musk's house. That was something that reporters did nail down. So Azalea Banks says that Elon Musk is on acid. We don't really know if that's true or not. The company's sort of trying to figure out where exactly it stands. What happens next? Tesla puts up a post on their website. And I remember this. It was it

was a Friday night. I had just finished eating dinner. And they're like, actually, we're we're not going private. You know, we talked it over. We want to keep our shareholders involved. And there doesn't seem to be a way to structure that. And additionally, you know, our institutional shareholders can't necessarily participate in a private company. So we're abandoning the whole thing. How do people react to that? God, all hell breaks loose again. One of the things about being a publicly traded company is people can bet on your company, right? So like if I buy a share of Tesla, I'm betting that the company is going to succeed

and that my share is going to be worth more money, you know, at some point in the future. But one of the things about public markets is that you can also bet a company is going to succeed and that my share is going to be worth more money, you know, at some point in the future. But one of the things about public markets is that you can also bet a company is going to fail or going to suffer a setback. And you do that via shorting. And if I do this right, if the price of the share has decreased, I can potentially make a lot of money, right? And the short sellers are essentially betting against Tesla, and it's something that Elon Musk has really hated. He's been on this campaign all this year about short burn, and short sellers had better stop or else they're going to really regret it. That sounds like an empty threat. Yeah, right? It's a diss track, really.

And so that does raise some questions in some people's minds about what the motivation for that go private tweet was. Does Elon Musk face any consequences for sort of playing with investors' psyches like this sort of on a whim? The first thing that happened was that he was immediately hit with a wave of shareholder lawsuits. There were a bunch of people who basically were like, this is a market manipulation. I'm suing you for securities fraud. And to be clear, like any kind of legal action, that's expensive. But then the next thing that happened was the Security and Exchange Commission opened an investigation. And there's sort of some

questions about what specifically is being investigated and what the details are. But there are a number of questions about whether that tweet was actually a legal thing for him to have done. And now this week, the Department of Justice is looking into that tweet too? Yeah, that's actually significant. This is a statement from a spokesperson for Tesla. Tesla received a voluntary request for documents from the DOJ. We have not received a subpoena, a request for testimony, or any other formal process. We respect the DOJ's desire to get information about this.

The DOJ pursues criminal cases and the SEC pursues civil cases. A criminal investigation is pretty serious. And so that's the sort of thing that makes investors nervous. Like right after Bloomberg reported on the criminal investigation, Tesla shares dropped about 7 percent. They did recover before the end of the day. We're only down 3 percent. But still, that gives you a sense of like the worry that people are feeling. So what's at stake for Elon Musk and even Tesla then? Tesla is not making money right now. The company has never posted an annual profit. It's 10 billion with a B dollars in debt. 10 billion. That's a lot of debt, especially if you aren't making money. And that's troublesome

and scary and like potentially can distract from the main mission of trying to put out cars. But the other piece of this is that this company is really tied up in Elon Musk's personality. People really believe in Elon Musk. They find him a very inspiring figure. People have called you the real Tony Stark. You've got your finger in so many different advanced technologies. As I said, SpaceX, Tesla,

now you've got SolarCity and the solar pack that people put in their houses. Are you sincerely trying to save the world? Well, I'm trying to do good things, yeah. They love that he is like dreaming big about what the future of transportation could look like. And, you know, to some degree they have a right to do that. Because again, like Tesla revolutionized electric cars. They were like boxy, they were were clunky people didn't want them and Tesla's first car the Roadster you know when it came out like it was a car for car people and it was electric so that totally changed the game in

terms of the electric car marketplace right like that's why we have all of these electric cars entering the marketplace now and now all the rappers I listen to, they rap about Teslas instead of Mercedes-Benzes. Ain't no special, man, I sold it all yesterday. Pulling fuel plows in a motherfucking Tesla. Pull up in the Tesla. Tesla the color of Satan. That's McLaren, bought me a Tesla. I know you're sick of me talking about cars.

If they can't stand next to us, I just pulled up in a Tesla. Black on black, that's the Tesla. Shout out to Elon Musk. Right. I mean, like, it's, you know, it's really a status symbol. And it's like all of that is tied up in the idea of Elon Musk as a visionary and somebody who can really move us to the future. And so, you know, if he is implicated in some kind of fraud, that potentially really tarnishes his image and Tesla's image. Do you think that all of the controversy and now these federal investigations that have ensued since he sent this dumb tweet just a bit over a month ago is the reason he wanted to take the company private in the first place? Well, so here's the thing.

He's never liked publicly traded companies. If you read Ashley Vance's biography, which is really great if you want to get a sense of this guy and his history, Ashley Vance writes, Musk going public represented something of a Faustian bargain. Because even though an initial public offering like Tesla had can raise a substantial amount of money, it comes at a cost, right? You have to do these disclosures. You have to basically open your books. You open yourself to the possibility of being shorted. There's just a lot more scrutiny on you and potential pitfalls that can come with a publicly traded company. And Musk was very clear about that like years before this tweet. So why was Tesla a publicly traded company to begin with?

I don't think they had a choice. 2008 was that was a really, really rough year for the company. They were on the verge of bankruptcy. They just barely got saved. Basically, he got forced into going public in order to make the company continue. And I think he's regretted it ever since. Can Elon Musk save himself from Elon Musk? That's next on Today Explained. Okay, I'm here in the studio with all of the shoes that Tom sent us that we've been talking about all week laid out on the table.

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from the Isabella Stewart Gardner Museum in Boston. Liz, where does Elon Musk come from? Well, he was born and raised in South Africa. He moved to Canada and then he came to the U.S. for college, and he's been here ever since. He did make his fortune through two companies in the 90s, Zip2, which is not necessarily well known, but was originally meant to help newspapers put their content online, and then PayPal, which people do know pretty well. And that PayPal really is where he made his fortune.

And does he become like a Steve Jobs type figure after PayPal, or is he still more of like a behind the scenes type of guy? He's in the mix and people in the tech industry know who he is, but he's not like the kind of celebrity figure he eventually becomes. And like there's this anecdote that he keeps returning to, which is that he nearly died from malaria in the early 2000s. And that reframed his entire life for him and changed the problems that he wanted to work on. And so it's after this, you see him starting SpaceX. You see him becoming involved with Tesla. There's some controversy about whether or not he counts as a founder. But you see him starting, you see the beginnings of the sort of celebrity entrepreneur he becomes. Ladies and gentlemen, on behalf of all of my colleagues here at Tesla, it is my honor to welcome to the stage Mr. Elon Musk.

And so what's the initial promise of Tesla? Well, the idea was essentially that, you know, gas cars are ruining the environment. Why does Tesla exist? Why? Why are we making electric cars? It's because it's very important to accelerate the transition to sustainable transport. Really, really is the... Big automakers weren't pursuing electric vehicles because it was, you know,

against their interests, basically. So this was kind of like a standard Silicon Valley disruption in some ways, where it was like, okay, we're going to make a really, really great car. We're going to reimagine what a car can be. We're going to have it run on electricity because we think that will pollute less. And we're going to just change the entire auto industry. And how does he fund this thing? Can a billionaire just start a car company? Is it that easy? Well, all of his companies have a substantial amount of capital from him, but he's also been very good at looping in other investors. And then on top of that, one of the things that he's shown himself to be really good at is taking advantage of financial incentives offered by the government and working well with government programs. So like for electric cars, for instance, there's a tax credit until you get to a certain number of cars produced that allows consumers to pay less for the

cars. They basically get paid back by the U.S. government if they buy an electric car. Because they're saving the planet. Right, exactly. So he's been very good at finding these kinds of incentives and operating on them in such a way to keep his costs down and to make his products look more appealing. If you look at SpaceX, its biggest client is NASA, And NASA is obviously a public endeavor. Right. And this week he announced he's sending a Japanese billionaire to the moon with SpaceX. And Teslas have become this status symbol for all the richies out there. I think his motivation was essentially to start with it as a status symbol

and then make an electric car for the masses, which is what the Model 3 was supposed to be. The Tesla Model 3 isn't just a new electric car. It's the culmination of over a decade of careful strategic planning to achieve Elon Musk's goal. And the low-end Model 3 is about $35,000, And that's not being sold yet. But the idea was that like, okay, we'll start with the wealthy people because we can make more money off of them. And that will let us expand to the masses. And I want to say that this is kind of not that unusual in the tech industry. Because like, remember, when the iPhone launched, and it was so expensive, and like people were standing in line, it was a status symbol symbol people were stealing them from each other like on the street right and like now you look around and like iphones have like what like half the market yeah so it was probably uh some kind of notion

that you could do that with cars as well that motivated this idea of like the high-end luxury product that looks sexy makes people want it want it, allows you to finance the company a little bit, and then you can make a mass market vehicle. So when are deliveries? Well, they're next year. I do feel fairly confident that it will be next year. So the Model 3 has experienced a number of production delays. He wanted to totally automate production, and it turned out that wasn't possible. There's been a lot of reporting about accidents on the assembly lines. There's been some skepticism about whether he can actually meet these very aggressive production targets he has. So the Model 3 is actually filled with question marks.

Wow. How's that making the company look right now to its public investors or to anyone? Here's the thing. Elon Musk has a really, really strong fan base, like the kind that you would see with, like, Beyonce. And I know this because every time I read about him, they email me. The thing that's been interesting over the course of the last, I would say, year or so, is that for a long time, if I wrote anything about Elon Musk that was perceived to be negative, I would just get flooded. And now if I write anything about Elon Musk that's perceived to be positive, I also get flooded. So like there's like these two very strong camps of Elon Musk is a dreamer and a visionary who's going to revolutionize society.

And then, you know, Elon Musk is this jerk and we don't like him and we think he's a bad CEO. And it's really sort of difficult to get these two groups of people to talk to each other. But what I will say is that Tesla shares have fallen this year fairly significantly. So that looks like some loss of confidence. And, you know, there's been more and more bad press around Tesla in terms of working conditions and in terms of their financials, right? Like the Model 3, the mass market car, was the thing that was meant to get them to profitability. And as all of these production delays have piled up,

people are like, well, maybe that's not it. Maybe they're not going to get to profitability on the Model 3. And let's remember, they're $10 billion in debt. And on top of all this, you've got Elon stirring up all sorts of shit online. Yeah. So he's been like tweeting angrily at shorts. He's been tweeting angrily at journalists. He's been tweeting angrily at a lot of people. And he called a cave diver who was trying to save some kids in Thailand a pedophile.

Oh, God, yeah. The cave diver is now suing for defamation. I mean, it seems like he might be sort of losing it a bit. Well, this is what's interesting to me, because I'm not sure that he actually is. Like, Owen Thomas yesterday in the San Francisco Chronicle, who's been covering Musk for quite some time, was like, you know, Musk has always been like this. This is what he's like. And that sort of lines up with what I've seen as well. Like he's gotten choked up at shareholder meetings. This is going to sound maybe a little cheesy, but at Tesla, we build our cars with love. Like we really care. I think a lot of other companies, they're built by by the marketing department and the finance department, and there's no soul. You know?

So we're not perfect, but we pour our heart and soul into the product, and we really care. He's just, you know, this guy's got a lot of feelings. But there's definitely a narrative that Elon Musk is losing it. And that narrative seems to be gaining steam. And that sort of started with the short sellers who are like, you know, it seems like Elon Musk is maybe not a very good CEO. And it's just been rolling on since then. I don't want to root for this guy to lose. It feels like he's mostly trying to realize a future that we were all promised as kids. And that's something to root for.

Well, it's one of the reasons why I have a hard time coming down on how I feel about Elon Musk. Right. Like there's this narrative that he's a villain and there's this narrative that he's a hero. And I don't think either of them are true. I think that there's something much more interesting going on, which is that this guy is complicated. He may be sabotaging himself basically out of ego from accomplishing the very things that he wants to do. Listen, like I love SpaceX. I love those rockets. I think it's really exciting to have like, you know, this kind of focus on space again, like to have this moment of like

people getting excited about space exploration, right? Like that's cool. And like, I have a hard time objecting to electric cars. I think that's probably a great harm reduction measure for like, you know, making the world be a little less polluted. Like, how do I feel about Elon Musk? Like that part of my brain like burned out a couple years ago, and I pretty much just popped myself some popcorn. I'm I'm like all right buckle up. Is part of the problem that he's experiencing right now maybe that he just has too many big huge dreams and he's spread thin across all of them? I think that's a really reasonable question. It does seem like a lot of projects. It really does seem like more than one person can handle. I mean, one of the things that you might remember about Apple is that Steve Jobs was thrown out of the company.

You know, he was running the company into the ground and he got thrown out. And he did, of course, eventually return and basically lead Apple to new heights that the company hadn't imagined before. But he did have to wander in the wilderness for a while. It's not unusual for people who are really good at being founders to maybe be not so great at doing the operational, boring day-to-day of being a leader. So you're saying that someone needs to get Elon Musk some help and maybe just change his Twitter password and things will normalize for the dude. I think that that's a very real possibility. During the sort of kerfuffle around will Tesla go private, one of the questions was, is somebody going to hire a number two for him? Because he seems to be doing too much.

And the question becomes, like, who is that tesla who wants to come in and and be that person um and who can do that for him and is he open to it even i got a proposal oh yeah kanye west everyone in this room is inspired by you who are you inspired by well kanye west obviously you know it's it's a good comparison though because i think that there is like an element of creativity chaos and a certain propensity for shooting oneself in the foot that both of those guys have what could go wrong liz lapato is the deputy editor at The Verge.

I don't care. I'm Sean Ramos for him. That's great. This is Today Explained. That's interesting. Our executive producer, that's Irene Noguchi. 100%. Our editor, Bridget McCarthy.

I don't believe that. Noam Hasenfeld produces the show. Awesome. Elisa Escarce helped out this week. Your voice is so strong. And you might have heard of Luke Vanderplug. Why are is so strong. Why are you so focused on just clothing? We're so jacked up on our own egos.

I don't care about what position nobody got. What's up? Why are you mad? And Bree Seely. We the rock stars. Bree's graduating this week and we're going to miss her. Thanks for everything, Bree. I know that anything is possible. Never tweet, but follow Today Explained at today underscore explained.

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