Gonzalo Colin/GDA via AP Images
Tesla CEO Elon Musk appears during a remote press conference, June 12, 2024.
The last few months have been some of the most challenging in Tesla’s history. The launch of its first new car in years, the Cybertruck, has been plagued with problems. Customers have complained about badly misaligned body panels, shockingly sharp door edges that have sliced customers’ limbs, an automatic front trunk mechanism that has led to broken fingers, rust, accelerator pedals falling off and jamming the throttle wide open (requiring an expensive recall), the car failing entirely after only a few miles, and more. Even enthusiast tech and automobile outlets that had hitherto been reliably pro-Tesla have written distinctly lukewarm or critical reviews.
In the first quarter of this year, Tesla sales slumped by more than 20 percent, despite major price cuts. Unsold Teslas are reportedly piling up in storage lots across the country. So naturally, Tesla CEO Elon Musk demanded that shareholders give him a pay package worth roughly $48 billion, which was initially rejected by a Delaware judge in a lawsuit. He put the matter to a shareholder vote, and last week, he got the money (along with moving Tesla’s state of official incorporation to Texas).
That’s great news for Elon and the next several generations of his family. But this may be the beginning of the end of Tesla, at least as America’s biggest EV company.
The Cybertruck isn’t the sum total of Tesla’s problems. For one thing, the rest of the company’s lineup is not getting any younger. Its last new car before the Cybertruck, the Model Y, came out five years ago. And as the first generations of Teslas age, the company’s shoddy build quality is starting to become apparent. (Here’s a 2019 Model 3 with a mere 50,000 miles on it where the B pillar lining is falling off, the driver’s seat upholstery is shot, the cheap paint is chipped all over the place, and the rear window mechanism squeaks loudly.)
Meanwhile, competition from other auto manufacturers is getting stiff. The Chevy Bolt EUV, the Ford Mach-E, the Volkswagen ID.4, and the Hyundai Ioniq 5 have all gotten positive reviews and cracked the list of the top six best-selling EVs in the U.S. last year, knocking out the Model S and Model X (though the Model Y and Model 3 still topped the chart by a large margin, to be fair). The Chevy Equinox EV is coming out with 300-mile range and a price point equivalent to internal combustion engine vehicles, lower with the $7,500 point-of-sale rebate. And let’s not forget those Chinese-made competitors, which are killing Tesla abroad.
Not only do these companies know how to build a car with proper fit and finish—including stone obvious things like turn signal stalks and a speedometer behind the steering wheel rather than on a central screen—they also are capable of retooling their factories every couple of years to produce an updated model, like every successful car manufacturer has done since the 1920s. Sure enough, a refreshed Mach-E is hitting dealerships this year.
In the first quarter of this year, Tesla sales slumped by more than 20 percent, despite major price cuts.
Perhaps most important, Musk’s unhinged antics on the site formerly known as (fka) Twitter are clearly alienating chunks of his core customer base, namely affluent, environmentally conscious liberals. For such people, why buy a Tesla when you can get a similar, higher-quality car for the same price or less from a company whose CEO doesn’t endorse neo-Nazi conspiracy theories? That holds double given that the best reason to buy a Tesla, namely the Supercharger network, is going to be opened up to other cars over time. (Whether this network will continue to be built out is another question.)
So we return to this monster pay package. Just on its own, the very size of it beggars belief. It is something like two orders of magnitude larger than even the most bloated pay packages common among large companies, like the $162 million Hock Tan got for running Broadcom in 2023 (the largest that year). The Economic Policy Institute regularly releases figures showing the genuinely outrageous amounts CEOs pull down; the last report found that at the 350 largest companies, CEOs made an average of 344 times more than the typical worker. But Musk is getting about nine hundred sixty thousand times the pay of a Tesla production associate.
Perhaps more tellingly, $48 billion represents about four times Tesla’s entire net profit for 2023, which is also its most profitable year ever. In an ordinary company, most of that compensation would go to shareholders rather than the CEO.
Why on earth would shareholders vote to pick their own pockets like this? The answer must lie in the cult of personality around Musk. Tesla’s current stock price is preposterously overvalued, at a price-to-earnings ratio of 47 at time of writing, as compared to 8.5 for Toyota or 12 for Ford. As Edward Niedermeyer documents in his book Ludicrous: The Unvarnished Story of Tesla Motors, the company’s investor community is heavily influenced by a large group of Musk fanboys and scummy stock-boosting publications, which portray Musk as a heroic super-genius who is going to save the world.
But the plain fact is that, overheated hype about artificial intelligence or robot butlers somehow driving Tesla’s market cap to $25 trillion aside, it is a car company—and with its aging model lineup and chronic production problems, not a particularly good one at that. Remove Musk from the equation, as he tacitly threatened to do if he didn’t get his money, then that reality would quickly become clear, and the stock price would come crashing to earth. Musk has his shareholders over a barrel, and he knows it.
Unfortunately for them, Musk is also driving Tesla straight into a ditch. There is every reason to think that the problems noted above will only get worse as other manufacturers get their factories up to full speed, even more competitors enter the market, and Musk’s erratic behavior continues to alienate customers. Indeed, it could be he is doing a private equity–style bust-out on his own company while the stock price is still high. Whatever the case, it’s only a matter of time before Tesla and its shareholders have to face reality.
