Terrible news: they’ve ruined the Elon Musk experience for all of us.
The Tesla CEO has settled his fraud case and as part of the settlement he can no longer use Twitter unsupervised. This is sweet relief for anyone who owns stock in the electric car maker, but a disaster for onlookers who are frequently agape, watching the antics of a CEO completely unlike the rest.
We now bid farewell to Elon making absurd promises, tweeting about drugs, and saying extremely ill-advised things that will later catch up with him.
Musk was sued for fraud over a monumentally stupid tweet in early August, in which he promised to take Tesla private, buying back the shares of his publicly listed company at $420 a share. (420 is in US culture a reference to marijuana, and Musk later admitted he chose the figure for that reason.)
CEOs are not allowed to make those sort of promises unless they are true. At the time the shares were worth around $350, and the price zoomed up toward $420 as buyers realised they could make a sweet profit if the take-private deal happened. Musk’s private worth — he owns billions of stock that was suddenly more valuable — soared.
After peaking at $380 people began to have doubts, and the price sank again.
Musk was sued by the US Securities and Exchange Commission for fraud and settled the case. He has to resign as chairman of Tesla, but can remain CEO. He is forbidden from ever saying that he never admitted the charges without also saying he never denied them. And — this will be the hardest one for him — he has to behave online.
This is about more than Musk
Musk’s plan to take Tesla private at $420 was the definitive moment of this post-GFC tech bubble. Now it is over.
The rise of future-focused, loss-making, aggressively-expanding tech companies is an accident of this particular juncture in history. The lessons of Microsoft, Google, Amazon, and Facebook could hardly seem more salient in Silicon Valley. Every CEO aspires to total market domination.
While at other points in history these desires would have been tempered by the constraints of capital markets, here, in the rain-shadow of the great quantitative easing experiment, capital markets have never been looser. There may as well be no constraints. Money is everywhere. An idea that might disrupt an existing industry is the precondition to a steady, insistent funding flow from investors who fear nothing so much as missing out.
Amid this fountain of (on-paper) wealth-creation, nobody dare second-guess a CEO-founder. They receive adulation, stock options, and something even more valuable — power.
Musk was Tesla CEO and chairman, but he craved more power. That is what his attempt to take Tesla private was about. He wanted to control the company away from the reporting requirements of NASDAQ and the SEC, away from the prying eyes of Wall Street Journal reporters.
In another era, such an ambition would have seemed absurd. Being CEO of a large, publicly-listed company was once the apogee of the corporate American trajectory. But now, money is so freely available that using public markets to raise capital –- and submitting to the rules of those markets — resembles the preserve of desperate losers.
Musk is victim of the era twice over. Musk ultimately drowned in the same substance that floated him up — a sea of money, made by a monetary system trying to recover from the GFC.
Close to home?
While the US Federal Reserve was the biggest proponent of the “quantitative easing” that drive interest rates down and flooded the world with cash, the Banks of Japan and England were not far behind. High valuations and powerful technology founders can even be found in our own backyards.
Take the founders of Australian technology company Atlassian. This high-growth tech stock has proved such a success that its founders — Scott Farquhar and Mike Cannon-Brookes — just bought adjacent harbour-front properties in Sydney worth a combined $170 million. Mike, who incidentally is tight with Elon Musk, knocked off the record for Australia’s most expensive home in the process.
But check Atlassian’s most recent financial reports and you may find a surprise. While growing revenues, Atlassian made losses last quarter — $26 million worth. It made net losses for the whole financial year too, and the year before that. It’s a funny sort of time for business when a person can own the country’s most expensive home while running a loss-making enterprise.
The US Federal Reserve now raising rates and the CEO of Tesla neutered by the SEC, clues are accumulating to hint this highly unusual era is coming to an end.