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As Elon Musk unravels, is Tesla’s business still sustainable?

The Edge Singapore
The Edge Singapore7/23/2018 08:00 AM GMT+08  • 3 min read
As Elon Musk unravels, is Tesla’s business still sustainable?
SINGAPORE (July 23): Elon Musk, once among the world’s most respected tech personalities, is driving fans away with some bizarre tweets. Seemingly unhappy that his offers to help rescue a Thai football team from a flooded cave network were rebuffed, Mus
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SINGAPORE (July 23): Elon Musk, once among the world’s most respected tech personalities, is driving fans away with some bizarre tweets. Seemingly unhappy that his offers to help rescue a Thai football team from a flooded cave network were rebuffed, Musk has been taking to Twitter to criticise members of the rescue team. Most shockingly, he called Vernon Unsworth, a cave expert who was instrumental in the mission, a “pedo guy”, supposedly a reference to the word paedophile.

The outbursts prompted Gene Munster, managing partner at venture capital firm Loup Ventures, to pen an open letter chiding the Tesla CEO. “Your behaviour is fuelling an unhelpful perception of your leadership — thin-skinned and short-tempered,” Munster wrote in a letter posted “on behalf of investors who believe in you and your mission”.

Musk has since deleted the pedo comment and apologised. But the incident may deepen investor concerns about Musk and his electric vehicle (EV) company. Shares in Tesla declined 3.9% on July 16, after Musk’s “pedo” comment, though they rebounded 4.1% a day later.

Tesla is already under fire for production delays. The company has not been producing its Model 3 cars as quickly as it planned to, partly because it attempted to use too much automation in the process, and it has yet to release a promised US$35,000 ($47,880) mass-market version of its EV. Tesla is also burning through an incredible amount of cash — last year Bloomberg estimated it used US$480,000 an hour. At that rate, Bloomberg said, the company would run out of money by Aug 6. When an analyst tried to ask, on an earnings call, whether ­Tesla would need to raise more money, Musk cut him off and said “boring bonehead questions are not cool”.

All this calls into question Musk’s state of mind, as well as Tesla’s status as a sustainable stock. The company is included in several sustainability linked portfolios, according to Bloomberg data, including the Vanguard FTSE Social Index Fund, which screens for social and environmental criteria; and the iShares MSCI USA ESG Select ETF and Fidelity US Sustainability Index Fund, both of which track US companies that have positive environmental, social and governance (ESG) characteristics.

Tesla has obvious green credentials. On its website, the company says its mission is “to accelerate the world’s transition to sustainable energy”. It builds not just EVs but also clean energy generation and storage products. “Electric cars, batteries and renewable energy generation and storage already exist independently, but when combined, they become even more powerful — that’s the future we want,” the company says.

But as the ESG investment theme catches on, it may take Tesla more than a grand mission statement to attract investors. According to Sustainalytics, a leading producer of ESG research, incidents that generate undesirable social or environmental effects are increasingly a valuable source of information for investors. Such incidents may reflect gaps in a company’s management systems, vulnerabilities in its corporate strategy and lapses in policy development. Sustainalytics also found that a portfolio designed to avoid such incident-prone companies outperformed the global equity market by 11% from January 2014 to October 2017.

Ultimately, Musk’s outbursts are a good reminder that responsible investment is about more than just evaluating a company’s carbon emissions or environmental impact. Musk may like to think of himself as saving the world, but if he is not careful, he may be remembered for his very public, social missteps instead.

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