In praise of Teslas bankruptcy

You know everybody loves Tesla-the-company. But did you know that a whole lot of smart people hate Tesla-the-business? “From a return-on-investment-capital standpoint, Tesla is a catastrophe.” “The electric-car maker has been burning money at a clip of about $8,000 a minute( or $480,000 an hour .)” “Tesla is losing a massive amount of money with no competition, and yet massive competitor is coming.”

Jim Chanos summarized all of the reasons why nicely: “If you wouldn’t be short a multi-billion-dollar loss-making enterprise in a cyclical business, with a leveraged balance sheet, questionable accounting, every executive leaving, run by a Ceo with a questionable relationship with the truth, what would you be short? It sort of tickings all the boxes.” A lot of people guess bankruptcy looms in Tesla’s future. Of course, Tesla bears have been saying this for years, and they’ve consistently been wrong — but this time, are they right?

Maybe; maybe not. Either style, a far more interesting question, if( like me) you have no fiscal those who are interested in the business’s success or failing, is: does it matter?

I’m entirely serious. We tend to assume that a company’s purpose is to make money for its shareholders, or at least “not go bankrupt, ” because money is how we measure success. And this is in fact true of most companies. But it is not true of Tesla. “When a measure becomes a target, it ceases to be a good measure, ” and this is as true of money as it is of any other measure. The purpose of Tesla is not to make money; it is to pioneer fleets of smart mass-market electric cars, and the infrastructure to support them, and battery technology which is not limited to autoes. Constructing money is ancillary.

And whether or not they are making money, they are succeeding at these objectives. They are building the world’s largest factory — in fact, the world’s largest building ; it’s still under construction, but parts of it are already up and running. They all but own the luxury electric car market, and are on course to predominate the mass marketplace as well, while also fabricating power packs.

I’m sure Elon Musk would like to do this while turning a sweet earning. Which is of course also, technically, his fiduciary obligation. But if he fails to do so, is that really so tragic? For those of us who aren’t shareholders or bondholders, I entail.( Don’t you worry about Elon, he won’t be missing any meals .)

Maybe it wasn’t even possible to do so — in which occurrence Musk will have use the capital marketplaces to essentially subsidize Tesla with free money.( And, interestingly, open-source the resulting patents .) In which example, you know what, more power to him for managing to fund a loss-making investment in what is not so much a auto company as it is infrastructure for our shared future.

After all, even if Tesla stock goes to zero, and its bonds default to pennies-on-the-dollar, its factories and software repositories and human capital will all be there, and no Chapter 11 tribunal or committee will be blind to the fact that they’re worth far more as a coherent division than they would be as separate assets. The analogy I like to draw is that of the Channel Tunnel, which was privately dug and constructed, and a complete fiscal debacle for its investors — “a wonderful thing from which we’ve all benefited, apart from the people who paid for it to be built who lost substantially all their money.”

That quote may yet apply to Tesla. Does it sound unfair to stockholders and bondholders? Not at all: this is capitalism in action, you pays your fund and you takes your chances. But if you’re not a stockholder, and not a bondholder, maybe don’t fret so much about headlines calling about Tesla’s fiscal unviability. This time, for once, the rest of us win either way.

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