Elon Musk’s business empire may be starting to wobble.
Over the past six weeks, the value of Tesla’s shares has plunged about 40 percent, wiping out virtually all they had gained after the 2024 election. This reversal reveals Mr. Musk’s soft underbelly: His fortune depends heavily on the inflated expectations of his rabid following. As those expectations deflate so will his power, demonstrating that financial markets are an underappreciated guardrail against both Mr. Musk’s and President Trump’s agendas.
It is tempting to compare Mr. Musk to the true business titans of the past quarter century such as Apple’s Steve Jobs, Microsoft’s Bill Gates, Amazon’s Jeff Bezos, Meta’s Mark Zuckerberg, Nvidia’s Jensen Huang, and Google’s Larry Page and Sergey Brin. But those individuals created genuinely huge businesses that eclipse anything Mr. Musk has built by any possible metric. While Mr. Musk has built a car company from the ground up — no easy feat — his wealth is largely thanks to a financial cult, one in which legions of dazzled investor-followers have enabled him to launch an ever-growing list of disparate initiatives and provided immunity from critics who question his operational decision-making, his corporate governance, his obscene pay packages, and now his migration into the political sphere.
The high-wire act goes something like this: Dream up a business so ambitious that any setback is trivial and every accomplishment heroic. Identify yourself as the manic genius behind this ambitious business in order to personally capitalize on outsize returns from excited investors. Enlist social media to cement your iconic status, keeping your believers so enthusiastic that their fervor beats back any skeptics who dare to bet against your ventures, even as you pitch more and more fantastical ideas. At this point you hit the flywheel: Other investors, searching for outsize returns, flock to the shares of your other companies, pushing their valuations ever higher, thus fortifying your wealth and burnishing your reputation as a business mastermind.
If you’re lucky, this happens when investors are dreaming of alternatives to the poor returns available when interest rates are ridiculously low; magical thinking about the power of technology suppresses any worry about the risks of problems down the line; and retail markets are turning stock trading into something more akin to online gambling.
Understanding this cult requires one to rethink what one knows about finance. Financial purists like to think of financial markets as neutral arbiters that merely record the value-creating activities of entrepreneurs. Financial pragmatists understand that prices need not always reflect value, as behavioral finance has demonstrated. But what if entrepreneurs can capitalize on these dynamics to manufacture fortunes and political power?
This trick is precisely what Mr. Musk has mastered. His messianic status, which was birthed in the explosion of social media, created a powerful cycle of outsize returns on ventures that lead to investors providing him with more and cheaper capital to diversify his empire that, in turn, attracts yet more investors fearful of missing out. Skyrocketing Tesla shares have made fans and investors so devoted that all he has to do is mention a new ambition to goad them into buying even more. And the larger the stated ambition, the more wealth and power they hand him. So why not try for Mars? The final step in this process is to consolidate power in the political sphere to ensure that the outsize ambitions can be nourished forever. If Mr. Musk had played it well, his empire may have been impregnable.
Instead, Musk’s business acumen and taste for politics are likely proving to be his undoing. Rather than relying on excellent managers who could help his businesses generate critical cash flow, Mr. Musk dismissed questions about succession even as he grew ever more distracted. Rather than save cash to provide insurance from bad times, he’s plowed it into overhyped schemes like brain implants and hyperloops. Instead of quietly pushing his political agenda from the shadows, he has stepped out in as visible a role as possible, appearing as convinced of his shrewd political instincts as he was of his marketing genius.
The resulting cracks in Mr. Musk’s empire are starting to show. Automotive revenues at Tesla in the fourth quarter declined 8 percent from a year earlier, profit in 2024 dropped sharply from the prior year and, 22 years after the company’s founding, it remains unclear if it can ever generate significant free cash flow for shareholders. Tesla appears to be relying more and more on price cuts — a practice that can increase sales in the short term but likely damages how much buyers value a Tesla in the future. The political backlash against Mr. Musk is also now hurting Tesla sales abroad and at home. Perhaps sensing the shifting tides, he has been suggesting that Tesla is an A.I. company to further nourish the investor cult.
The rest of the Musk empire also illustrates the gap between his business acumen and financial success. Solar City, Mr. Musk’s solar venture led by his cousin, needed to be salvaged by a controversial Tesla acquisition and has atrophied since. The Boring Company, which promises to revolutionize transportation by building high-speed hyperloops between and within cities, has raised nearly a billion dollars, yet it is unclear if it has any revenues or the prospects of profits. The possibility of revenues or profits for Neuralink, Mr. Musk’s brain implant company, seems even more remote. And, of course, X, formerly Twitter, is a shell of itself economically and culturally. SpaceX is more than 20 years old, has raised an estimated $12 billion and only now is rumored to have possibly $12 billion in annual revenue, mostly from Starlink, the satellite service, though profitability may be far off.
Mr. Musk deserves credit for plunging into difficult and expensive industries and creating entirely new businesses, particularly Tesla and SpaceX. While this setback may prove temporary, ultimately this mania, like its predecessors, will subside as investors recognize that the businesses he created are worth far less than the valuations that have made him the richest man on earth, a status from which his enormous political power also flows.
This appreciation for the way financial markets can manufacture power and wealth is what Mr. Musk shares with Mr. Trump. Both men are fundamentally financial showmen who owe their success primarily to deftly handling investors. Mr. Trump, like many real estate developers, built fortunes on timing the cycle of emotion in credit markets and by capitalizing on the heads-I-win-tails-you-lose nature of a debt contract. The game played by developers like Mr. Trump can end poorly, given the threat of bankruptcy (as he has experienced repeatedly), but it is also limited in scope. Real estate is a specific asset, the pool of capital is ultimately small, and real estate cycles end.
Perhaps aware of these limits, Mr. Trump transmogrified his credit-fueled successes in real estate into celebrity status and, ultimately, into political power. And by ushering Mr. Musk into the White House, Mr. Trump has handed him the potential to cash in on the same deal. By directing the federal government, the largest customer in the world, perhaps Mr. Musk can fortify his businesses financially and reinforce the inner dynamic of the financial cult that has propelled him this far. In his highest wire act of all, Mr. Musk must outrace the decline of his legacy businesses with these new promises and efforts.
If financial markets can manufacture wealth and power, they can just as easily dismantle both. And this may well be Mr. Musk’s and Mr. Trump’s undoing. Thus far, the markets have supported Mr. Trump and Mr. Musk and overlooked the internal contradictions of current policies. The recent weakness in Tesla shares suggests that this dynamic may be fading. Higher inflation from misguided policies and fiscal mismanagement might yield yet higher interest rates that undo the stock market.
In short, until the next election, the battleground over U.S. politics won’t be entirely in courts or in Congress — it’ll be in financial markets as well. And, it promises to be a hell of a fight.
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