The Tesla CEO held out for days on suspending factory
production: 'The coronavirus panic is dumb.'
By Tim Higgins
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (March 21, 2020).
On Monday, as companies all over the Bay Area rushed to send
their workers home, complying with an order to shelter in place,
Tesla Chief Executive Elon Musk had a defiant message for his
56,000 workers.
"I will personally be at work, but that's just me," he said in
an email. "Totally ok if you want to stay home for any reason."
Tesla's Fremont, Calif., factory kept humming, even as the county
sheriff's office the next day said publicly that Tesla should stop
production.
Thursday, under pressure from local authorities and some in the
public, he finally relented, agreeing to temporarily suspend
production in Fremont.
The decision followed weeks -- and, arguably, a career -- of
defiance.
A malaria survivor who founded SpaceX, his rocket company, with
the aim of colonizing Mars because he fears Earth could be doomed,
Mr. Musk, 48, has consistently played down the reaction to the
coronavirus outbreak as a panic. He has held forth on Twitter with
his own sanguine takes on its epidemiology and likely impact.
"My guess is that the panic will cause more harm than the virus,
if that hasn't happened already," Mr. Musk said Wednesday evening
on Twitter, doubling down on skepticism he expressed earlier. He
didn't respond to a request for comment about his thinking; neither
did Tesla.
Mr. Musk has for more than a decade cultivated a persona as a
visionary truth-teller, constantly pushing back against doubters,
critics, short-sighted nonbelievers and stodgy government agencies.
His contrarian stance is core to his business model. His bravado
and sense of certainty have created both ardent believers and
plenty of skeptics on Wall Street and in the public eye. His
legions of superfans are vocal on Twitter.
The billionaire has attributed his business success to the
scientific approach called First Principles, which is rooted in
Aristotle's writings and among other things rejects solving
problems with copycat solutions and depends upon reducing problems
to their essence even if the solutions might seem
counterintuitive.
"When you want to do something new, you have to apply the
physics approach," he said during a 2013 TED Talks appearance.
The decision to keep his factory open flows from such a mindset,
according to Gene Munster, who follows Tesla closely as managing
partner at investment and research firm Loup Ventures.
"It's a first principle for him, do everything in his power to
move forward even when people say it's not possible," he said.
"It's not about producing cars to stay in business. Tesla has the
money to weather this storm. Times like this that the first
principles approach is tone deaf."
In 1995, when he was 24, Mr. Musk took on the phone book
industry with his first startup Zip2. The sale of that startup
helped fund his next venture, an online company to compete with the
banking industry that would eventually become known as PayPal. That
bet gained him the fortune he used to fund the early days of
SpaceX, formally known as Space Exploration Technologies Corp., and
Tesla -- passions he developed after nearly dying from malaria
contracted in 2000. His family has said the prospect of dying led
him to reconsider his life, concluding he should focus on ways to
help humanity through colonizing Mars and creating sustainable
transportation.
Mr. Musk isn't shy about airing his opinions, having developed a
reputation for battling any threat to him or his companies -- in
person, and usually on Twitter -- with a vigor most other CEOs
would never consider. He attacks Tesla's shortsellers with a
vengeance, calling them "value destroyers" and "jerks who want us
to die." He's tangled with safety regulators who he thought were
stifling innovation and fought with the Securities and Exchange
Commission over tweets he made in 2018 that said he had lined up
funding to take Tesla private. (The SEC considered it misleading
shareholders when it became clear a deal wasn't so certain; the two
sides settled with a deal that's supposed to curtail some of Mr.
Musk's Twitter use.)
In 2018, he gained attention on Twitter for trying to develop a
mini-submarine to help rescue a boys soccer team stuck in flooded
Thai caves -- leading to a war of words with one cave expert that
ended up in court.
Over the past month, as officials in the U.S. grew more
concerned about the Covid-19 crisis, Mr. Musk sounded off. "The
coronavirus panic is dumb," he tweeted on March 6. The same day,
Apple Inc. began encouraging its employees to work from home. Most
Silicon Valley giants soon did the same.
Mr. Musk continued to take a lighthearted tone about the virus.
"Coachella should postpone itself until it stops sucking," he wrote
on Twitter on March 10, as the popular music festival decided to
move from April to October over coronavirus fears.
Several times on Twitter, Mr. Musk has promoted the idea that
chloroquine, which he took for malaria, might be a remedy.
President Trump on Thursday said he has directed the Food and Drug
Administration to look at the potential for such malaria-fighting
drugs to be used for coronavirus, something some doctors around the
world have already been experimenting with to treat patients
suffering from disease.
Unlike other Silicon Valley companies that have built their
businesses with coding and keyboards, Tesla depends on an army of
workers to turn metal and parts into vehicles. Other U.S. auto
companies started taking action this past week. General Motors Co.,
Ford Motor Co. and Fiat Chrysler Automobiles NV on Wednesday
announced plans to suspend North American production amid pressure
from the United Auto Workers union. That evening, Mr. Musk was
still expressing skepticism about the virus's severity on Twitter.
The next day, around 2 p.m. in California, Tesla announced that the
Fremont plant would suspend car production on March 23.
After Thursday's announcement that the factory would stop
production, Mr. Musk highlighted on Twitter a news report that no
new coronavirus cases had been reported locally in China and said
he expected an end of new diagnoses in the U.S. by the end of
April.
Also on Thursday, California Governor Gavin Newsom warned that
56% people in the most populous state could get infected in eight
weeks without aggressive preventative actions. California ordered
its 40 million residents to stay at home except for essential
activities beginning Thursday night in the largest such lockdown in
the U.S.
The coronavirus outbreak threatens to mar what appeared to be a
possible turning point for Mr. Musk and Tesla in which he seemed to
have proved his doubters wrong, posting two consecutive quarters of
profit in the second half of 2019 and opening a new factory in
China in a time span that many thought improbable.
Wall Street had cheered, sending Tesla's shares to record
heights and ranking it as the world's second most-valuable auto
maker behind Toyota Motor Corp. Analysts believed 2020 might be the
year that Tesla might post its first annual profit and help define
a new era for automobiles as being electric.
This week Tesla celebrated the start of deliveries of the Model
Y, a compact sport-utility vehicle. The Model Y is a key part of
Mr. Musk's plan to deliver more than 500,000 vehicles this year, a
more than 36% increase from last year.
Now analysts increasingly doubt that's possible as they look at
the fall off in sales in markets already hit by coronavirus. China
industry auto sales fell almost 80% in February from a year
earlier.
Instead, Tesla is trying to reassure investors that it can
weather the uncertainty ahead, noting on Thursday that it had $6.3
billion in cash on hand at the end of December before raising an
additional $2.3 billion in new shares a few weeks ago. Tesla also
has access to about $3 billion in working capital plus financing
available for its Shanghai factory, the company said.
Morgan Stanley estimates Tesla has enough cash to weather
revenue falling 90% for several months. In such a case, the bank
estimates, Tesla would burn about $800 million in cash a month.
But the decision to suspend production could put Mr. Musk back
in a familiar position: having to manage a period for the company
with no certainty when production can resume. The mythology of Mr.
Musk is rooted in his ability to stare into the abyss and carry on
when others might fold. He faced down near bankruptcy in 2008 when
financing dried up during the last recession. He found a way to
keep Tesla alive and in turn leveraged himself to the hilt.
Recently, he weighed in to say he could make ventilators, a
medical device seen as critical for combating lung failure found
among some of the sick. "Which hospitals have these shortages you
speak of right now?" he asked on Twitter. New York City Mayor Bill
de Blasio piped up that he needed them.
Although Mr. Musk stands apart from many in Silicon Valley for
his views on the reaction to the novel coronavirus, he's not
alone.
Investor Jason Calacanis, a long-time Musk friend, said a
mentality of "corona derangement syndrome" was taking over.
"If you question the data, ponder why there are different
outcomes or otherwise question CV as anything other than the end of
days you're slaughtered by the mob," he wrote on Twitter. He later
added that overreacting is wise.
In a memo to his Tesla employees on Monday, Mr. Musk downplayed
the threat of the virus, pointing to Center for Disease Control
data to say his "best guess" was that confirmed cases of Covid-19
won't exceed 0.1% of the U.S. population. "I do not think, when we
look back on 2020, that the causes of deaths or serious injury will
have changed much from 2017."
As one former senior Tesla executive mused about the former
boss: "He is a climate believer and a corona denier."
--Mike Colias contributed to this report.
(END) Dow Jones Newswires
March 21, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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