Elon Musk is considered by many to be a genius and his electric car company Tesla is seen as prolific. This is not an opinion shared by Paul Krugman. For this Nobel Prize in Economics, Tesla’s value is based on the false perception that its owner is a genius. As such, this economist believes that Tesla is just as destined to disappear as Bitcoin.
Tesla and Bitcoin have a lot in common
In recent months, both Bitcoin and Tesla have seen a significant drop in value. While Bitcoin has lost nearly 64% of its value from a year ago, Tesla has lost 60%. This is far from a mere coincidence, according to Nobel Prize-winning economist Paul Krugman. In an essay published in the New York Times, this economist believes that the electric car manufacturing company Tesla is exactly like Bitcoin.
Despite years of effort, no one has yet been able to find a serious use for cryptocurrency other than money laundering. But prices have nevertheless skyrocketed and are still supported by a hardcore group of true believers. Something similar has surely happened with Tesla, even though the company makes useful things.
Paul Krugman, Nobel Prize in Economics
Paul Krugman’s criticism of Tesla is based on two facts: Elon Musk’s leadership and the nature of the company’s business.
Speaking of Elon Musk, Paul Krugman believes that he is both the happiness and the misfortune of Tesla. In particular, it is the supposed good reputation that drives many investors to buy Tesla and increase the company’s market valuation. Unfortunately, Elon Musk is not as brilliant as the Nobel Prize winner thinks. In view of his behavior, Paul Krugman says that he would not even entrust Elon Musk with the care of his cat.
Given what we’ve seen of Musk’s behavior, I wouldn’t trust him to feed my cat, let alone run a major company. Tesla’s sales have surely depended at least in part on the perception that Musk himself is a cool guy.
Paul Krugman, Nobel Prize in Economics
Paul Krugman does praise Tesla for one thing, though: unlike Bitcoin, Elon Musk’s company is providing a real product: electric cars powered by renewable energy. In a context where the climate crisis is a growing concern, this type of car could well be the future of transportation in the world.
Despite this optimistic outlook for the electric car market, Paul Krugman believes that Tesla will have a hard time sustaining itself over the long term. In addition to Elon Musk’s questionable management, Paul Krugman questions Tesla’s business model. Unlike Apple or Microsoft, Tesla is not building a network of services external to the electric car.
To be extremely profitable in the long run, a technology company must benefit from strong network externalities like Apple or Microsoft. Electric vehicle production simply does not look like a network externality business.
Towards the end of Tesla?
Paul Krugman’s criticism of Tesla is similar to his recent indictment of Bitcoin. In a public forum, this economist stated, among other things, that Bitcoin is practically useless. Like Tesla, Paul Krugman predicted that Bitcoin would not recover from the current bear market.
Whether it’s Bitcoin or Tesla, Paul Krugman always bases his criticism on the falling value of the asset. It is true that Tesla has lost 60% of its value since the beginning of this year. Nevertheless, this could be due to events unrelated to Tesla’s nature. Indeed, rising raw material prices, delays in their supply chains and confinements in China where Tesla has a factory have undoubtedly slowed down the company’s activity. In addition, since buying Twitter, it appears that Elon Musk is more focused on the social network than on Tesla.
Moreover, the current stock market crash goes beyond Tesla. All companies in the technology industry are being hit hard. Meta’s market value, for example, has dropped 65%. That’s a much bigger drop than Tesla’s. Even Apple and Microsoft, which Paul Krugman cites as examples, are not doing any better this year. Their stock market value has fallen 26% and 29% respectively according to Yahoo Finance.
2022 has been a painful year for the crypto industry and the entire tech sector. Falling stock or crypto valuations don’t necessarily mean a bad project. Tesla and Bitcoin have real social utility. The former makes less destructive cars and the latter facilitates access to financial services for millions of people forgotten or abused by the traditional system. These projects probably have a bright future ahead of them.
I dream of a world where every citizen has total control over themselves, including their finances. I believe that Bitcoin is one of the tools that will achieve this revolution. Since 2019, I am learning about this cryptocurrency and spreading the word around.
