Musk fast and break things

Stocks are dropping amidst Fed comments, FTX’s live bankruptcy hearing may become the biggest in-person one since COVID, and Saudi Arabia beat Argentina 2-1 while you were polishing off that deck. 

It’s shaped up to be another volatile week looking forward to the most recent Fed policy meeting, inevitable Musk tweets, and FIFA continuing to be, well, FIFA. 

Let’s dive in.

Bottom Line Up Front

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• Walt Disney Co. will pay Bob Iger ~$27M annually for returning as CEO in a new two-year deal. The now-former CEO Bob Chapek’s ouster was so public, even Jim Cramer was calling for a new CEO.

• Tiger Global pays Bain & Co. over $100M a year to research private companies. Chief of Bain’s recent research was Tiger’s $38M stake in FTX, which has since been written down to zero.

• Zoom declined about 6% in extended trading after reporting its slowest quarterly sales growth on record. It continues Musk’s recent losing streak, given Zoom just revealed last week it would integrate its video conferencing platforms with Teslas.

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Deep Dive: Musk Fast, Break Things

Elon Musk’s wallet is a lot lighter, and so are those of his companies’ stockholders. Is Elon risking it all to build the “Everything App”? Let’s dive in.

You know it, your MD’s chiropractor knows it and so does your family dog. Ever since Twitter accepted Elon Musk’s $44 billion buy-out offer on April 25th, a frenzy of speculation about what it means for the social media company ensued. But aside from wondering how he would manage it all, less was said about the small matter of two of Musk’s other multi-billion dollar companies: Tesla and SpaceX.

Lawyers have long since finalized Musk’s transition from troll to Twitter’s proprietor. Let’s dive into what it means for his cars and rockets, and why he may be risking them both.

What Twitter Means for Tesla

You’ve seen the stock price. Or, the lack thereof as recent. 

Before buying Twitter, Elon Musk was working on writing Tesla’s third Master Plan. The plan has historically outlined some of Tesla’s core company values and goals for the foreseeable future. The second Master Plan, which Tesla posted on its website on July 20, 2016, indicated that Tesla’s primary goals were to create solar roofs, expand the EV “product line to address all major segments,” develop “10X safer” self-driving, and “enable your car to make money for you when you aren't using it.” Arguably, Tesla has only accomplished one of those goals (the roof part), but every vision board needs updating.

The biggest piece of news, though, was that he hinted Tesla's Master Plan 3 “is going to fundamentally be about scaling.” It’s not just about scaling car production, but about scaling the whole supply chain that feeds that electric car production as well. More on what this scaling means for Twitter later. 

What Twitter Means for SpaceX

Unlike Tesla, which is publicly traded and profitable (the carmaker banked $3.3 billion profit last quarter), SpaceX is not as mature and still functions like a start-up. For example, the company is seeking funding from private investors to finance its highly-experimental Starship project.

Musk’s Twitter deal means the company’s single largest investor (he owns 47.4 percent of SpaceX and 78.3 percent of the votes on its board) has a greater portion of his wealth tied up in other companies.

Whether this will have any material effect on SpaceX’s programs is hard to say at this point. In the short-to-medium term, the company still has a packed schedule and a healthy working relationship with NASA, which pays it vast sums to launch cargo and crew to space.

Just two days after Musk bought Twitter, on Wednesday, April 27, NASA’s Crew-4 mission launched aboard a SpaceX Falcon 9 to the International Space Station. And in March, NASA awarded the company a contract to launch the Crew-7, 8, and 9 missions as well. In 2022, the company is on track to execute some 50 launches — around one a week — serving a mixture of commercial clients and Musk’s own StarLink broadband satellites.

The reality is that SpaceX is not profit-motivated in the same way as Tesla. Musk’s self-proclaimed mission for SpaceX is to get humans to Mars, not sell products. If the company needs another bailout — to pay for the development of a highly experimental Mars rocket, for instance — Musk may face constraints due to his new financial situation.

Ultimately, Twitter may mean less flexibility for SpaceX.

What is X?

Right now, X isn’t much. To understand what X is or will be, we have to go back to when Musk wasn’t the richest person in the world. For a bit of context, X.com was an online bank that Musk co-founded that was later merged with another software company to become PayPal. Musk actually reacquired X.com in 2017 for “sentimental” reasons.

X can also refer to a pair of holding companies mentioned in the letter that Musk’s lawyer sent to Twitter. X Holdings I, Inc. and X Holdings II, Inc., along with Musk, were identified as the buying parties in the letter and are thought to likely absorb Twitter.

Most recently, X is the name of Musk’s purported “everything app.” Musk hasn’t revealed any specifics yet besides the cryptic Tweet. But he has previously revealed his intentions for buying Twitter, which could reveal long-term motives behind the short-term storm he’s been stirring on the platform. 

Twitter X?

X, as an app, would be the most reasonable connection to Twitter. Musk did follow up on his original Tweet that Twitter would probably accelerate X by three to five years, responding to another Twitter user asking why he didn’t just make X from scratch. However, Musk did also note that he “could be wrong.”

If X does become a thing, Twitter will likely be the foundation for the social media aspect of Musk’s “everything app,” whatever form it may take.

But what is that though

The closest example to an everything app we have is WeChat. China’s super-app is a one-stop shop for most reasons that people use smartphones. You can message people; you can access a social media network; you can make transactions. It’s basically Messenger, Facebook, Instagram, Venmo, all rolled into one.

WeChat hasn’t made waves stateside and Americans still don’t have a WeChat equivalent, since all the aforementioned apps are at least somewhat segmented. So what would an everything app even look like in the U.S.? 

Depending on the scope, the X app’s value proposition to consumers would be convenience. But underlying that ease is the risk of having more personal data under one company’s umbrella. 

Musk’s Drive for Data 

Tesla’s has a much easier road pre-Twitter. Tesla was selling more vehicles, energy solutions and tequila than ever before. But they weren’t the only reasons Tesla’s valuation continued to increase. It was because of Tesla's unparalleled use of data. 

Tesla effectively crowdsources its data from all of its vehicles as well as their drivers, with internal as well as external sensors which can pick up information about a driver’s hand placement on the instruments and how they are operating them. As well as helping Tesla to refine its systems, this data holds tremendous value in its own right. Researchers at McKinsey estimate that the market for vehicle-gathered data will be worth $750 billion a year by 2030.

The data is used to generate highly data-dense maps showing everything from the average increase in traffic speed over a stretch of road, to the location of hazards which cause drivers to take action. Machine learning in the cloud takes care of educating the entire fleet, while at an individual car level, edge computing decides what action the car needs to take right now. A third level of decision-making also exists, with cars able to form networks with other Tesla vehicles nearby in order to share local information and insights. In a near future scenario where autonomous cars are widespread, these networks will most likely also interface with cars from other manufacturers as well as other systems such as traffic cameras, road-based sensors or mobile phones.

Although details are scarce on the new AI technology that Tesla is creating, its current AI is largely based on an unsupervised learning model of machine learning. This model is driven by a partnership with hardware manufacturer, Nvidia. In an old Facebook post, Nvidia further outlines the potential for the technology: “the car learns on its own to create all necessary internal representations necessary to steer, simply by observing human drivers.”

Uncovering Master Plan Three 

The key area of data monetization with regards to Twitter is the potential for hyper-targeted advertising. Tesla not only records human-car interactions and where a person travels to, but also records in-car conversations, texts and calls. Using this information, Tesla could easily structure and categorize this data to understand drivers' travel and consumption habits. Using these insights, they could display paid ads on a vehicle's infotainment system or alert the driver to nearby places of interest via text, for example. 

This level of hyperconnection may be the foundation for Tesla’s Master Plan Three. In his tweet describing what he plans to put in Master Plan three, Musk wrote that he’ll also be including “sections about SpaceX, Tesla and The Boring Company.” This suggestion led some analysts to speculate that Musk is consolidating his businesses.

What’s on the Bird’s Horizon

Musk has always put data collection and analysis at the heart of everything his companies do. Twitter will be no different (on an attempt, not execution, basis). 

Whatever X turns out to be, it will likely be a huge deal. Musk’s acquisition of Twitter already carries heavy implications, potentially changing what social media could be. It’s hard to say for sure whether the move spells the end of Twitter as we know it — which wouldn’t be the worst thing — or whether it could jumpstart Twitter into being a new robust app.

Musk’s ambitions have swung the doors wide open. Now, we wait for the Twitter acquisition to officially go through, which could be as early as Friday. After that, it’s anyone’s guess how Musk will deliver his grandiose vision of the next big app.

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