April 29, 2017

Are Elon Musk’s Ties to President Trump Damaging Tesla’s Brand?

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Are Elon Musk's Ties to President Trump Damaging the Tesla Brand?

Elon Musk’s connections to President Donald Trump could potentially damage the California billionaire’s Tesla (NASDAQ:TSLA) brand, especially after the president’s decision to temporarily halt refugees.

Five Tesla customers have canceled their orders for the Model 3 over Musk’s decision to accept invitations from Trump to sit on two of the president’s advisory groups. The cancellations have raised concerns that Musk’s brand could take a hit if the entrepreneur doesn’t address customer concerns.

Is the Connection to Trump Damaging the Tesla Brand?

Musk needs to tread lightly when palling around with Trump, because most of wealthy Musk loyalists do not generally support the new White House occupant, COO Salome Gvarmia of the tech investment firm Devonshire Research Group (DRG), told The Daily Caller News Foundation.

“Musk’s followers are passionate for their cause, leading to the overwhelming support and brand strength for Tesla,” she said. “Musk’s followers can be single-handedly credited for maintaining Tesla’s share price at levels that are — based on any number of valuation metrics — egregiously high.”

Gvarmia’s comments come as a growing number of brand loyalists claim they are starting to reconsider making future Tesla purchases.

Jodie Eason, one of the Tesla owners who canceled her Model 3 order, told BuzzFeed Tuesday that canceling her order was the only way to get through to Musk.

I feel that someone that wants to colonize Mars and who worries about the machine uprising should not be scared to voice opinions counter to the Trump administration,” Eason said.

Another Tesla customer, Nate Erickson, paid his $1,000 deposit on the first day the electric car company began accepting reservations. He canceled his order after seeing how Musk initially reacted to Trump’s executive orders.

“I cannot support a company where the CEO is acting as a conduit to the rise of white nationalism,” Erickson wrote in a box on the company’s website, asking for comments. He also called Musk’s ties to Trump “abhorrent.”

Musk’s initial tweet responding to Trump’s order clamping down on immigration went over like a lead balloon: “the blanket entry ban on citizens from certain primarily Muslim countries is not the best way to address the country’s problems,” Musk tweeted Jan. 28.

Musk received mostly negative feedback for failing to come out more directly against Trump’s ban, so he tried a more direct attack in later tweets. But Musk’s follow up tweets only further enraged his followers, reminding them of his connections to Trump.

Gvarmia, whose firm has extensively researched Tesla’s intricate financial model, said Musk’s connections to Trump could be perceived as a betrayal to those who think he is an advocate of progressive causes, like fighting global warming.

“I would expect exactly the kind of outrage among his followers as we’ve seen on social media,” she told TheDCNF. “Unless he manages this association very carefully, I believe it has the potential to be perceived as betrayal of shared values and snowball into a significant backlash from Tesla’s devotees.”

Tesla accepted a cascade of $1,000 deposits in 2016 for the pre-order of the Model 3, a vehicle that is slated to be built and delivered to customers later this year. And in return for the deposits, DRG reported in a memo last year (PDF), the electric company was able to use “high pre-orders to boost share price” as well as issue new shares.

DRG warned at the time that Tesla, because of the exotic tools it uses to hide its financial stability, is “operationally vulnerable to setbacks.”

If several mishaps occur during the production stage of the Model 3, then those expecting a Model 3 in their driveway will likely be left high and dry by the time delivery of the car is scheduled.

One of the mishaps could very well be a trove of cancelled orders, one of the primary mechanisms keeping Tesla’s financials afloat

At the core of Tesla’s financial balancing act is an exotic scheme called Future-Earning Pyramidal Financing, wherein the company raises capital to cover future losses rather than future profitable returns, according to DRG.

The assumption behind the scheme is that future losses will be concealed by a second round of capital infusions, allowing some investors to bail with a profit, while other investors — perhaps lower on the totem poll — will have to cope with guaranteed losses.

Tesla Photo via Shutterstock

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2 Reactions

  1. There are two ways forward, ignore, irritate, and oppose Trump and he will do things all on his own based on emotion and bad information. Or give Trump good advice, let him know what are possible consequences and hope he considers them and hope for the best. The first option is a loose loose situation, the second option is at least a 50/50 shot. All the protesters and opposition to the Trump win are simply shooting themselves in the foot. A productive opposition is not one that yells in the streets and starts riots.

  2. If you disagree with someone you have two options: 1) you can be childish and immature and ignore them, making a point by not talking to them or associating with them or 2) you can try to change their opinion by providing logical and reasonable arguments. Some people don’t take well to being yelled at and President Trump is one of those people. Plan 1 leads to Musk and Tesla being ignored by Trump because he really has no reason to care what they think. Plan 2 leads to Musk being a special advisor to Trump with a direct line of open communication. They may not see eye to eye on policy issues but at least Musk can express his opinions directly to Trump – how this is not the ideal place for Musk to be in escapes me.

    Case in point with the Model 3 cancellations. There are hundreds of thousands of people eager to move up in the line to get a Model 3. Do you really think that throwing a temper tantrum and cancelling your order will hurt anyone but yourself??

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