Elon Musk Wouldn’t Be the First Car Company Founder to Flame Out

 

Peter Coy

OPINION

Elon Musk Wouldn’t Be the First Car Company Founder to Flame Out

April 22, 2024, 3:00 p.m. ET

https://www.nytimes.com/2024/04/22/opinion/elon-musk-william-durant.html

 

Peter Coy

By Peter Coy

Opinion Writer

 

Before there was Elon Musk, there was William Crapo Durant. Billy Durant, as he was known, built one of the world’s biggest makers of horse-drawn carriages, bought control of Buick, co-founded General Motors, was forced out of General Motors, co-founded Chevrolet, regained control of General Motors, speculated on stocks, lost control of General Motors a second time, started Durant Motors, went bankrupt in the Depression, opened a bowling alley, suffered a stroke and died penniless in 1947.

 

It’s highly unlikely that Musk, one of the world’s richest people, will die penniless, but in other respects he and Durant have a lot in common. They are, or in the case of Durant were, both brilliant, restless builders of empires and defiers of convention who experienced the highest highs and the lowest lows of business.

 

I talked to some experts on the wild, early days of the automobile to see what Musk and the rest of us could learn from that period of ferment and creativity. One thing I found out is that the world is not always kind to visionaries with self-control issues. Durant flamed out at G.M. twice. In contrast, the prudent organization man who eventually succeeded him, Alfred Sloan, went from success to success. Renowned institutions bear his name.

 

“To Understand the Future of Tesla, Look to the Future of G.M.” was the headline on a 2018 article in Harvard Business Review by Steve Blank, a serial tech entrepreneur who has taught entrepreneurship at Stanford and other universities.

 

Referring to 1920, the second time Durant lost control of G.M., Blank wrote:

 

While everyone around him acknowledged he was a visionary, Durant’s one-man show was damaging the company. He couldn’t prioritize, couldn’t find time to meet with his direct reports, fired them when they complained about the chaos, and the company had no financial controls other than Durant’s ability to raise more money. When the stock collapsed, Durant’s ownership share was at risk of being taken over by the bankers he owed, who would then own a good part of G.M. The board decided that the company had enough vision — they bought out Durant’s shares and realized it was time for someone who could execute.

 

Founders often fail as managers, Blank noted. “As Tesla struggles in the transition from a visionary pioneer to reliable producer of cars in high volume,” he wrote in 2018, “one wonders” if the generous compensation plan that the Tesla board awarded to Musk that year “would be better spent finding Tesla’s Alfred P. Sloan.”

 

I called up Blank. He told me that the flaws in Musk that he identified that year remain today. “When you’ve been right in the beginning, you think you’re right forever,” he said. “You surround yourself with people who think you’re a genius forever. You run by whim rather than strategy.”

 

Edwin Land, a co-founder of Polaroid, was a technical genius but a terrible chief executive, Blank said. Steve Jobs bungled the chief executive job at Apple and was forced out, although he redeemed himself by doing better in a second stint, Blank said. Then there’s Durant.

 

“Musk is very similar to Durant,” agreed Christopher Whalen, an investment banker who is chairman of Whalen Global Advisors and the author of a 2017 book on the history of Ford Motor titled “Ford Men: From Inspiration to Enterprise.” Whalen told me that with Musk, “We’re repeating ourselves in a way.”

 

A big difference between Durant’s days at G.M. and Musk’s at Tesla is that G.M.’s board was strong and independent of the C.E.O. (as evidenced by the fact that it booted him twice). It’s hard to say the same of Tesla’s.

 

This past week, Tesla announced it was laying off 10 percent of its work force in response to a drop in first-quarter sales. Two days after that announcement, the company filed a proxy statement for its annual meeting asking shareholders to re-approve Musk’s 2018 pay package, which a Delaware judge had ruled illegally excessive less than three months earlier. The board also asked shareholders to approve Tesla’s reincorporation in Texas, which analysts said would be a friendlier jurisdiction for Musk.

 

Musk’s 2018 pay package, whose value is tied to Tesla’s stock price, was once worth more than $50 billion. As The Times described last week’s development: “Facing criticism that it is overly beholden to Elon Musk, Tesla’s board of directors said on Wednesday that it would essentially give him everything he wanted, including the biggest pay package in corporate history.”

 

Apart from how much money Musk deserves is the question of where he’s taking the company. He announced recently that the company will introduce a self-driving taxi, Robotaxi, in August, in spite of widespread concerns that the artificial intelligence required for self-driving isn’t mature. He seems to have stopped talking about his plan to roll out a $25,000 electric vehicle for the mass market — which would be less exciting but more reliably profitable.

 

“Musk shouldn’t give up” on robo cars, but it’s not wise for him to bet the company on them, Whalen said.

 

“If there were a functioning board, this would be a conversation,” Blank said.

 

After Durant was deposed from G.M. the second time, he flailed between a car company, a cinnabar mine and that bowling alley, which he hoped to turn into a chain. He lost all of his money in the process. Musk is such a creative genius that Tesla’s board has indulged his idiosyncratic explorations. That may be the right call, given that the company might be lost without him. But Tesla’s board, like G.M.’s, needs to keep in mind that it represents the shareholders — all of them.

 

Outlook: Regina Schleiger

The Bank of England is still likely to cut interest rates three times this year despite higher-than-expected inflation, and to start cutting before the Federal Reserve does, Regina Schleiger, the director of central bank policy research at SGH Macro Advisors, wrote in a client note on Friday. As Schleiger noted, Britain’s central bank has set its key policy rate at a 16-year high of 5.25 percent for six straight meetings.

 

Quote of the Day

“We philosophers are mistake specialists. (I know, it sounds like a bad joke, but hear me out.) While other disciplines specialize in getting the right answers to their defining questions, we philosophers specialize in all the ways there are of getting things so mixed up, so deeply wrong, that nobody is even sure what the right questions are, let alone the answers.”

 

— Daniel Dennett, “Intuition Pumps and Other Tools for Thinking” (2013). Dennett died on Friday.

 

Peter Coy is a writer for the Opinion section of The Times, covering economics and business. Email him at coy-newsletter@nytimes.com. @petercoy