Twitter’s Role in Strengthening Musk’s Grip on Tesla
Years ago, when I worked for a technology company that developed and sold infrastructure software (an intentionally ambiguous description to protect the guilty and the innocent), I had a colleague who espoused a refreshingly frank worldview. He believed that the decisions of our board and senior executives could be attributed entirely to self-interest, and that it was pointless to attribute disinterested motives or higher purpose to their proclamations and actions.
My colleague would chastise me for my naiveté whenever I saw complexity in what was, as far as he was concerned, primal simplicity. He was probably right. I was often too magnanimous in my assessments of what went into corporate decision making. Thankfully, I am now a recovering apologist, committed to piercing the elaborate veil of deception and revealing the inner sanctum of cold calculation.
I read a lot and eclectically, but I have not read Walter Isaacson’s apparently kid-glove biography of Elon Musk. Life really is too short to spend hours that you’ll never get back reading something that promises neither amusement nor edification. What’s the point? It’s not as if I have unlimited time, whether in a day, a week, or a lifetime.
Nevertheless, I have read the less time-consuming book reviews, and, in doing so, I managed to wrestle a pearl from the swine while wallowing in the mud. A cogent observation mentioned in one of those reviews stuck in my craw, where it stewed, fermented, and gradually distilled into something approaching one-hundred-proof white lightning. (Occasionally, even I am struck by a clarifying bolt from the blue.)
In reviews and commentary about the book and its eponymous subject, occasional mention was made of Musk’s raging antipathy to what he calls the “woke-mind virus.” For my purposes today, it doesn’t matter how he defines the virus, or whether it exists. In my view, it’s a classic McGuffin, an object or device that merely serves as a trigger or furtherance of the narrative’s plot. All that aside, here’s an excerpt from a New Yorkerarticle published around the time that Isaacson’s book was published:
“Unless the woke-mind virus, which is fundamentally antiscience, antimerit, and antihuman in general, is stopped, civilization will never become multiplanetary.” It’s as if Musk had come to believe the sorts of mission statements that the man-boy gods of Silicon Valley had long been peddling. “At first, I thought it didn’t fit into my primary large missions,” he told Isaacson, about Twitter. “But I’ve come to believe it can be part of the mission of preserving civilization, buying our society more time to become multiplanetary.”
Now, ignore it, expunge it from your mind. I respect your time and mine too much to ask you to take that quote at face value. Do we really think a man with the self-directed, overwhelming personal ambition of Elon Musk gets up every morning thinking about what he can do to “preserve civilization”? What’s relevant here is why he’s chosen this form of subterfuge, an appeal to a simplistic but resonant myth of a virtuous superhero combatting the diabolical evil of the “woke-mind virus.” Roger Corman’s Attack of the Crab Monsters had a more credible plot.
Let’s now allow explore why Musk bought Twitter and how he uses it as a platform to disseminate and showcase carefully contrived and incendiary opinions for the delectation of his followers – and not just for his followers, but for anybody and everybody who still bumbles around Twitter in a vain search for intelligent life.
I do not “follow” Musk on Twitter, dear reader, but I receive all his royal proclamations and memetic diatribes. If Twitter/X is a public square, it’s a little like St. Peter’s Square, with the significant difference that those who gather in the latter presumably want to hear the Pope’s homilies while the unfortunate rabble in Musk Square are compelled to receive the master’s word regardless of their interest of receptivity. If you’re on Twitter, you can’t turn Musk off. He will harangue you until you succumb or defect, like the onslaught of relentless heavy-metal music U.S. soldiers played to break the spirit of Manuel Noriega.
Digital Bully Pulpit
So, what was Musk’s motivation for acquiring Twitter? At least partly it was for Twitter’s unique digital bully pulpit, with which Musk had become intimately familiar well before making his extravagant purchase. But why did he need a bully pulpit?
Simply put, Musk’s actions, including his acquisition of Twitter (now, yes, X), issued from unvarnished self-interest. As almost everybody knows, Musk runs a publicly listed company called Tesla. If you dig moderately into Tesla as a stock, you will quickly discover that the company’s shares, relative to other major stocks, are disproportionately owned by retail investors. Many of these retail investors, though perhaps not all of them, are zealous devotees of Musk, members of a faithful fellowship (they’re mostly fellows, too).
Retail investors own more than 43% of Tesla's available shares, a significantly higher percentage than that attributed to retail investors in other large tech companies and similar major stocks. For example, the average retail-investor share ownership in Meta/Facebook, Apple, Amazon, Netflix, and Google is approximately 18%.
If Tesla’s stock is disproportionately held by retail investors, the corollary is that institutional ownership of Tesla shares figures to be lower than that of other companies’ shares. That’s true. Institutional investors own about 80% of the total shares outstanding in Meta/Facebook, and they also own about 79.5% of shares outstanding in Alphabet/Google. For Apple – another company with a complement of fanboys – institutional ownership is lower, at about 60.5% of shares outstanding, which is still much higher than Tesla’s proportion of institutional ownership, which sits at about 42%. Institutional ownership of Nvidia’s shares, which were all the rage until the last two trading days, sits at 65.5% of shares outstanding, while for Cisco Systems institutions hold about 74.5% of shares outstanding. For HPE, the institutional ownership is 83.5% and for Broadcom 82.5%.
I think we have enough of a quantitative basis here to say that one of these stocks is not like the others.
The individual investors who constitute the retail ownership of Tesla shares are drawn to the company by various factors, none of which is mutually exclusive. Some retail investors strongly endorse and are enthusiastic about Tesla’s electric vehicles and the technology that powers them; some believe secular factors augur well for the company’s growth potential; and some admire or even venerate Elon Musk. I would argue that many of them have an affinity for Musk that extends beyond the bounds of pure reason, presuming such a state of grace is attainable.
Its relatively high proportion of retail investors makes Tesla stock more volatile than that of other major technology companies. That’s because retail investors are inclined to trade more frequently than institutional investors. Retail investors can be unduly influenced by sentiment and trends on social-media trends. Twitter (X), as you know, is a social-media company.
Different Strokes for Different Folks
Conversely, given that Tesla shares have a lower-than-average percentage of institutional buyers, the company’s stock is less influenced by the demands and expectations of institutional investors. Given such a share disposition, an entrepreneurial celebrity such as Musk can benefit enormously if he has the means and motive to manipulate his deferential retail investors. In such circumstances, Musk can serve as conductor to their orchestra, performing a symphony that soothes his savage ego while inflating the maestro’s personal wealth.
The perch atop Twitter gives Musk an unrivaled platform on which to fortify his personal brand and maintain the admiration, affection, and financial support of retail investors. If he has the patronage of retail investors, converting their enthusiasm for his persona into near-religious devotion, he does not have to submit to the financial and managerial rigors required by institutional investors.
Musk perceives his many millions of Twitter followers, some of whom are Tesla investors, as his personal fans. He revels in his personal celebrity, which derives its power from a fervent fanbase. It’s a symbiotic, if asymmetrical, relationship. The cult of personality will overlook or disparage the criticisms of outsiders while maintaining their fealty to Musk, whose always-on Twitter presence keeps them perpetually engaged.
He knows what they want from him, too. They want Musk to adopt the persona of a nonpareil visionary who is, paradoxically, a relatable everyman. To achieve the latter objective, relating to the sensibilities and tastes of his fanbase, he must reflect and amplify their likes and dislikes. Here, Twitter comes in handy. Twitter possesses reams of data about its users, its algorithms are built on extensive information about user engagement, about the sorts of content and media that will engender the strongest forms of emotional response from a given demographic. Through his privileged ownership position at Twitter, Musk has detailed knowledge of how to engage, provoke, and flatter his fans.
Make no mistake, Musk needs Tesla’s retail investors. He needs them today, and he needs them most during periods when Tesla and his other companies are beset by challenges and difficulties. All true believers are impervious to facts and assertions that are viewed as antagonistic to their beliefs; they are beyond the reach of reason and rational discourse. If you’re in a cult, the world outside the cult doesn’t matter; it’s irrelevant because it doesn’t understand.
Some reports suggest that Tesla insiders (board members and senior executives) hold as much as 14% of the company’s outstanding shares, with Musk alone holding nearly 13% of shares. That is inordinately high percentage of insider ownership for any publicly listed company.
Calculated Risks, Methodical Madness
While insider ownership is often viewed favorably, demonstrating that those closest to the company are confident of its success as an ongoing concern, I ask you to consider an alternative perspective in the case of Tesla.
If Tesla shares belonging to loyal retail investors are combined with the shares held by insiders, we find that nearly 60% of outstanding shares are controlled by those groups and slightly more than 40% are held by institutional investors. Musk has an opportunity to shift that balance further in his favor if he gets the $56 billion (it’s less than that now, given Tesla’s declining valuation) compensation package that was recently reapproved by Tesla shareholders after being invalidated by a court in Delaware. Presuming Musk gets his way, he would be in a position of impregnable corporate control at Tesla, a sinecure from which he would be nearly impossible to dislodge.
As they are relegated and sidelined, will institutional investors lose interest in Tesla at some point? My exposure to institutional investors suggests that they are not motivated by emotional attachment or soppy sentimentality. Institutional investors reward hard results and predictability. For institutional investors, a company’s shares represent either an attractive investment vehicle, yielding positive returns, or they don’t; if they don’t, institutional money will go elsewhere in search of better returns. It’s all about performance, a what-have-you-done-for-me-lately ethos.
Retail investors, however, are not necessarily as motivated by relentless business logic, especially retail investors who lionize a celebrated CEO. Musk understands them, he knows how to flatter them, how to influence them, and how to relate to them as an ersatz everyman while simultaneously presenting himself as an omnipotent business genius, uniquely capable of rescuing humanity from oblivion like a superhero in the Marvel cinematic universe.
Here’s something those retail investors might want to consider. If they believe Musk is truly exceptional, as a supremely intelligent human being and as an incomparable chief executive, shouldn’t they be concerned that he represents a single point of failure in their systemic model? If something happens to Musk, what happens to their investment? I know there’s a succession plan for every company, including Tesla, but many retail investors plowing money into Tesla shares are doing so because they believe in the singular brilliance of Elon Musk, not because they believe in Tesla’s executive bench strength, the inherent resilience of the company, or the superiority of its engineering team and technological roadmap. For many retail investors in Tesla, Musk is the company.
A cult of personality doesn’t seem to be the soundest foundation for an investment strategy.
The New York Post (I know, I know) reports that, since Jan. 1, Tesla’s stock price has fallen more than 26%.In November 2021, Tesla’s share price exceeded $407, but it has declined more than 55% since then.
Retail investors might still believe in Elon Musk, but institutional investors might be reconsidering their options. Musk is likely counting on retail investors to pick up any shares that institutional investors might sell when they exit the premises. If he can keep the retail investors mesmerized and pacified, he can leverage them to solidify his hold on the company.
In relation to Tesla, I can see shrewd method in Elon Musk’s apparent Twitter madness, first in the acquisition and subsequently in the way he has reinvented Twitter and himself since then. All of it makes a certain calculated, wonky sense, but the risks are great, for Musk, Tesla, and the many retail investors who have bought into the CEO’s flamboyant public persona.