Summary of Key Points
After SpaceX's IPO, which set a new record for the largest initial public offering (IPO) in human history, its stock price plummeted by nearly 50% within just over a month, resulting in a market value loss of over $1 trillion. Tesla saw record revenue but continued declines in profits, and its free cash flow turned negative. This reflects the reality-checking of Elon Musk's "myth" as a visionary leader. The capital market has shifted from supporting his ambitious visions to demanding tangible results. Meanwhile, Musk's various high-cost projects, such as SpaceX's Starship, Tesla's AI initiatives, and xAI, have raised doubts about the company's sustainability. Musk's status as a super-agent of the "future" also carries increased risks due to the concentration of power in his hands.
1. SpaceX Stock Price Halved: Two Launch Failures Shattered the "High Reliability" Bubble
The direct trigger for SpaceX's stock price crash was two consecutive launch failures within a week:
- Starship Test Flight Failure: During its first public test after going public, four out of 33 engines failed to ignite, leading to the cancellation of the launch. In the past, such setbacks were seen as part of the rapid iteration process, but now the capital market only sees risks, especially since this technology is valued at $2 trillion. A failed launch hits the company's valuation.
- Falcon 9 Launch Cancellation: Falcon 9 is SpaceX's main revenue-generating rocket, responsible for over 600 launches per year, serving both Starlink, government, and commercial clients. An engine issue before takeoff caused all engines to shut down, undermining SpaceX's reputation for frequent and reliable launches. Past cancellations were minor incidents; this one is a serious reliability warning. With increased reliance on Falcon 9, any more failures could be devastating for the company's business model.
Essentially, the shift from a private company funded by visions to a publicly traded one changed the valuation criteria. While a private firm can afford failures as part of its growth, a public company must demonstrate stable performance to maintain investor trust. These two failures destroyed SpaceX's long-established reputation for high reliability, leading to a 50% drop in its stock price.
2. Tesla Profit Decline: All Revenue Goes into AI
Tesla reported record revenue and deliveries in the second quarter, but profits have been declining:
- The operating margin dropped from 4.1% to 1.4%, and net profit decreased by 5%, with free cash flow turning negative ($1.1 billion in losses). The reason is simple: Musk has transformed Tesla from a car company into an AI-driven enterprise, investing heavily in various projects:
- Doubling the AI computing power at its Texas headquarters,
- Building a production line for humanoid robots at the Fremont factory,
- Starting production of the Cybercab (a driverless vehicle),
- Establishing an in-house AI chip manufacturing plant in Austin.
The $4.7 billion in cash flow from car sales is not even enough to cover these expenses, and Tesla may soon face further financial challenges if it cannot secure additional funding. Given the rapid pace of these investments, a decline in profits could lead to a corresponding drop in the stock price.
Musk was once adept at using new initiatives to distract investors, but now all his projects are costly. The market is questioning how long these strategies will be sustainable.
3. The Essence of Musk's Myth: Buying a "Ticket to the Future," Not Just Company Performance
Investors in SpaceX and Tesla stocks are essentially buying into Musk's genius and vision:
- Nobel laureate Paul Krugman has noted that individual investors often view SpaceX not as a company but as an investment in Musk's talent. The stock price soared on the day of the IPO, making Musk the first trillionaire, akin to a coronation ceremony for tech capitalism. He is portrayed as a representative of the future (electric vehicles, AI, Mars colonization, satellite internet), and buying his stocks is like purchasing a ticket to that future.
- However, the market is now demanding tangible results: rockets must launch on time, Starlink services must be profitable, and SpaceX's projects must become reality. While capital can support ambitious ideas, it won't sustain them indefinitely. When myths collide with reality, valuations collapse.
This collapse shows that investors were overestimating Musk's ability to consistently deliver exceptional results; in reality, failures and uncertainties are the norm.
4. The Risks of Being a Super-Agent: Concentrated Power Leads to More Severe Consequences
Musk is not an ordinary entrepreneur; he operates at the intersection of capital, technology, military, and politics:
- His expansion of Starlink has influenced the outcome of the Ukraine conflict,
- His social media posts have manipulated the price of Doge coins, causing significant losses for investors,
- He has deeply involved himself in American politics, intertwining business interests with political power,
- And he witnessed the evaporation of a $1 trillion market value despite creating a massive IPO.
The danger of his "oligarchic power" lies in the failure of traditional market pricing mechanisms when he is deified. When such a figure loses credibility, the consequences can be severe, including stock price crashes and potential disruptions in essential services (like Starlink) or projects (like AI initiatives).
Conclusion
Musk's myth has indeed built a vast tech empire, but beneath it, facts remain crucial. Grand narratives may drive stock prices sky-high, but real-world outcomes are what ultimately determine a company's value. While ambitious visions can create momentum, they must be backed by tangible achievements. Even the greatest technologies cannot change the fundamental principle that capital values performance. As the market shifts from believing in myths to focusing on reality, this collapse is just the beginning of a new era.