In 1943, Alice O’Connor created Howard Roark, the hero-protagonist of her best-selling and controversial book The Fountainhead. Alice O’Connor was the married name, which she insisted going by, of the writer better known as Ayn Rand, born in St Petersburg as Alina Rosenbaum. The book has sold more than 43 million copies and, together with her subsequent novel, Atlas Shrugged, became the handbook of Rand’s own ideology, objectivism.
Objectivism maintains that individualism and devotion to personal productive achievement should be our only driving force.To day, Elon Musk exemplifies the virtues that Rand eulogised in The Fountainhead.
Roark, the embodiment of objectivism, was a single-minded purist, driven exclusively by the pursuit of brilliance. His ego dominated his world and for devotees of the book, the human ego is a unique force that propels gifted people to create a new future. Without them there is no progress, and these creative types should not be hampered by notions of unfairness or compassion. They are one-offs, maybe not the most humanitarian folk on Earth, but people of consequence.
Few could argue that Musk is not globally consequential. He is the American Dream incarnate, through his relentless pursuit of innovation and entrepreneurship. Musk has co-founded dozens of innovative, game-changing companies, from Tesla to SpaceX and Neuralink, even OpenAI, though he now runs a competitive company called Grok.AI. There is no doubting the man’s vision and transformative impact, which is why it may be surprising that his flagship company, Tesla, has come unstuck.
Tesla’s share price has been under pressure all year and this week has experienced yet another fall; it’s down 30 per cent this year alone, making it the second-worst performer on the S&P 500. In a year where everything has been going up, Tesla’s stock is down nearly 60 per cent from its late-2021 high point, while the group’s market capitalisation has more than halved from $1.2 trillion (€1.12 trillion) over this period.
Tesla’s headaches stem from China, where the company has lost market share to the local rival BYD, which recorded a 13 per cent annual uplift in sales. BYD sold about 130,0000 cars a few years ago and is now selling more than 1.5 million cars every year.
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For Tesla, in terms of market capitalisation, half of $1.2 trillion is still loads of money, and the hype around the company means that at a valuation of $700 billion, it’s at almost 10 times BYD’s market cap of under $80 billion, despite the Chinese automaker selling far more EVs. Indeed, propelled by the “Musk Factor”, Tesla still trades at a premium to most other automakers in general, all of which are valued at far less than Tesla’s $700 billion – Toyota ($330 billion), GM ($52 billion) and Ford ($54 billion) – despite selling far more cars.
However, quite apart from his marketing cachet, the travails of Musk and Tesla tell us something far bigger than the story of an evangelical entrepreneur; they tell us about the present state of relations between America and its rival, China, and how Chinese manufacturing is gobbling up the world by stealing intellectual property (IP) and making it better. Economic history is the history of theft, so there’s nothing new here except that the Tesla story might be a cautionary lesson for other companies that have taken or might take big bets on China.
When Tesla in the US was struggling to access cheap parts and skilled labour, not to mention the dodgy work practices that would never be tolerated in the American car industry, Musk gambled on producing in China. His factory in Shanghai accounts for more than half of Tesla’s global output and profits. But, and here’s the big but, Tesla spent hundreds of millions over the years on industrial techniques, research and development, investment and know-how – and now all of Tesla’s IP has been stolen and customised by Chinese-controlled, domestic rivals. Musk’s own IP is being used against him. And more tricky is the fact that he is now embedded within the domestic Chinese supply chain and so must stay onside with Beijing, parroting Chinese views on global affairs and putting him and at odds with Washington. All the while, the market for EVs is not expanding at the rate it was supposed to.
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America and China are involved in a trade and IP war with each other, a type of new industrial cold war, where the Americans suspect that China is stealing the fruits of its research and fear it is better at adapting this knowledge to commercial products. China is taking America on in the place where America used to consider itself pre-eminent, in the global multinational market.
Take BYD, the car company that is eating Elon’s lunch. Based in Shenzhen, it started out in 1995 as a battery maker and only began to make cars in 2003. In January 2009, BYD introduced its first production battery electric vehicle to America. Today, in Southeast Asia, BYD has a 43 per cent market share in electric vehicles and in America it is expanding rapidly. It is estimated that BYD received approximately $4.3 billion in state support between 2015 and 2020. Its recent growth has been phenomenal. Before the pandemic, BYD sold 130,970 pure battery electric vehicles. Last year, the company sold 1.57 million battery EVs.
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The economic battle between America and China, like the economic war between Germany and Britain before the first World War, will play out across a variety of platforms, technological, financial and industrial. America will continue to celebrate the unique genius-like Musk, while China will promote the notion of the great communal national effort, but when you strip it all away, it’s a battle for global power. In this showdown, the trials of Musk may be chicken feed in comparison with what is to come.