2 weeks Ago By Tom Nicholson
This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.Now that he is stepping back from his role in the Trump administration, Elon Musk can rescue Tesla.
But his company’s glory days are over, and it is just another car manufacturer like all the others. He made a gamble – and it failed. Elon Musk’s idea was to tuck in with Donald Trump, be useful to him, and in exchange get support for his business activities worldwide.
That has gone wrong.His role at the Department of Government Efficiency has been a failure in that he has been unable to set out a useful blueprint for the reform of the public sector. Just shutting things down doesn’t work when some activities and services are essential.
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addToArray({"pos": "inread-hb-ros-inews"}); }Government is not like a commercial business. You need the scalpel, not the chainsaw. So it is becoming evident that he is no longer helpful to the new government.
It is also clear that the government is no longer useful to his business interests, and particularly those of Tesla, which is still a key element of his wealth. He needs a good relationship between the US and its main trading partners, notably China and Europe. He is pressing Donald Trump for lower tariffs, but while we don’t know how that game will play out, there has been serious damage already and there will be a lasting scar.
So what will happen? There is one overriding reason to believe that he can indeed turn the fortunes of Tesla around – and three why it will soon no longer dominate the global motor industry.Investors still trust MuskTo get the positive point out of the way, consider this. Tesla is still by far the most valuable car company in the world.
On Wednesday, its market capitalisation was over $800bn (£603bn); the next biggest, Toyota, was at $225bn (£170bn). That says something about global investors’ perception of Elon Musk.if(window.
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adverts) { window.adverts.addToArray({"pos": "mpu_tablet_l1"}); }They believe he can turn the company round, because he has always managed to do so in the past.
There have been many moments when the company’s future seemed to be on the line in the past, notably over production problems and more recently over build quality. But investors believe that if he focuses on a problem he will fix it. So far, they have been right.
Tesla’s shares are currently down by one third in 2025, but they are up more than 70 per cent on where they were a year ago.Now the three negatives: product weaknesses; what is happening in China; and reputational damage from Musk’s association with Donald Trump. Tesla’s innovation has stalledThe first is simple.
Tesla needs a new winning design. It is a two-car company, for its Model 3 and Model Y accounted for 1.7 million of the 1.
78m vehicles it delivered in 2024. Sales of the others – the Model S which made the company’s reputation, the Model X, the Cybertruck, and so on – totalled only 85,000.#color-context-related-article-3645167 {--inews-color-primary: #3759B7;--inews-color-secondary: #EFF2FA;--inews-color-tertiary: #3759B7;} Read Next square HAMISH MCRAE .
inews__post__label__newsletter{background-color: #0a0a0a;color: #ffffff;}Newsletter (£)The end of globalisation is here - but the UK can still boomRead MoreBut the Model 3 and Model Y are old designs. They have been faced-lifted and improved, but there comes a point in the motor industry when buyers need something new and exciting. It is not clear that Tesla has that offering in development.
There is talk of a new snazzy Model 2, but we don’t know when it might be launched, if at all. Second, China. The harsh truth is that manufacturers in China – notably BYD, which last year overtook Tesla for sales there and became the world’s biggest EV producer too – have both a cost advantage and, increasingly, a technological lead.
BYD claims that it can build batteries that will charge twice as fast as a Tesla can, adding 250 miles of charge in five minutes.If Chinese manufacturers can build better cars than Tesla then they, tariffs notwithstanding, will increase their market share. The other US, European, Japanese and Korean companies will be under pressure too, but Tesla has most to lose.
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addToArray({"pos": "mpu_tablet_l2"}); }Musk’s magic has goneThird, reputational damage. It is early days, but there has clearly been some already. There are three big markets: the US, China and Europe, including the UK.
Tesla sales in Europe have plunged. No one can know whether this is a knee-jerk reaction, and if once a measure of calm returns this fall in sales will be reversed.There seems to be some damage in the US, though it is too early to know whether what people say will be reflected in what they do.
And in China, while the outlook depends as much on global politics as on consumer preferences, Elon Musk’s role in the US government must be a negative.Pull this together and the logical conclusion is this. Tesla will survive as an important and innovative maker of electric cars while Elon Musk is at the helm – and paying attention.
But it is no longer so special. Others can build electric vehicles as good as Tesla’s, or better. Musk changed the industry forever, but like all the other great pioneers of the motor industry, his dominance will eventually come to an end.
Need to knowLooking at the markets yesterday, the enthusiasts for Elon Musk won over the sceptics, for the rally in the share price continued at pace. But the huge fluctuations in the value of the company tell us more about investment sentiment than about the fortunes of the car maker. There is a battle going on about what anything is worth in a world where the huge amounts of money created by the central banks are sloshing around, but also where that money’s real value is being eaten away by inflation.
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addToArray({"pos": "mpu_tablet_l3"}); }My own feeling about Elon Musk, having only met him once, is that his intuitive genius for what many people want will enable him to save Tesla in the short-term. But unless he can do what the similarly intuitive Steve Jobs did at Apple, which is to build up a team of brilliant people who could design, build and market those products, Tesla won’t outlast him. He will go down as a William Morris, Viscount Nuffield, founder of Morris Motors – a charismatic businessman, and little more – rather than an era-defining innovator like Henry Ford.
This leads to a wider issue. Why do some companies survive while others do not? Obviously, there are some industries that go into decline, but this isn’t the case in motor manufacturing. True, total global production peaked in 2017 at 97.
3 million, but since then it seems to have hit a plateau rather than a significant fall.From a British perspective, the collapse of our motor companies during the 70s took place during a period of strong global growth. Peak UK production was 1.
9 million, reached in 1973, just before the UK joined the European Community, and before imports from Europe took over from local production. Our industry was saved by Japan’s decision (and particularly that of Nissan) to make the UK a European base.And now the question is whether the world’s largest manufacturer, China, might “do a Japan”.
In other words, might it use the UK as a significant manufacturing location? There is a problem in that costs here, particularly of energy, are much higher than in China (and indeed the rest of the world), and that battery technology is limited. But there is at least an opportunity, which the Government, if it were wise, would seek to grasp.This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper.
If you’d like to get this direct to your inbox, every single week, you can sign up here..
