Why Wall Street Can’t Quit Elon
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The first thing I do when I have someone in the studio is ask them to tell me who they are and what they do. Can you identify yourself, sir? I am the one and only Felix Salmon. I host the Slate Money podcast I have done for over a decade. Oh yeah. Today, we have a bit of a collab for you. I feel like I'm an old-timer here, and I also glory in the title of Chief Financial Correspondent at Axios.

I brought Felix in because I wanted to talk to him about a little electric car company that had a bad week. Tesla's vehicle deliveries were down 13% compared to the same quarter last year. That news came just after the stock had its worst quarter in three years. I asked Felix what to make of these numbers. They were terrible. Tesla just...

didn't deliver very many cars. We knew that their numbers in Europe were going to be bad because when you are Elon Musk and you go out supporting neo-Nazis in Germany, the Germans get upset about that and stop buying your cars. It turns out that even the Americans have basically really aggressively stopped buying Teslas more than people expected.

And sure, you gotta imagine some people bought cars or Cybertrucks because of the Trump administration's Tesla sales campaign. But if they did, it wasn't enough. In a normal world, in normal times, Wall Street would not be happy with a company performing this way. But...

The first thing we have to say is there is no such thing as normal times for Tesla. It's worth more than the biggest car company in the world, which is Toyota, while selling a tiny fraction of the number of cars that they do. It has never been valued as a car company. And so the idea that, you

you know, the stock market really cares how many cars it delivers. Like on some level it does, but on some level it's never really been a car stock. It's been an Elon stock and it has been a stock for, you know, we want to bet on some robot that he's making or we want to bet on some self-driving technology that he's making or something like that. So the reason why people buy Tesla is not normally because they are selling lots of cars. That said,

That's where the revenues come from to build robots and self-driving cars and all the rest of it. And so if these revenues are imploding, that's got to be bad for the company as a whole. And indeed, the stock price is down a lot since the beginning of the year. And yet, Wall Street just can't quit Elon Musk. Today on the show, we ask why.

I'm Lizzie O'Leary, and you're listening to What Next TBD, a show about technology, power, and how the future will be determined. Stick around.

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Tune in to Tech Unheard from Arm and NPM wherever you get your podcasts. Let's back up a little bit and talk about what a more typical relationship between Wall Street and a wealthy CEO might look like. You know, you're generic CEO of big blue chip company. How are they treated by, say, major investors and a bunch of Wall Street banks?

So what normally happens on Wall Street is that CEOs are hired by and answerable to a board of directors. And then the board of directors is technically sort of hired by and answerable to shareholders. And when a CEO goes off the rails, the board of directors basically has a fiduciary responsibility to fire the CEO.

And we see that every day. It is quite common for CEOs to lose their job when they don't seem to be doing a good job or the company is doing badly or the share price is going down or whatever. But Elon Musk has never been a normal CEO. Despite Tesla underperforming, he's still sitting pretty. And Tesla's board is packed with Elon loyalists. In this case...

It seems broadly unthinkable that the board could or would fire Elon. And in fact, one of the weird things that we saw on Wednesday, and there are a million weird things going on with Tesla stock every day these days, one of the weird things that we saw was that when there was a report that Elon might be leaving the White House, Tesla stock went up because

because on some level, shareholders still think that Elon is good for the stock. And the more time he spends on Tesla, the better for Tesla that is. I wanted Felix to outline the different roles that investors and especially the big banks on Wall Street play.

Because I think if you just occasionally pay attention to finance news, you might miss some of the competing interests at stake. So the one thing that Wall Street banks don't do, weirdly, is...

invest in public company stocks. They will have asset management arms and the asset management arms will have clients who will have, who'll be, you know, rich people. And some of those rich people will own Tesla stock. But that's a pretty sort of arm's length thing. And it's not like the bank itself is owning the Tesla stock. Now, one of the things they do do is they facilitate mergers and acquisitions and they do deals.

And one of the big deals that they did was helping Elon buy Twitter. And he needed to borrow a lot of money when he bought Twitter. And so he went to a consortium of Wall Street banks and they were like, here's $12 billion so that you can afford Twitter. And in return, you know,

You pay us interest every quarter. And there was a lot of doubt about whether he would pay that interest for a while because Twitter isn't really throwing off enough cash to be able to afford those interest payments. Elon personally, of course, is more than rich enough to be able to afford them. But his net worth is also tied up in Tesla stock.

Exactly. So he was borrowing against that as well. Like when he bought Twitter, there was various sort of margin calls because the share price of Tesla was low and he was borrowing against Tesla to buy Twitter. These things get very complicated. Now, of course, the other thing that happened this week is that he took two of the companies that he owns. One is called XAI. The other one used to be called Twitter is now called XAI.

And he merged them in this kind of all stock transaction, which in any normal company, there would have been a million banks involved, a million fairness opinions involved. It would have taken months. And a bunch of banks would have made a lot of money. And that is another way that banks can make money if a major AI company buys something.

a major social network. Normally, there's a lot of fees payable. In this case, not so much. It was just Elon waking up one morning and decreeing that they were merged. And that was basically all there was. There are some banks that have more complicated relationships with Elon Musk. Morgan Stanley comes to mind. I wonder if you could explain that connection for us.

So Morgan Stanley has always prided itself as being one of the foremost, if not the foremost technology bankers in the world. And so they like banking technology billionaires and they like banking technology companies and providing whatever services those companies want. And over the very long term, they feel like that is a franchise that makes them lots of money. And

weirdly, even if any given company turns out to be a bit awkward from time to time, and God knows Elon can turn out to be awkward, if you have a reputation in the industry in Silicon Valley of being very friendly to companies, doing whatever they want, providing the liquidity that's necessary whenever it's necessary, being there to do deals and stuff, that reputation is worth a huge amount to the bank.

to the bank. And so Morgan Stanley is willing to put up with all manner of crazy from Elon, partly because Elon is a very rich man and there are lots of ways you can make money from him, and partly because it's good for their reputation in the Valley. But Elon has also caused a bit of heartburn for Morgan Stanley over the years.

Well, they did very badly initially when they underwrote the loan so that he could buy Twitter. And then they expected that they would just turn around and sell that debt into the market only to find, you know, this happened to coincide with a federal reserve rate hiking cycle. And they suddenly discovered that absolutely no one wanted the debt. And it was, and they, if you kind of tried to mark that debt to market, they lost everything.

probably over a billion dollars on those loans. Now, what has happened over the past couple of years, they held onto it, the market came back, they finally managed to move it, they finally managed to get rid of it and sell it, and now that debt belongs to a much bigger AI company, and there is a case to be made that maybe

It's worth more as a result. So all's well that ends well. But certainly there were people at Morgan Stanley who were very unhappy being stuck with a huge amount of Elon debt that they felt they couldn't really collect on if he ever stopped paying it. Are there ways that you think Wall Street has benefited from Elon Musk over, say, the past decade? And how has that changed?

So one of the things that all billionaires do is that they tend to not make money. They don't pay themselves very much. And if they ever want money to go on spending sprees to buy, you know, ketamine or whatever, they borrow against their shareholdings.

And that is a loan. And then they just roll those loans over basically until they die. And then there's a step up in basis when they die and it gets inherited by their kids. And it's one of the famous ways in which very rich people don't pay tax. They basically don't pay any income tax.

But those loans carry an interest rate. And, you know, rich people tend to spend a lot of money. They buy houses, they buy boats, they buy private jets. Elon famously has, you know, a private jet that he's on all the time. And the interest payments on those loans go to Wall Street. So that's one obvious way that Wall Street ends up getting paid by billionaires in general and by Elon in particular. Elon also has...

countless companies. He's constantly starting new companies. And whenever you start a company, you know, there's always fees involved in that. He's, um, he's doing fundraising. So he's selling shares in XAI. He's selling shares in SpaceX. He's selling shares in Neuralink and the boring company and God knows what else. He's even selling shares in Twitter quite recently before he converted them into XAI shares and all of those deals. Um, there's

Sometimes banks involved, there's nearly always lawyers involved. If you think about the big Wall Street law firms as being part of Wall Street, which they really are, then yeah, they make a lot of money from him too. Apparently Morgan Stanley and Sullivan and Cromwell were on both sides of the XAI deal. I mean, it's nice work if you can get it. When we come back, why your 401k probably has Tesla in it, even if you don't want it to.

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I think one of the things that is so interesting here is the tension between moneymaking and chaos, right? Moneymaking, not always, but often likes some degree of predictability.

The past few months have been the opposite of that. I'm looking at this JP Morgan note that says, we struggle to think of anything analogous when they're talking about Tesla and what has happened to the value of Tesla and what Elon has essentially done to the stock price. And I guess what I'm trying to puzzle through, is there ever a place where chaos outweighs moneymaking? Sometimes chaos is moneymaking. There is a

famous company in finance world and in crypto world called strategy that used to be called micro strategy. And basically what it is, is it's a pile of Bitcoin. Do not ask how this makes any sense. It's crypto. It makes no sense because it's a pile of Bitcoin. It's highly volatile because Bitcoin is volatile. And also they've borrowed money to buy the Bitcoin. So that's a leveraged bet on Bitcoin. So that makes it even more volatile. And basically,

What they do is they issue these things called convertible bonds, which I will not bother to go into the gory detail of what a convertible bond is, but suffice to say that convertible bonds are worth more

the more volatile the stock is. And so what they do is they max up the volatility and the chaos that is underlying their share price. And precisely because the share price is chaotic and volatile, they get to borrow money very cheaply through the convertible bond market. It's kind of wild. I mean, that makes sense, I guess, if you're a company doing that. It makes

less sense or the embrace of chaos makes less sense if you are a large institutional investor, a vanguard, a black rock that has ETFs that have Tesla in them. Well, that is one of the, um,

great fortunes of Elon Musk is that a few years ago, with some reluctance, actually, S&P Dow Jones indices finally allowed Tesla into the S&P 500. Once Tesla became an S&P 500 stock, anyone who benchmarks the S&P 500, which is

probably the majority of investors in the world. Right. That's everybody who's got a 401k. That's what your plan is probably doing. They basically had to buy Tesla because if you didn't buy Tesla and if it went through the roof, which it was prone to do on a regular basis, then you would massively underperform the index and you'd be fired. So there is now an enormous amount of money that owns Tesla stock at places like BlackRock and Vanguard.

They own it just because it's in the S&P 500 and they will never sell those shares so long as Tesla remains in the S&P 500. And they are the ultimate buy and hold investor who they're just going to be there forever and they don't even have any choice in the matter. This is where I see the fundamental tension in some of these investments.

campaigns to get people to sell Tesla, boycott Tesla. You have individuals maybe who own Tesla who bought it for environmental reasons, right? Five, six years ago. But if Vanguard, BlackRock, et cetera, aren't getting rid of their Tesla holdings, does any of that matter?

So normally this conversation is one that happens around gun manufacturers or big oil companies or something like that. Cigarettes. Cigarettes, exactly. People will look at a company, they'll say, this is a bad company. We don't like this company. We should not only boycott the products of the company, but we should actually also divest our shareholdings of the company.

And just on a kind of overall, I want to be an ethical person and I don't want to make money from the profits of a bad company level.

That is a perfectly reasonable, ethical stance to take. If you don't want to profit from Elon, then by all means, sell your Tesla stock. It is naive in the extreme to believe that selling your Tesla stock will be bad for the share price or bad for Elon. Like it's going to be, it's, it's,

It's just going to, it might make the shares drop a little bit. They'll be bought up by some opportunistic hedge fund. And yeah, you're not going to cause any kind of long-term discount for the stock, but you will find it easier to go to sleep at night. So in that way, it sounds like the real value of Tesla writ broadly to the finance industry is just that it exists in the S&P 500 and that institutional investors have to buy it.

Tesla, at some point, is one of the most valuable companies in the world. There are many months in which it is worth significantly more than a trillion dollars. It's kind of wild. That's bonkers. It is bonkers. But it is kind of wild that this company that is not making a huge amount of money could be worth this.

over a trillion dollars. And so one of the things that it does, actually one of the massive places where it creates value for Wall Street that we haven't talked about, is that it's a meme stock. And the big stock trading companies like Citadel and Knight and Virtue and people like that, they make a fortune from people buying and selling Tesla every day. If you look at the top...

25 stocks. There's a little email I get every day from a company called Interactive Brokers saying, here are the top 25 stocks that retail investors, the individual investors are buying and selling. Tesla is always one of the top. By volume?

By volume. Tesla is always one of the top two or three stocks, and it is always being bought. I've never seen a net selling in Tesla. And so you just have this constant stream of small investors buying Tesla stock, buying Tesla options, buying ETS that are levered plays on Tesla, doing all of this crazy speculation on Tesla, which at its heart really is a meme stock more than it is a car company.

And all of that speculation that is very popular on, you know, Wall Street bets on Reddit ultimately is extremely profitable to Wall Street. And ultimately, all of that speculation is really just speculation about Elon Musk. Yeah, it's definitely one of those stocks where people are buying and selling the Musk vibes way more than they are sort of doing discounted cash flow analysis on the Model X.

If Elon, the brand, is somehow still extremely valuable, Tesla, the car company, is staring down a more existential threat, one that seems likely to take a bite out of its underlying value.

BYD, the Chinese electric vehicle company, is rapidly becoming one of the most popular EVs in the world. The thing that is really becoming increasingly global is the market in electric vehicles. If you don't sell your EVs globally, you cannot compete.

And there is one company that is very good at selling EVs globally, and that is BYD, the big Chinese EV giant. And there is one country in the world where BYD basically can't sell its EVs, and that's America. But America is not

that important in the grand global scheme of things. We forget that, but it's true. BYD can become a global dominant behemoth in EVs. Chinese EV technology is basically significantly ahead of U.S. EV technology at this point. All of the world wants to buy Chinese EVs. They are better and cheaper than American EVs. And if

You are buying Tesla at any valuation near a trillion dollars. On some level, the bet you are making is that Tesla is going to become the global EV hegemon. And that just doesn't seem very likely right now. It is much more likely that that role is going to be played by BYD. No one wants Teslas. You know, Europe doesn't want Teslas. They'd be happier buying BYDs. So...

Elon is playing a very, very high-risk game. Now, he always plays high-risk games. He's a risk junkie. But he is somehow trying to create a company that can sell cars around the world, including in China, in the face of, you know, while also simultaneously...

working hand in glove with Donald Trump, whose main purpose in life seems to be to piss off China. It's hard to see how he makes that work. It's hard to see how Tesla is going to be a major player in China when there are many better and cheaper cars already available in China. And so the big picture when we're talking about Tesla has to be the question of EVs. That is like the bulk of its business and will be for the foreseeable future.

And it's really hard to see how Tesla can compete with the Chinese. So we have to talk about whatever the next act of Doge and Elon vis-a-vis Doge actually is. Because on the one hand, earlier this week,

All of the money that Elon put into the Wisconsin Supreme Court race seems not to have paid off for him. And the White House is clearly sending out Elon's going away vibes. So how then does that impact the

the Elon Musk trade. Does that impact the bet on him, bet on Tesla, whatever you want to call it? So if you look at the stock action on Wednesday, the broad consensus in the market seems to be that

Elon leaving the government is ultimately a good thing for Tesla and a good thing for his companies that it turns out that him being ensconced in the White House didn't turn out to be such a great thing after all, partly because people stopped buying Teslas and partly because he just doesn't have

the kind of preternatural control over Republican voters that Trump has. And when he goes to Wisconsin and tries to sway an election, that ends up backfiring in his face. Like, the margin in Wisconsin was so large that it really looked as though if Elon hadn't been there at all and had spent zero dollars, the Republican would have done better.

And once the Republicans realize that, I think it becomes very natural. Like the White House doesn't really want him playing politics anymore. The stock market really does want him back in the driver's seat at Tesla. And so that's the natural thing for him to do. Can you see a scenario, any scenario in which Wall Street gets sick of Elon Musk and his antics?

I mean, I have lost count of the number of times that Wall Street has got sick of Elon Musk and his antics. And yet they always come back. Well, I mean, Wall Street is not some kind of monolith. Again, we need to. Yes, let's differentiate. We need to differentiate between the investors who are buying Tesla stock and Wall Street.

The investors who are buying Tesla stock are largely Elon fanboys who really want to buy Tesla stock and all power to them. If they make money or lose money, it's all the game to them. It's a fun game. They do not represent Wall Street in any way, shape, or form. Even Morgan Stanley doesn't really represent Wall Street. I think a lot of...

boring old men in suits on Wall Street would love it if Elon just went away because he is making everything less predictable. He is

creating a bunch of chaos in, you know, really boring bits of the Delaware Chancery Court that people care about on Wall Street. And they don't like what's happening in Delaware because it's very bad for minority shareholders. But Delaware is feeling forced that it needs to do these things because Elon. And when the SEC puts, you know, constraints on Elon, Elon

Elon ignores them. And then the SEC just doesn't seem to be able to enforce it. When Delaware courts say that he's not allowed to be paid lots of money, Elon just ignores it. And he's like, well, never mind. I'm going to move to Texas and now out of Delaware. And Elon has this ability to basically just say to Wall Street, you guys are all playing by the rules. I'm not going to play by the rules and I'm going to become the richest man in the world. And that is deeply upsetting to a lot of

conservative Wall Street types. And Wall Street at its heart is quite a conservative place. Does it have any power? And again, I know we're talking about something that is highly differentiated, but also in the aggregate, the finance sector has a tremendous amount of power, both in terms of the kinds of political candidates it supports, the phone calls that the CEO of a bank can get.

you know, can get someone in Washington to take. And that's where I'm just looking at the nub of this relationship and trying to figure out if there's a moment when they say, wait a minute, you can't, you know, disrupt the entire research arm of the pharmaceutical industry, you know, the entire research pipeline of the United States. Like, does that ever trigger pushback?

If you look at the amount of money that Kamala Harris raised from Wall Street in 2024, it was way, way bigger than the amount that Trump raised, right? Like, Wall Street has been broadly pro-Democrat and anti-Trump for quite a while now.

And people don't necessarily realize this. I think this is like an underappreciated fact. Because you have people like Steve Schwartzman, you know, out there saying, well, I'm throwing in with Trump. Or Howard Lutnick or, you know, people like that. But broadly speaking, Wall Street, you know, if you look at all of the very...

various lead former leaders of Goldman Sachs who went into government, like nearly all of them joined democratic administrations. You know, the only real exception was Gary Cohn and he didn't last very long under Trump one. So wall street does, I think have a large number of people who would really love it if all of this Elon chaos went away, but I'm not sure that they have the sort of

to collectively punish him. I'm not sure how they would do that. I mean, I think I would always be wary of thinking that Wall Street exists to do anything other than make money. That is their job. It's not moral or immoral. It just is. Right. But even if they wanted to sort of take him down a couple of notches, you know, to make a point, I don't know how they would do that.

Felix Salmon, thank you very much. Thanks, Lizzie. Felix Salmon is the chief financial correspondent at Axios and a co-host of Slate Money. That is it for our show today. What Next TBD is produced by Evan Campbell and Patrick Ford. Our show is edited by Rob Gunther. Slate is run by Hilary Fry and TBD is part of the larger What Next family. And if you are looking for more Slate podcasts to listen to, subscribe to Slate Plus.

You get access to more TBD stories, including Friday's episode of The Discourse, where you can hear all about what happened after we launched our ridiculous meme coin and got rich, at least for a few hours. All right, we'll be back next week with more episodes. I'm Lizzie O'Leary. Thanks for listening.

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