Why Tesla Is a Different Trillion-Dollar Company - The New York Times

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The car maker attained $1 trillion market value, but it’s different from others in that group in some big ways.

Is Elon Musk looking at Tesla’s stock price?Brendan McDermid/Reuters

The newest member of the trillion club

It finally happened: Tesla yesterday attained a $1 trillion market cap — a rarefied level previously reached only by Apple, Microsoft, Amazon and Alphabet — thanks to a roughly $4 billion deal to sell 100,000 vehicles to the rental car company Hertz. But it’s worth remembering how Elon Musk’s company differs from the rest of that group:

• It has a junk bond rating. Tesla’s nearly $10 billion in long-term debt was recently raised to BB+, one level below investment grade.

• Regulators had accused its C.E.O. of securities fraud. Musk and the company settled a lawsuit by the Securities and Exchange Commission, without admitting guilt, for $40 million.

• Its sales and earnings are far lower than others. Tesla is forecast to earn $6 billion next year, a fifth as much as Amazon, and nearly a twentieth of Apple.

The debate over Tesla’s valuation rages on. Tesla is worth more than virtually every other major carmaker in the world combined. Analysts are squarely of two minds about its current level. In the bull camp: Daniel Ives of Wedbush Securities, who tweeted yesterday, “Tesla hitting $1 trillion is just for starters.” In the bear camp: Craig Irwin of Roth Capital Partners, who wrote in a client note last week that Tesla’s stock — which then traded at 173 times next year’s earnings — was “egregiously overvalued.”

What’s undeniable is Musk’s rapidly rising net worth. Tesla’s latest accomplishment puts its C.E.O. above Jeff Bezos as the world’s richest person, and Musk could be setting a new high bar for executive compensation. Three years ago, when Tesla was worth $50 billion, the company’s board promised Musk a huge grant of stock if he could, among other things, bolster the company’s market value beyond $650 billion. Last week, Musk collected a stock grant worth roughly $8 billion. He could qualify for another $8 billion stock payout as soon as the middle of next year.

HERE’S WHAT’S HAPPENING

A unionization drive at Amazon warehouses in New York City advances. The National Labor Relations Board ruled yesterday that the campaign at Staten Island facilities could go to a vote. A Times investigation this year found that Amazon had pressured employees at one warehouse to return to work before Covid case counts were under control.

Joe Manchin is closer to a “yes” on President Biden’s spending plan. The West Virginia senator said he was open to a plan to tax billionaires’ unrealized capital gains as a way to pay for the expansive budget package. But a potential sticking point remains: the overall cost of the Biden plan.

Leon Black may face more legal scrutiny. The billionaire is reportedly being investigated by the Manhattan district attorney’s office over claims by two women claims that he sexually assaulted them, according to Vanity Fair. (Black has denied the accusations.) He, who was the main client of the disgraced financier Jeffrey Epstein in recent years, stepped down as Apollo Global Management’s chief this year.

The F.C.C. will get its first permanent female leader. The White House is expected to name Jessica Rosenworcel as the agency’s formal head, months after she took on the role on an acting basis. Rosenworcel is known for opposing the Trump administration’s efforts to roll back net-neutrality rules.

Volvo shrinks its I.P.O. after investor pushback. The Swedish carmaker will sell 20 percent fewer shares in its stock offering and cut its pricing expectations, after prospective investors expressed concerns over the company’s valuation and how much control its Chinese parent, Geely, would have.

Tyson Foods is more than 96 percent vaccinated

Nearly three months after Tyson mandated vaccines for all of its 120,000 U.S. workers, almost all are vaccinated, the company’s C.E.O., Donnie King, wrote in an employee memo this morning. Those results will be closely examined by other corporate leaders, as they await more details about the Biden administration’s plan to order large employers to require coronavirus vaccination or weekly testing.

Nearly 60,000 Tyson employees got vaccinated after the mandate, King wrote. The meatpacking giant announced its policy on Aug. 3, when less than half of its workers were inoculated. Tyson was one of the first major companies to require vaccinations after incentives like paid time off started to lose traction. Its stance was notable because the mandate included frontline workers, even amid labor shortage concerns.

“We hit this number thanks to the many, many thousands of individual conversations,” King said. To help encourage vaccinations, executives visited plants to conduct small group conversations about the vaccines and hosted a panel with doctors to address common vaccine myths.

Tyson is offering religious and medical accommodations to the mandate. It does not have a cutoff date for evaluating those considerations, a spokesman told DealBook. Tyson will assess those accommodations “based on careful consideration of the individual facts and our commitment to the safety of our employees.” But some unvaccinated employees who are granted exemptions will be placed on leave.

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Understand the Facebook Papers

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A tech giant in trouble. The leak of internal documents by a former Facebook employee has provided an intimate look at the operations of the secretive social media company and renewed calls for better regulations of the company’s wide reach into the lives of its users.

How it began. In September, The Wall Street Journal published The Facebook Files, a series of reports based on leaked Facebook documents. The series exposed evidence that Facebook knew Instagram, one of its products, was worsening body-image issues among teenagers.

The whistle-blower. During an interview with “60 Minutes” that aired Oct. 3, Frances Haugen, a Facebook product manager who left the company in May, revealed that she was responsible for the leak of those internal documents.

Ms. Haugen’s testimony in Congress. On Oct. 5, Ms. Haugen testified before a Senate subcommittee, saying that Facebook was willing to use hateful and harmful content on its site to keep users coming back. Facebook executives, including Mark Zuckerberg, called her accusations untrue.

The Facebook Papers. Ms. Haugen also filed a complaint with the Securities and Exchange Commission and provided the documents to Congress in redacted form. A congressional staff member then supplied the documents, known as the Facebook Papers, to several news organizations, including The New York Times.

New revelations. Documents from the Facebook Papers show the degree to which Facebook knew of extremist groups on its site trying to polarize American voters before the election. They also reveal that internal researchers had repeatedly determined how Facebook’s key features amplified toxic content on the platform.

Beyond Facebook’s P.R. woes

Yesterday was a tough day for Facebook’s reputation, as more than a dozen news organizations published reports based on thousands of internal documents leaked by a former product manager turned whistle-blower. But there are important concerns beyond the P.R. hit: Does Facebook face legal or financial hits from the flood of revelations?

On the legal front:

• Whistle-blowers have filed at least nine complaints against Facebook with the S.E.C., The Times’s Cecilia Kang reports, accusing the company of misleading investors about its business health in a number of ways, including downplaying its fears of losing younger users and exaggerating its efforts to stop the spread of misinformation and hate speech. Experts say a case from securities regulators probably isn’t a guaranteed winner because regulators would have to show that executives had intended to deceive and that disclosing such debates would have changed investors’ behavior.

• But the leaked documents do show internal metrics depicting Facebook’s overall market dominance in key areas, despite the company’s declining popularity among younger users. Those could be helpful in the Federal Trade Commission’s antitrust case against the company, according to Politico.

On the business front:

• Facebook reported a 17 percent jump in quarterly profit compared with the same period a year ago. Advertising revenue rose 33 percent despite the company’s concerns that new restrictions on ad-tracking on iPhones would hurt its business, and shares in the company rose over 2 percent in after-hours trading.

• That said, company executives warned of potential hits to future results. Mark Zuckerberg told analysts that the company would refocus on younger users — a move meant to keep its platforms relevant — but that the effort would take years. And Zuckerberg warned that investments in its so-called metaverse business of virtual and augmented reality would dent its 2021 profits by $10 billion.

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“The original sin was an oversized American Rescue Plan. It contributed to both higher output but also higher prices.”

— Jason Furman, a Harvard economist and Obama administration official, who is one of a growing number of economists who say President Biden’s struggle with inflation is self-inflicted.

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Why experts are worried about the Trump SPAC

Shares of Digital World Acquisition — the SPAC that agreed last week to take Donald Trump’s media start-up public — have soared over 850 percent since the deal was announced. That’s probably because of the former president’s following. But securities experts tell DealBook that the trading also highlights problems with the general structure of SPACs — and this one specifically.

• SPACs generally have relatively few shares available to trade because sponsors and anchor investors typically hold up to 30 percent of a fund’s total shares. The prospectus for Digital World’s I.P.O. disclosed that the deal’s 11 anchor investors indicated that they would buy up to 91.3 percent of the SPAC’s shares in the offering, though it’s unclear if they have done so. That scarcity often helps push up a fund’s stock price, as investors bid up for relatively few shares. But it can also create a risk for investors who buy in afterward if anchor investors decide to dump their shares all at once. Several initial investors, including Saba Capital, have said they’re selling their unrestricted holdings in Digital World.

• It’s harder to bet against a SPAC. James Angel, a finance professor at Georgetown University, notes that the limited number of available shares in the days after the merger was announced meant that it wasn’t easy for investors to borrow shares to short Digital World’s stock, which can help cap a runaway stock price. (That said, the short-seller Iceberg Research said it had begun betting against Digital World’s shares.)

• There’s little available on the deal. SPACs have been criticized for disclosing few details about a target company, and Trump and Digital World have offered even less than normal: Their deal’s announcement, for instance, doesn’t even name a C.E.O. for the new social media company.

These factors could lead to an array of consequences for SPACs. The frenzied trading in Digital World appears to have cooled off since last week, and some traders may already be nursing losses. If retail investors end up taking a bath on the Trump SPAC, it will give regulators — who are already looking closely at these blank-check funds — a high-profile example of why SPAC regulations need an overhaul.

THE SPEED READ

Deals

• Allbirds, the eco-friendly sneaker maker, is seeking a $2 billion valuation in its I.P.O. (Reuters)

• Tiger Global, the big tech investor, raised nearly $9 billion for its latest fund. (Bloomberg)

• The U.S. junk-bond market is bigger than ever. (FT)

Policy

• Private equity and hedge funds spend more than $625 million on lobbying and campaign spending in the 2020 election cycle, according to a new study. (CNBC)

• A bill to bolster America’s economic competitiveness with China has stalled in Congress amid disagreements between the Senate and the House. (Politico)

• Turkey’s lira recovered after the country’s government backed off threats to expel 10 Western diplomats. (FT)

Best of the rest

• United Airlines said unvaccinated pilots are costing it nearly $3 million a month. (Insider)

• Cisco wants to bring holograms to remote working. (Fast Company)

• Jeff Bezos’s rocket company now wants to build a space station. (NYT)

• Is the new Bitcoin-linked E.T.F. too big to fail? (Insider)

• The Japanese government is having a hard time quitting floppy disks. (Nikkei)

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