Tesla Hit Hard by IRA... Even a Cat Can't Be Entrusted to Musk

[Asia Economy New York=Special Correspondent Seulgina Jo] Paul Krugman, Nobel Prize-winning economist and professor at the City University of New York, predicted that the rapid popularization of electric vehicles due to the implementation of the U.S. Inflation Reduction Act (IRA) would actually harm Tesla. Regarding Tesla's CEO Elon Musk, he criticized him as "someone who couldn't even be trusted to take care of a cat, let alone run a large corporation."

On the 27th (local time), Professor Krugman analyzed Tesla, whose stock price recently plummeted, in a New York Times (NYT) column, saying, "It is part of the overall decline in tech stocks, but the drop is exceptionally steep."

[Image source=AP Yonhap News]

First, Professor Krugman pointed out Tesla's ownership risk, saying, "Judging by Musk's behavior, I wouldn't trust him to feed my cat, let alone manage a large corporation." He added, "As far as I know, Musk has been a very capable leader at Tesla and SpaceX," but also mentioned that he is well aware of people who are geniuses in certain fields but complete fools in others.

Additionally, Professor Krugman criticized the enormous valuation assigned to Tesla before the sharp decline, saying, "It is difficult to explain the huge valuation given to Tesla before the plunge," and pointed out that such a valuation requires not just a few years but long-term substantial profits. Apple and Microsoft (MS), which have remained at the top of the list of profitable U.S. companies even 40 years after the advent of personal computers, are representative examples.

However, Professor Krugman noted that it is hard to understand how Tesla could achieve something similar to these companies. He said, "Apple and MS enjoy the strong advantage of 'network externalities.' Everyone uses their products because others use them," and added, "A similar story can be told about Amazon, which has a distribution infrastructure. But where are the strong network externalities in the electric vehicle business?"

Professor Krugman said, "Electric vehicles could be the future of personal transportation," but he believed it would be difficult for Tesla to dominate the electric vehicle industry for a long time. This is because major automakers have all jumped into the electric vehicle business, eliminating the possibility of Tesla securing an overwhelming position.

He also argued that the Inflation Reduction Act, which provides tax credit benefits for North American-made electric vehicles, "will harm Tesla." The reason is that "electric vehicles will become so common that Tesla will no longer seem special." He concluded, "Electric vehicles are not a business with network externalities."

Professor Krugman evaluated, "When it comes back to the question of whether Tesla is really such a valuable company, my best answer is that investors have fallen in love with the storyline of a great and wonderful innovator." He explained that the illusion about the innovator Musk drove Tesla's stock price rise.

At the beginning of the column, Professor Krugman noted significant similarities between Tesla and Bitcoin, saying, "Despite years of effort, no one has found a serious use for cryptocurrency other than money laundering. Nevertheless, cryptocurrency prices soared and are still maintained by believers who trust in its value," adding, "There is a similarity here." He evaluated, "Even though Tesla is actually making something useful (electric vehicles), something similar clearly happened with Tesla."

Professor Krugman concluded the column by saying, "In the end, we will see what happens," but added, "One thing is certain: I would not trust Musk with my cat."

Once a member of the trillion-dollar market cap club and ranked in the top 5, Tesla has fallen out of the top 10 in market capitalization as of the 27th. The closing price that day was $109.10, the lowest since August 2020. The stock price has dropped more than 69% this year alone.

This content was produced with the assistance of AI translation services.