WSJ US BusinessTwitter Suit Adds to Elon Musk’s Tesla, SpaceX Challenges

July 14, 20220
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Tesla and SpaceX didn’t respond to requests for comment.

Tesla, still the world’s most valuable auto maker by far, earlier this month reported its first sequential decline in quarterly deliveries in more than two years, largely reflecting supply-chain disruptions and an extended factory shutdown in China because of Covid-19-related lockdowns there.

Elon Musk leaving court after testifying at the SolarCity trial in Wilmington, Del., last year.

Photo: Samuel Corum/Bloomberg News

Mr. Musk also recently described the company’s new plants in Germany and Texas as “gigantic money furnaces.” The factories opened earlier this year, but the company has struggled to increase production at both, Mr. Musk said.

“Berlin and Austin are losing billions of dollars right now because there’s a ton of expense and hardly any output,” he said in a late May interview with a Tesla owners’ club. Mr. Musk, who has been expressing concerns about the global economy, initiated a round of job cuts at the car maker last month.

Tesla’s production challenges, some of which have been largely out of the company’s control, threaten to waste a “golden opportunity” to get electric vehicles to market ahead of rivals, said Gene Munster, a managing partner at research and investment firm Loup Ventures.

“You just can’t give oxygen to your competitors,” said Mr. Munster, a longtime Tesla watcher whose firm doesn’t hold the company’s stock.

On Wednesday, Andrej Karpathy, a longtime executive who played a key role in developing Tesla’s advanced driver-assistance system known as Autopilot, said he was leaving the company. Mr. Musk, on Twitter, thanked Mr. Karpathy for his contributions.

Last year, Mr. Musk warned that if a severe global recession dried up capital availability and liquidity while SpaceX was losing billions on its Starship rocket program and its satellite-broadband service, bankruptcy wasn’t impossible. The space company was the busiest U.S. rocket-launch provider last year, handling both human flights and satellite missions.

Tesla has struggled to increase production at its Texas manufacturing facility that opened earlier this year, Elon Musk has said.

Photo: Suzanne Cordeiro/Agence France-Presse/Getty Images

The entrepreneur said he visited a company launch site in Texas after a fiery explosion on Monday under one of the company’s Super Heavy boosters. Those towering vehicles underpin the Starship rocket system, which Mr. Musk has said Space Exploration Technologies Corp., as the company is formally known, plans to use for its most ambitious missions, including a prospective human voyage to Mars.

The National Aeronautics and Space Administration is also counting on a version of Starship to ferry astronauts to the surface of the moon as soon as 2025.

“Yeah, actually not good,” Mr. Musk wrote on Twitter in response to the explosion, saying a SpaceX team was assessing the damage. He added that the booster’s base appeared sound, though SpaceX shut down the launchpad for safety reasons. Later, he tweeted: “Damage appears to be minor, but we need to inspect all the engines.”

Jeffrey Hoffman, an aerospace engineering professor at Massachusetts Institute of Technology and former astronaut, said SpaceX faces significant hurdles developing Starship, including showing that the engines clustered under its Super Heavy boosters are able to function as designed. “The parallel operation of 33 rocket engines at the same time is a big deal,” he said, referring to the design.

SpaceX, alongside other satellite companies, is also embroiled in a regulatory battle against Dish Network Corp. and others as the Federal Communications Commission mulls new rules for the radio frequencies used to carry its signals.

SpaceX rebounded after a Falcon 9 rocket exploded in Cape Canaveral, Fla., in 2016, destroying a Facebook satellite.

Photo: U.S. Launch Report//Reuters

Soaring inflation is weighing on both Tesla and SpaceX, Mr. Musk has said. Some Tesla suppliers are requesting 20% to 30% more for parts than they did last year, Mr. Musk said in April, when the company reported record quarterly profit.

Meanwhile, some SpaceX employees signed a letter raising concerns and frustration over the CEO’s recent public statements and behavior, describing them as a source of embarrassment and distraction. The company fired at least some of the staffers involved in the effort. Gwynne Shotwell, SpaceX’s president, said the letter distracted employees and upset many of them.

Mr. Musk is also a founder of Boring Co., a tunneling enterprise, and Neuralink Corp., a neuroscience startup working on brain-implant technologies. He has at times bemoaned the workload he has heaped on himself. “It would be nice to have a bit more free time on my hands, as opposed to just working day and night from when I wake up till when I go to sleep seven days a week. It’s pretty intense,” he said last year during a Tesla analyst briefing.

Deep business challenges at Tesla and SpaceX are nothing new for Mr. Musk. The auto maker nearly went bust in 2018, Mr. Musk has said, as it struggled to increase production of its Model 3 sedan, the car that helped turn Tesla from a niche player to a mass market auto producer. Mr. Musk at one point slept on the factory floor of what was then the company’s lone U.S. car plant, in Fremont, Calif., to work through what he called “production hell.”

Once those problems were overcome, Tesla’s stock began its meteoric rise that helped turn Mr. Musk into the world’s richest man and padded the company’s coffers. Tesla was sitting on around $17.5 billion in cash as of the first quarter.

Closely held SpaceX has dealt with setbacks in its business before. For instance, one of the company’s Falcon 9 rockets exploded during a test in 2016, destroying a Facebook satellite. At the time, it was the second catastrophic failure of such a launcher in 15 months. The company made adjustments and recovered. Four years later, it launched two NASA astronauts to the International Space Station, or ISS, the first launch of humans into orbit from U.S. soil since the agency’s last shuttle mission in 2011.

Mr. Musk’s businesses have notched notable successes in recent months. In addition to its record profits earlier in the year, Tesla reported its highest-ever vehicle production in June, with output at the Shanghai plant recovering. That month, NASA said it intended to hire SpaceX to handle five additional crewed flights to the ISS, a plan that would add to the nine flights the agency had already acquired under a contract valued at about $3.5 billion.

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SpaceX also regularly blasts satellites to orbit for commercial customers and U.S. spy agencies, while Starlink, its satellite-internet business, recently won regulatory approval to provide service to planes, boats and recreational vehicles.

Tesla’s share price has fallen more than 40% from its November high, but the company’s roughly $737 billion valuation as of Wednesday was still higher than the next eight auto makers combined. SpaceX’s valuation this year reached around $125 billion after it raised more than $1.7 billion, topping that of more established aerospace powerhouses Boeing Co. and Lockheed Martin Corp.

Write to Rebecca Elliott at rebecca.elliott@wsj.com and Micah Maidenberg at micah.maidenberg@wsj.com

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