The 2008 Nobel Prize winner in economics and well-known economist Paul Krugman, electric car maker Tesla will never become a “profit machine” like Apple or Microsoft.
Paul Krugman believes that Tesla, led by Elon Musk, will not be able to establish an unchallenged market position in the automotive industry.
When more people use a product, more users benefit and will rush to buy it, which is the network effect. That network effect has helped Apple and iPhone and Microsoft’s personal computer devices gain market dominance, but Krugman said Tesla electric cars are unlikely to benefit from the network effect.
In an interview on Friday, he said, “Tesla is clearly not the kind of company that can be expected to build an unchallenged monopoly by being one step ahead.”
Paul Krugman added, “Even if everything goes the way it’s supposed to, Tesla is not going to be Microsoft, and it’s not going to be Apple.” “It’s not a network externality where people want to use something because everyone else is using it. It’s very hard for people in that situation to break out of it and therefore be able to make extremely high profits that last for decades.”
Over the course of the past year, Tesla shares have plunged 65 percent. Rising interest rates have put pressure on all tech stocks, but some Tesla shareholders say the comical move by company CEO Elon Musk to acquire management tweets has also fueled a wave of selling in the company’s stock.
Last year, Elon Musk completed his acquisition of social media company Twitter for $44 billion, and subsequently fired more than half of its employees.
Leading investor Bill Miller warned about Tesla’s shrinking market share. Miller revealed that he was shorting Tesla last week because he thought it was starting to lose out to other major automakers that are gradually moving into the electric car business.
Paul Krugman argues that Apple co-founder and former CEO Steve Jobs is also known for his high degree of self-discipline and complete focus on Apple products. Elon Musk’s behavior, on the other hand, shows that he is completely different from Jobs.
Steve Jobs had a vision,” Krugman said. And let me say that at least to some extent people thought Steve Jobs was a very cool guy who wore black turtlenecks and jeans and held amazing devices that people wanted to buy, and that helped establish him.”
“I think that even if Elon Musk were as disciplined as Jobs, Tesla wouldn’t be the consistent profit machine that Apple has been,” Krugman added, “and that’s not his fault, just because cars aren’t that kind of industry.”
But Paul Krugman also said, “But, you know, I don’t know anybody else who has done as much damage to their image in as short a time as Elon Musk has.”