đź”’ Elon Musk: A week of success – With insights from The Wall Street Journal

James Freeman’s daily ‘Best of the Web’ column is written for our partners at the Wall Street Journal. His remit, as the title suggests, is pointing us to commentary on the most newsworthy events of the moment. In today’s episode he takes at look at an amazing week for SA’s most famous entrepreneurial export. – Alec Hogg


Elon Musk’s next frontier

SpaceX carries astronauts to the International Space Station and Tesla will join the S&P500 

Except for a Covid diagnosis, it’s been a great week for entrepreneur Elon Musk. His rocket and spacecraft company SpaceX scored another success and his electric-car company Tesla hit a huge market milestone. But will shares in the latter experience the pull of gravity when consumers study the environmental costs?

Jackie Wattles of CNN reports on Mr. Musk’s latest triumph, which occurred 262 miles above the earth:

The SpaceX Crew Dragon spacecraft that launched from Florida’s Kennedy Space Center with four astronauts on board Sunday night safely docked with the International Space Station around 11 p.m. ET Monday.

The spacecraft glided toward the station, closing the gap before latching onto a port on the ISS’s center module… the spacecraft and the ISS were traveling at roughly the same speed — more than 17,000 miles per hour, the speed necessary to keep objects orbiting the Earth.
The astronauts — Michael Hopkins, Victor Glover and Shannon Walker with NASA, and Soichi Noguchi, an astronaut with Japan’s space agency — emerged beaming from the capsule about two hours later after a series of checks were performed to ensure that the spacecraft and the ISS had an air-tight seal…. The newly arrived astronauts shared hugs and greeting with NASA astronaut Kate Rubins and Russia’s Sergey Ryzhikov and Sergey Kud-Sverchkov, who are already onboard the ISS. They arrived last month on a Russian Soyuz spacecraft.

Scott Neuman and Russell Lewis of National Public Radio add:

The flight marks only the second crewed flight for Crew Dragon, which became the first commercial vehicle to put humans in orbit when astronauts Doug Hurley and Bob Behnken launched in May.

“SpaceX, this is Resilience. Excellent job, right down the center,” commander Hopkins radioed to mission control after the docking. “SpaceX and NASA, congratulations.”

Resilience is the name of the capsule that carried the astronauts. Back on earth, shares in Mr. Musk’s car company have been much more than resilient. On Monday S&P Dow Jones Indices announced that the soaring Tesla shares will join the S&P 500 stock index on Dec. 21.

The Journal’s Heather Somerville reported Monday:

The inclusion elevates Tesla’s profile among public market investors and validates what was once a niche and highly unprofitable Silicon Valley company. Tesla also has more broadly changed the car industry’s mind-set around electric cars and ignited a race toward electrification, with most rivals now offering or introducing rival products.

The race to electrify the auto industry has lately been profitable for Tesla. But as the Journal’s Amrith Ramkumar reports, there’s a difference between Tesla and the other tech giants like Apple and Microsoft that make up an increasing share of the S&P 500:

Tesla makes much less money than those companies, but its addition to that group will now increase attention on its financial results and the movement of its shares. The company last month posted a fifth consecutive profit and record quarterly sales despite the coronavirus pandemic, and its surging valuation has caused enormous losses for investors who bet against the stock in recent years.

To this point Tesla doubters have indeed been punished for their skepticism. But there remain questions about the composition of Tesla’s earnings, not just their size. In September, the Journal’s Gunjan Banerji and Michael Wursthorn explained why the company had not already been added to the S&P 500:

Analysts pointed to a few factors potentially holding the company back, such as its profitability metrics and sales of regulatory credits to other auto makers. Tesla made more than $1 billion from such regulatory credits over the past four quarters, its financials show. That is more than double its profits over the past four quarters.

“The quality of earnings could be a key issue with the committee,” Stephanie Hill, head of index-business and strategy at Mellon, wrote in commentary ahead of S&P’s announcement. “Tesla’s positive profitability has been driven by the sale of regulatory credits to other auto manufacturers who need offsets in order to reach their emissions standards.”
Ms. Hill said volatility in Tesla’s shares alongside the sustainability of the company’s returns also could play a role. Tesla reported $428 million in revenue from the sale of emissions credits in the most recent quarter, along with net income of $104 million.
Investors who believe that Tesla will need to rely on favorable environmental policy and/or enthusiastic environmentally conscious consumers to meet growth expectations may be interested in a new report from Ben Lieberman of the Competitive Enterprise Institute. He notes that an electric vehicle (EV) carries its own environmental consequences, including from the mining of materials to create its battery, the significant energy needed to manufacture it, and the challenge of disposing of spent batteries. Mr. Lieberman adds:
Replacing gasoline with electricity as the energy source for personal transportation does not eliminate emissions of air pollutants and carbon dioxide so much as displace them. If coal-fired electricity were to continue to be a significant part of the generation mix, then the emissions reductions from the transition may be minor and possibly nonexistent. But even if a transformation of the vehicle fleet to EVs is accompanied by an equally difficult buildout of renewable electricity generation, there will still be significant environmental impacts…
China figures prominently in the mining and processing of most materials required to make EV batteries. This includes domestic activity and substantial investments in mines and processing facilities around the globe. China has a commanding share of the global market for most of the necessary inputs, particularly for lithium, cobalt, graphite, and rare earths. As with much Chinese- directed industrial activity, most of this mining and processing is subject to minimal environmental protections and is largely powered by coal…
As for the benefits of electric cars, they may fall well short of the expectations of environmentally sensitive consumers, especially if, as is likely, the U.S. continues to rely heavily on fossil fuels to generate electricity. Mr. Lieberman writes:
One study, based on the U.S. Energy Information Administration’s (EIA) 2018 projections of the future electricity mix to 2050, finds that a large-scale switch… to EVs would lead to slightly higher emissions overall of air pollutants and a less than 1 percent drop in carbon dioxide emissions…
Even assuming an all-renewable electricity future, there would still be serious environmental impacts. By one estimate, an additional 635 Terawatt-hours or 13 percent more electricity generation would be needed for an all-electric vehicle fleet by 2050. If this additional electricity is generated by wind, it would require new turbines spanning 31,000 square miles of land, an area the size of South Carolina.

Mr. Freeman is the co-author of “The Cost: Trump, China and American Revival.”

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(Teresa Vozzo helps compile Best of the Web.)