Most people know Henry Ford for revolutionizing American manufacturing with the assembly line.But the lesser-known story is of Ford’s unhinged hubris and eventual downfall…It came after and perhaps because of his tremendous success and fortune.Power and ego got the best of him — and, today, Ford’s downfall serves as a cautionary tale for this century’s American auto magnate and his starry-eyed fans.But before we can tell that story, we need to understand exactly what Ford got so wrong.It all started in 1896, when Henry Ford built his first experimental car in a small workshop behind his house in Detroit.By 1908, Ford was cranking out Model Ts — which became the standard for automobiles at a time when motorized cars were just starting to replace horses and buggies.
Photo of the Ford Model T, courtesy of Ford Motor Company.
What started in his workshop grew into a multibillion-dollar enterprise and the staple for American manufacturing at the turn of the century.While Ford’s innovations and tremendous success in the automotive industry are well-documented, his eventual unraveling was not.Ford’s inability to keep it all together nearly sunk his $52.7 billion company.
Money, Power and Ego: A Cautionary Tale
By 1918, the Ford Motor Company was grabbing headlines for its integrated assembly line, doubling the pay of its workers and shortening the work day to eight hours.Construction began on what would turn out to be the largest integrated factory in the world at the time.Not long after, Ford launched its first-ever truck — the Model TT.Henry Ford had reached the pinnacle of business success.The company he built in his workshop had grown to produce nearly 50% of all vehicles on the road in the U.S. — and nearly 40% of those in Great Britain.Ford was outselling the next seven brands of vehicles combined.But, in 1919, Henry Ford decided that running the world’s largest auto manufacturer wasn’t enough.His money, power and ego proved a powerful temptress, and he found himself lured into purchasing a media outlet, seemingly so he could use it as his own personal megaphone.Enter The Dearborn Independent.Since 1901, The Dearborn Independent was a weekly newspaper, delivering news to the suburb of Detroit that carried the same name.Henry Ford bought the paper in 1919.Biographers said Ford spent every day in the newspaper’s offices — which were located inside Ford’s River Rouge plant in Detroit.The paper reached 900,000 homes by 1925, largely due to Ford requiring his dealers buy them, and it became the second largest newspaper behind the New York Daily News.The articles Ford produced were unsavory at best, and they did little to boost the value of his or his company’s brand.In fact, quite the opposite … Henry Ford’s articles led to legal threats and even boycotts of the Ford Motor Company.Ford eventually shuddered The Dearborn Independent in 1927, but the damage had already been done to his once-pristine and totally dominant car business.By the time he refocused on building cars, Ford Motor’s market share dropped to 10% — and was outpaced by competitor General Motors.It was the end of Ford’s dominance in automobile manufacturing.And it all might have been avoided had Henry Ford managed his money, power and ego with grace and, simply, stayed focused on doing what made him successful in the first place … manufacturing innovative automobiles.Instead, he scratched the itch to be the country’s most loud-spoken and controversial free-speecher at the time … and in doing so his reputation and business prowess faltered.If you’ve followed markets the past few years, this must sound familiar.And if you also happen to be a shareholder of the world’s most prolific electric vehicle (EV) company … you might be sweating a bit.But if you don’t, that doesn’t mean you’re safe. Almost everyone owns shares of this company whether they bought it directly or not.And that’s why, like any good investor, we must learn from history and recognize the warning signs now…
How Henry Ford’s Downfall Is a Warning to Elon Musk
Elon Musk parlayed his wealth and influence as a co-founder of PayPal (Nasdaq: PYPL) into Tesla Inc. (Nasdaq: TSLA), where he was an early investor in the EV manufacturer and eventually bought the company in 2004.Under Musk’s leadership, the company has become a pioneer in the EV space. While Tesla sells a scant fraction of the vehicles global giants like Toyota and Volkswagen do, it beat legacy automakers to the EV punch — about 72% of new EV sales in 2021 were Teslas.Tesla’s early-mover market share in this space is indeed a success story.But just as success eventually led Henry Ford astray … there’s an uncanny parallel in Elon Musk’s behavior and decision-making over the last year or two.In general, the erratic nature of his behavior and public persona seems to have grown alongside his and Tesla’s fanatical popularity.He first raised eyebrows in 2018 when he smoked weed on Joe Rogan’s podcast.A couple weeks later, he tweeted he was “considering taking Tesla private at $420 a share” (a weed joke). That tweet now has Musk defending himself against securities fraud charges in 2023.Ever since, Musk has given the media an endless supply of material, in terms of statements and behavior no one would expect from a focused and disciplined CEO.But the company has run into potholes since October 2022 when its CEO spent $44 billion to buy the popular social media platform Twitter.Musk’s stated reasons for buying Twitter were, in a way, similar to why Ford bought The Dearborn Independent: to promote free speech and ensure all sides of a story were represented.However, the attention Musk has put into Twitter has significantly steered his time away from Tesla, creating a crisis of confidence among Tesla’s board, shareholders and potential EV buyers.Tesla’s EV market share in the U.S. following Musk’s purchase of Twitter tumbled to 58% — down from nearly 78% in the same period the year before.Since the Twitter sale, Tesla shares fell as much as 56% into December 2022.The concern amongst Tesla’s board is that Musk seems to have “taken his eye off the ball.” They think his focus is no longer on building the EV brand but salvaging a social media company he overpaid for.Two separate polls indicate the public’s perception of Tesla has waned. More Americans had a negative perception of Tesla at the end of 2022 than they did at the beginning.And, like with Ford in the 1920s, other automakers are chipping away at Tesla’s dominance in the EV space.I don’t know if Musk is spending every day at Twitter’s offices in San Francisco, but I know he isn’t spending nearly as much time at Tesla’s Austin, Texas, headquarters as he used to.One thing is certain: Musk’s Twitter distraction is costing Tesla.Millions in sales, double-digit share price losses and favorability in an ever-growing EV market.His blue bird distraction, like Ford’s newsprint, will spell doom for a company used to dominating.Most investors will sit idly by as Tesla unwinds, not knowing that it affects them even if they don’t hold a single share.But I’m not.In fact, I have a way for you to turn this situation into what could become the biggest profit windfall of your life.
Riding Tesla Into the Ground
If Tesla winds up being the biplane caught in a deadly tailspin I think it is, don’t think you’re safe simply because you don’t own the stock.As I shared last week, Tesla has made its way into the S&P 500.That means every 401(k) and pension that make up a vast majority of American retirements depends on its success.I don’t think that’s right, especially for a company that still trades so richly compared to its peers … even after sliding over 50%. And that’s on top of its CEO becoming more concerned with an unprofitable social media website than his core business.It’s Henry Ford all over again. Too many investors are exposed to a company whose market share is sliding, whose leader is distracted … and whose future is in extreme doubt.That’s why my Next Big Short is on Tesla.To be clear, this isn’t the first time I’ve shorted TSLA.In fact, I’ve already recommended several short trades to my subscribers … going all the way back to November.We’ve already locked in a 69% profit on one of the trades. But I expect what’s to come will be far bigger.Earlier this week, I released a presentation with my full thoughts on the situation in TSLA and the potential profits at stake.I believe this will be THE investing story of the year. If markets continue to unravel, TSLA will unravel faster and potentially take your retirement with it.If you haven’t already, go here to see all my research.Regards,
Adam O’DellChief Investment Strategist, Money & Markets
