Published on November 12th, 2018 | by Steve Hanley0
Baillie Gifford Manager Talks About Elon Musk, Tesla, & Kodak Moments
November 12th, 2018 by Steve Hanley
Baillie Gifford is an investment management firm established in 1908 in Edinburgh, Scotland, where it is still headquartered. It currently manages assets valued at nearly $200 billion for its clients. It is also the third largest stockholder in Tesla with more than 13 million shares owned. At today’s prices, its stake in the company is worth about $5 billion. Recently, Nick Thomas, one of the 44 active partners in Baillie Gifford, told the press his firm would be willing to invest more money in Tesla if the need arose.
Iain McCombie is the partner in charge of the Baillie Gifford Managed Fund. He has had a few things to say about Elon Musk and the future of the auto industry. Unless you live in a cabin in the woods with no internet access, you know that Musk has come under fire for tweeting in August that he was considering taking Tesla private and had already arranged for the financing to make that happen.
The SEC was not amused and sued Musk, claiming his statement had improperly influenced the price of Tesla stock, which Musk hotly denied. Nevertheless, both Musk and Tesla each agreed to pay a $20 million fine to settle the suit, a cost Musk later claimed was “totally worth it.” Asked about Musk and his Twitter activities, McCombie acknowledged they “are a giant distraction.” That’s not an endorsement. “They’re an embarrassment and I wish he wouldn’t do it,” McCombie added, according to a report by Yahoo! Finance.
He then went on to defend Musk, saying, “You might not like Musk, and I’m not condoning what he did, but you can’t deny the fact that he’s done some pretty remarkable things. And that is often what a lot of entrepreneurs are like. They’re eccentric, they’re not everyone’s cup of tea and they challenge conventional wisdom.” He thinks if Henry Ford had access to Twitter, Musk’s tweets “would be pretty mild in comparison.”
The Kodak Moment
McCombie says he thinks traditional car companies are in danger of experiencing “Kodak moments” of their own. He says, “What happened with Kodak is they actually discovered the digital camera but they buried it because it was too frightening for them. They thought it would kill their film business. But the fact that they didn’t innovate killed Kodak.” (Innovation is Tesla’s — and anyone else’s — premier path to success, according to Tesla CEO Elon Musk.)
McCombie finds it astonishing that Tesla is now outselling Mercedes-Benz in the US market. “Now, Daimler’s been in the market for 100-plus years and here’s this upstart and they’re outselling them in the US. If you’d said that a few years ago, you’d probably have been locked up, but that’s happening.”
What Tesla is doing he puts down partially to the “genius of Musk” and partially to the inability of traditional automakers to adapt to changing market circumstances. “They spent hundreds of years building up their know-how in industrial combustion engines and they do a great job with that, but what happens if all of us are suddenly saying ‘oh, I want an electric car’? Suddenly, that know-how is useless,” he says.
“Maybe they are launching electric vehicles, but the bulk of their sales are still coming from legacy products. They’ve built wonderful businesses for themselves, but what happens when the business is changing? That’s why your Tesla is exciting, because they don’t have those legacy issues. We don’t think it’s all about Tesla owning the market — we expect other people to come into the market. But what we’re thinking is the market will expand dramatically.”
There are lots of risks and “we could still be wrong,” McCombie admits. But when a company with $200 billion of assets under management makes pronouncements like this, the odds are the people running it know a thing or two about risk and prudent investing.
Here at CleanTechnica, we have been saying for years that traditional car companies are in danger of going out of business regardless of how many cars they sold last year or in the last decade or even in the last century. Today, there are only two car companies in the US that have never gone bankrupt — Tesla and Ford. If you own a crystal ball, ask it which one company is most likely to be next to implode the way Kodak did. Hint: it starts with an “F.”