Musk, Scrooge McDuck and the unfinished automotive revolution

Tesla’s board has sparked widespread debate with its decision to reward Elon Musk with one trillion dollars to keep him at the helm of the company for the next decade. For boomers, it feels like a return to the stories of Scrooge McDuck, the greedy protagonist of Disney’s 20th-century comics. And yet, despite appearing entirely unreasonable, the board’s hard-fought decision—one that took time to digest—clearly carries a dose of pragmatism that may not be evident at first glance. 

The automotive sector is among those most shaken by the disruption of the new industrial revolution. Aside from industry aficionados, anyone who has recently tried to buy a car has experienced first-hand the absence of a true market standard. Diesel, gasoline, hybrid, plug-in, electric, hydrogen (yes, a few early models do exist…). Not to mention the question of purchase models: ownership, leasing, sharing—and a bewildering array of vehicle types, from tiny cars now driven by sixteen-year-olds to giant SUVs that resemble tractors. This is the typical confusion of a Schumpeterian era of ferment, fertile ground for transformation but also for significant uncertainty in production and consumption patterns. 

And in the case of the automobile, everything is unfolding with the timing and complexity characteristic of an industry that has long been one of the main engines of the global economy. This is not only because Henry Ford’s automobile objectively “changed the world,” as the title of a classic MIT management book of the 1990s put it, but also because the sector’s industrial and distribution networks generate substantial employment. Cars are mechanically complex products, and their production has branched over the decades into industrial districts that became synonymous with jobs and productivity for generations. Their use and consumption—from insurance systems to fueling infrastructure—have also crystallized services embedded in consumers’ routines, who tend to appreciate radical innovation only in hindsight. Ford’s famous line captures this perfectly: “If I had asked my customers what they wanted, they would have said faster horses.” 

And indeed, the automobile took more than sixty years to replace the horse-drawn carriage that transported people within and between cities. Carl Benz filed the first automobile patent in 1886; the first auto show took place ten years later, in Chicago (1895); and the first “car for everyone” arrived another ten years after that (the Model T, launched in 1908). But the standardized automobile as we know it today—with a steel, closed body—did not appear until 1923. Only after World War II (in 1945!) did mass adoption transform it into a product and an investment for everyone. In other words, more than sixty years. 

Coming back to the present, things seem to be moving just as slowly. The first hybrid model dates back to 1997, released by Toyota, and Musk’s investment in Tesla dates to 2004. Three decades have already passed, and no clear solution appears on the horizon. 

Musk’s initial ambition was to drive mass adoption with the same speed Ford achieved between 1910 and 1920 with the Model T, which became affordable precisely because it was an unmodifiable unicum—not even the color could be changed. But this vision first collided with the nontrivial challenge of building a charging network. And today it runs up against the fact that the electric car is essentially a computer on four wheels, whose production requires heavy investments in components—chips—competing with other industrial sectors, since chips have become the raw material of the new industrial revolution. Their rising cost clashes with the goal of making the new automobile accessible. Not to mention the abrupt cooling of interest in green issues, once seen as the litmus test of progress—particularly in the United States and even more so in Europe, the two major automotive powers alongside Japan. 

Meanwhile, China’s BYD has overtaken Tesla in market share, even though Tesla still leads in revenue and profit. As usual, China’s state-driven industrial policies enable adoption processes that the modern Western world struggles to match. And this is precisely where reflection is needed, as suggested by the Swedish Academy’s recent Nobel Prize awarded to Aghion, Howitt, and Mokyr, economists who study Schumpeterian theory. The challenge of creative destruction (in this case, new automotive technologies replacing old ones) must be managed with institutional care by policymakers. Otherwise, everything is left to the market, with the timelines and incentives the market provides. 

Thus, returning to Musk’s compensation, the surprise may be misplaced: In the eyes of Tesla’s board, he is evidently seen as the only person capable of solving the still complicated and unresolved puzzle of establishing a new market standard for the automobile in the American context.