Tesla CEO Elon Musk has spoken out about the immense pressure public companies face to meet short-term expectations. In an X Spaces livestream with the CEO of ARK Invest, Musk said this pressure can result in a less efficient operation. “There’s immense pressure on a public company to not have a bad quarter,” he said. “This can actually result in a less efficient operation where you’re going to great lengths at the end of the quarter not to disappoint people.”
One of the reasons for this pressure is that public companies experience extreme volatility in their stock price. This year, Tesla’s share price dipped after each of the three quarterly earnings reports they released. As a result, investors became concerned about the impact of Tesla’s ongoing price war on its profit margins.
Despite these below-par results, Tesla’s stock is up 106% year-to-date. This can be attributed to the AI frenzy and hopes of a Federal Reserve pivot on interest rates, which have powered its gains. Musk believes that publicly traded stocks “go through extreme volatility, both for reasons of internal execution and for reasons that have nothing to do with anything except the economy.”
The pressure to meet short-term expectations can make it difficult for a company to prioritize other important things. “We feel like we have a sort of moral obligation not to have a bad quarter and disappoint people… I’ve lost count of how many times I was delivering cars until midnight on New Year’s Eve, personally,” added Musk.
Musk has been flagging the downsides of running a public company for over a decade. In 2013, he wrote in an email to SpaceX employees that publicly traded stocks “go through extreme volatility, both for reasons of internal execution and for reasons that have nothing to do with anything except the economy.”
In October 2018, Musk took the social media site then known as Twitter private in a $44 billion deal. This move was seen as a way to control the level of fluctuation in the stock price. However, Musk has faced criticism for his use of Twitter in the past, with some incidents resulting in legal action against him.