Philippa Kaur

IN 1996 CIVIL war erupted in what was then Zaire and is now the conflict-ravaged Democratic Republic of Congo (DRC). Karasira Mboniga managed to escape, eventually settling in the Kiziba refugee camp in Rwanda, and working as a secondary-school teacher. But he says that his life changed for ever when he started his own business in 2008, selling food and performing money transfers.
That business came under threat when the pandemic hit earlier this year. But Mr Mboniga was one of many refugees to be helped by the African Entrepreneur Collective (AEC), a charity which started to disburse grants from a special covid-19 relief fund in June.

AEC, which started in Rwanda in 2012, has had a focus on job creation from the start. Eventually it realised that helping refugees would serve that aim, as jobs would also be created in the host community. Until the pandemic, it focused on making loans, rather than grants, to small businesses.
Its new covid-19 fund was established with help from the MasterCard Foundation, the payment processor’s charitable arm. It has already helped almost 4,000 entrepreneurs; 91% of the businesses that were closed have since reopened. On average, the ventures have managed to increase their staff by a third within a month of receiving a grant.
Sara Leedom of the AEC says the charity has put few restrictions on how the refugees can spend the money. Some have used it to settle debts; some to pay their employees; some to restock the business; some on covid-related issues, such as sanitation; and some have invested in new technology. Many operate small shops, kiosks or cafés; several work in agriculture; and a few in tourism and hospitality. “We were blown away with what was possible,” she says.
All the residents in the camps tend to rely on grants from the UN refugee agency for their monthly income. When people do buy goods, they often have to purchase them on credit. As a consequence, the camp’s entrepreneurs can get easily into debt as they wait to be repaid by their customers. That, in turn, helps explain why loans and grants from charities can be necessary to tide them over.

As well as a grant, however, Mr Mboniga has received business training from the AEC and says he would advise other refugees to join the programme. In the long run, he hopes that “my business will help me to support my family, to be self-reliant”. But he also wants to “create jobs for other refugees who don’t have other sources of income”.
Another person to make it out of the DRC was Muzaliwa Rushama, who reached the Nyabiheke Camp in the Gatsibo district of Rwanda in 2008. For many years, he had part-time work delivering goods. Starting a business was difficult, he says, because he did not have enough capital and it was also hard to find somewhere to conduct his trade and to acquire business knowledge. From his part-time income, he would save around 20,000 Rwandan francs ($20) a month until eventually he was able to accumulate 300,000 francs. That allowed him to start his business, selling food, such as flour and rice, in 2017.
Mr Rushama started working with the AEC in 2018 and has benefited from training, particularly in book-keeping, which he found immensely useful. “I know how to count money in and out, my expenses and stock,” he says. He was able to borrow $100 in 2018 and is currently servicing a $300 loan; he estimates that the value of his business has risen more than threefold since it began. His dream is to diversify into selling other products, for example shoes and clothes.
The challenges of operating a business in the middle of a refugee camp are enormous, to put it mildly. Almost everyone there relies on aid. Access to traditional sources of finance, like banks, is extremely limited and expensive. Many goods need to be brought in from outside but the Kiziba camp has only a dangerous road linking it with the nearest town. On the plus side, the Rwandan government at least does not tax the enterprises run within the camps.
Creating a business gives refugee entrepreneurs two things: a degree of control over their own lives and hope for the future. For those who have languished in such places for years or decades both are invaluable.
AEC is expanding its operations. A year ago it began helping refugees in a Kenyan camp called Kakuma. Its entrepreneurial wards may never become the next Apple or Facebook. But turnover is not the only measure of business achievement. Small can be beautiful.
This article appeared in the Business section of the print edition under the headline “The toughest business school” More

LARRY WHO? A few weeks ago asking a young tech worker in Silicon Valley about Larry Ellison, co-founder, former boss and now chief technology officer of Oracle, might have elicited blank stares. More surprising, given that his company is still the world’s second-largest software-maker, a follow-up question might have been: “Remind me what Oracle sells?”
Being treated like a has-been must have irked the 76-year-old Mr Ellison. In Oracle’s heyday 20 years ago he was Silicon Valley’s best-known rogue billionaire—yesteryear’s Elon Musk. “The Difference Between God and Larry Ellison”, one of the many books written about the firm and its colourful founder, was subtitled “God Doesn’t Think He Is Larry Ellison”.

Now he and his firm are back in the headlines, thanks to something that, in software terms, is about as far from Oracle’s bread and butter of corporate databases as jelly beans are from white toast. Its deal to team up with TikTok has made its brand recognisable even to many teenagers—the main clientele of the Chinese-owned video-sharing platform. Whether the notoriety lasts more than 15 seconds, the length of a typical TikTok video, is another matter.
Attempts at reinvention are nothing new in Silicon Valley. It can be made harder by lucrative legacy businesses; just ask IBM, another once-great information-technology (IT) giant that has been sliding into irrelevance. Oracle would rather emulate Microsoft, which has ridden the cloud revolution to a market capitalisation of $1.6trn and stellar returns (see chart). The TikTok arrangement, which would see Oracle host the app’s data in its cloud, confirms that is Mr Ellison’s plan. Like the transaction—which could yet be blocked by President Donald Trump (see next article)—Oracle’s metamorphosis is not, however, a done deal just yet.

Since its founding in 1977 Oracle has been the odd one out in Silicon Valley—less focused on inventing the next new thing and more on signing the next big contract. By the mid-1990s it dominated the market for “relational” databases, which underlie corporate applications from book-keeping to supply-chain management. After the dotcom crash in the early 2000s it used its pile of cash and high share price to consolidate swathes of the IT industry. Within a few years it acquired several software rivals, including BEA Systems and PeopleSoft, as well as Sun Microsystems, a maker of powerful computers. It is still hard to find a sizeable firm that does not send a cheque to Oracle’s snazzy headquarters in Redwood City. With customers locked in by the sheer tedium of switching databases, Oracle could extract huge profits. In its last financial year the company earned a net income of more than $10bn on revenue of nearly $40bn.
Success in old IT was a big reason why Oracle was late to the new sort: cloud computing. Mr Ellison long dismissed it as a faddish label for existing technology. By the time he realised it was an epochal shift in IT, Oracle had fallen behind. Oracle Cloud Infrastructure (OCI), as it calls its offering, is said to have sales of less than $2bn annually, compared with more than $40bn for Amazon Web Services (AWS). The e-commerce titan’s market-leading cloud unit is valued at several times Oracle’s market capitalisation of $178bn. Cloud-based rivals of the sort that Mr Ellison once dismissed, such as Adobe and Salesforce, are worth around a quarter more than his firm.
Even in databases, Oracle’s core business, the world has moved on. For many new applications, such as customer-facing websites, its tools are too expensive and inflexible. Recent years have seen the rise of more specialised digital repositories, many of them in the cloud and based on malleable “open source” software. According to Gartner, a research firm, Oracle’s share of the database market fell from nearly 44% in 2013 to 28% last year. And it has yet to shake off a reputation for antagonising clients with things like audits to verify their use of software by workers—and hefty charges for firms that exceed licence limits. Brent Thill of Jefferies, a bank, echoes other Oracle bears when he says that the company has been stuck for years even as “we are living in the data age, the biggest tech-boom ever.”

Seers of a brighter future

Oracle optimists counter that the firm has a few things going for it. One is management. The death last October of a co-CEO, Mark Hurd, left Safra Catz as the woman in charge. She is widely considered an effective operator. Mr Ellison, who stepped down as chief executive in 2014, has in recent years taken a more active role in product development—considered his forte—without treading on Ms Catz’s toes. The upshot, says Ted Friedman of Gartner, is better technology such as the “autonomous database”, which uses artificial intelligence to automate work once reserved for human IT administrators. For example, it allows software updates to be installed without shutting systems down, a dreaded procedure which can go badly wrong.
OCI enjoys the latecomer advantage in the cloud, says Clay Magouyrk, one of its leaders. “We did not have to take the circuitous path others had to take to get it right,” he says. Mr Magouyrk points to Oracle’s next-generation cloud platform, which will, among other things, offer hundreds of local sub-clouds that let customers keep their data close to home, as privacy regulations may require them to. In April Zoom, a videoconferencing service, opted for OCI to help it manage pandemic-fuelled growth (mostly because Oracle charges less for the use of its networks). Landing the TikTok contract would be another boost: the video app spends an estimated $1bn annually on cloud-computing services.
A bigger opportunity for Oracle lies in cloud-based applications. It has begun converting some of its existing customers to these programs, which are more sophisticated than the basic computing and storage offered by AWS and OCI, observes Mark Moerdler of Bernstein, a broker. The company’s bundle of cloud-based services already accounts for 8% of its software revenue; sales have been growing by more than 30% a year.
The wild card is Oracle’s political bets. The firm has positioned itself close to Mr Trump. In 2016 Ms Catz served on the president’s transition team and this year Mr Ellison hosted a fund-raiser for him. This did not help them win a lucrative cloud contract with the Department of Defence; OCI was not technically up to snuff. But being in the White House’s good graces may have helped Oracle beat Microsoft (which won the Pentagon contract) to the TikTok deal. If the deal succeeds—a big “if”—Oracle’s cloud may emerge as a digital haven for companies seeking to reassure Washington that their data are safe from prying Communist eyes in Beijing amid the Sino-American tech cold war.
It is, then, too early to write Oracle off. When a group of youngish cloud-services CEOs recently met reporters on a Zoom call, they were unanimous in their assessment. Jennifer Tejada of PagerDuty, which helps firms manage IT incidents, summed it up: “You have to respect Oracle for finding ways to keep itself relevant.” Relevance is not the same as fast growth, which may prove elusive given competition from AWS and others. But it is better than the digital dustbin of obscurity.■
This article appeared in the Business section of the print edition under the headline “Larry’s last stand” More

“WHEN DID Walmart grow a conscience?” The question, asked approvingly in a Boston Globe headline last year, would have made Milton Friedman turn in his grave. In a landmark New York Times Magazine essay, whose 50th anniversary fell on September 13th, the Nobel-prizewinning economist sought from the first paragraph to tear to shreds any notion that businesses should have social responsibilities. Employment? Discrimination? Pollution? Mere “catchwords”, he declared. Only businessmen could have responsibilities. And their sole one as managers, as he saw it, was to a firm’s owners, whose desires “generally will be to make as much money as possible while conforming to the basic rules of the society”. It is hard to find a punchier opening set of paragraphs anywhere in the annals of business.
It is also hard to find a better example of their embodiment than Walmart. Listed on the stockmarket the year Friedman’s article was published, it morphed from Sam Walton’s hometown grocery store into the “beast of Bentonville”, with a reputation for low prices as well as beating up suppliers and bossing staff. Its shareholders made out like bandits; since the early 1970s, its share price has ballooned by a factor of more than 2,000, compared with 31 for the S&P 500 index of large firms. Yet in recent years the company has mellowed. It now champions green energy and gay rights. The Globe’s tribute appeared shortly after Doug McMillon, its chief executive, reacted to savage shootings in Walmart stores by ending the sale of some ammunition and lobbying the government for more gun control. This year he became chairman of the Business Roundtable, a coven of American business leaders who profess they want to abandon Friedman’s doctrine of shareholder primacy in favour of customers, employees and others.

In partisan America, riven by gender, race and income inequality, such “stakeholderism” is all the rage. But there is pushback. To celebrate the half-centenary of Friedman’s essay, the University of Chicago, his alma mater, held an online forum at its Booth School of Business in which advocates of his creed argued that giving bosses too much latitude may make things worse for stakeholders, not better. The crux of the problem, they pointed out, was the near-impossibility of balancing the competing interests of stakeholders in any way that does not give God-like powers to executives (what Friedman called the all-in-one “legislator, executive and jurist”). Usefully, some provided data to support their arguments.
Start with Walmart’s ammunition bans—a firecracker lobbed into one of America’s most divisive issues. The retailer portrayed them as mere safety measures, but the National Rifle Association, a lobby group, said they pandered to “anti-gun elites” and predicted customers would boycott Walmart. Indeed some did. Marcus Painter of Saint Louis University has crunched smartphone data measuring foot traffic before and after the restrictions. He found that on average monthly store visits to Walmart in heavily Republican districts fell by up to 10% compared with rival stores; in strongly Democratic areas they rose by as much as 3.4%. Moreover, the apparent Republican boycott continued for months. (Walmart did not respond to requests for comment.)
It is possible that the retailer’s stance helped win over new (perhaps wealthier) consumers. It may even have benefited Walmart’s bottom line—and shareholders. Yet it also showed that amid increasingly polarised politics, what is good for one set of stakeholders may be anathema to another. Whether it is Hobby Lobby, a Christian chain of craft stores from Oklahoma, denying staff contraceptive insurance on religious grounds, or Nike supporting an American football player’s decision to protest against police brutality, some stakeholders will always object to what is done on behalf of others. There are more quotidian trade-offs. A General Motors shareholder who is also an employee may want higher salaries rather than higher profits; a dollar spent on pollution control may be a dollar less spent on worker retraining. But weighing up the costs and benefits to different groups is fraught with difficulty.
Some bosses claim they can do this, keen to win public praise and placate politicians. But they are insincere stewards, according to Lucian Bebchuk, Kobi Kastiel and Roberto Tallarita, of Harvard Law School. Their analysis of so-called constituency statutes in more than 30 states, which give bosses the right to consider stakeholder interests when considering the sale of their company, is sobering. It found that between 2000 and 2019 bosses did not negotiate for any restrictions on the freedom of the buyer to fire employees in 95% of sales of public firms to private-equity groups. Executives feathered the nests of shareholders—and themselves.

Talk is cheap
Such hypocrisy is rife. Aneesh Raghunandan of the London School of Economics and Shiva Rajgopal of Columbia Business School argued earlier this year that many of the 183 firms that signed the Business Roundtable statement on corporate purpose had failed to “walk the talk” in the preceding four years. They had higher environmental and labour compliance violations than peers and spent more on lobbying, for instance. Mr Bebchuk and others argue that the “illusory hope” of stakeholderism could make things worse for stakeholders by impeding policies, such as tax reform, antitrust regulation and carbon taxes, if it encourages the government blithely to give executives freedom to regulate their own activities.
To be sure, trade-offs are an inevitable part of shareholder capitalism, too: between short- and long-term investors, for instance. But stakeholders outnumber shareholders, making for more disparate interests to balance. Moreover, by investing in funds linked to corporate values, or by directly influencing boards, shareholders can show that their goals increasingly extend beyond profit maximisation to broader societal welfare. Shareholders retain primacy, as they should, but they are free to push for different trade-offs if they prefer. ■
This article appeared in the Business section of the print edition under the headline “The perils of stakeholderism” More

CORPORATE SCANDALS occur with depressing regularity, from the accounting misstatements at Enron in 2001 to fake bank accounts at Wells Fargo, uncovered in 2016. In June Wirecard, a German payments processor, revealed that €1.9bn ($2.3bn) was missing from its accounts. What was remarkable about the affair was that the company’s book-keeping had been the subject of sceptical articles in the Financial Times. Yet the initial reaction of BaFin, the German regulator, was to launch an investigation into the newspaper, not the firm.
It is clearly difficult for people to recognise when a business is heading off the rails. That can be just as true for managers within a business as for people outside it. Executives can be sideswiped by an unnoticed problem in an individual division or a subsidiary; not all scandals make it on to the front pages.

Outright malice is not always the cause. Ethical choices are rarely black or white and individuals are not very good at assessing the purity of their own motivations. In a new book about behavioural biases, “You’re About To Make A Terrible Mistake”, Olivier Sibony of HEC business school in Paris writes that “as soon as there is any ambiguity about a judgment…we reason in a way that is selective enough to serve our interests and yet plausible enough to convince others (and ourselves) that we are not intentionally distorting the facts.” Individuals’ choices are also governed by how others behave; people are more likely to break the speed limit if everyone else is doing so.
Philosophers call morally ambiguous decision-making within such internal and external constraints “bounded ethicality”. Inside companies, it can easily mean that a culture of cheating can spread quickly. A seminal paper* by academics at Columbia and Harvard business schools looked at how, in the light of this problem, companies might reduce cheating within their ranks.
Their first finding was that individuals are more likely to lie, or commit fraud, when they are set excessively difficult and specific goals. Bounded ethicality, the authors argue, can also operate at an unconscious level. Under pressure, people often do not efficiently analyse information that could otherwise keep them on the straight and narrow.
The problem is exacerbated by confirmation bias, a human tendency to seek out facts that back up their pre-existing preferences. Research has found that people given a specific performance target (to reach a 12% annual return over the investment horizon, for example) were more likely to overlook important information about the future performance of investment funds and excessively focus on past performance data.

As a result, the authors suggest, “Organisations might decrease intentional unethical behaviour by defining their goals more broadly and by setting goals at levels that are perceived as fair and relatively attainable by employees.” Another tactic is for managers to signal clearly that ethical issues may arise, so that people take them into account when making decisions. In one study, drivers were found to be more honest in reporting their car mileage when they signed an ethics code of conduct at the top of a mileage form (before they entered the distance on the form) than at the bottom (after the figure had been recorded).
The Columbia and Harvard researchers conducted a test asking people to act as financial advisers and pick from a range of funds. One part of it used the raw data from funds operated by Bernie Madoff, convicted in 2009 for defrauding investors. The participants did not know the data came from a fraudulent fund. But they did see its high returns and the opaque way it operated. One group was simply asked to recommend a fund; another group was asked to consider which fund made them most suspicious before making their recommendation. The result of this intervention was to decrease the proportion of individuals recommending Mr Madoff’s funds to their clients from 68% to 51%.
This figure is still staggeringly high, of course. It might have been reduced further, the academics suggest, if participants could have asked more questions and got more information. Too often, people rush to judgment, which leads them to play down the risks they are taking and the corners they are cutting. And that means scandals are inevitable.
* “Reducing bounded ethicality: How to help individuals notice and avoid unethical behaviour,” by Ting Zhang, Pinar Fletcher, Francesca Gino and Max Bazerman
This article appeared in the Business section of the print edition under the headline “The only way is ethics” More

WHEN SOFTBANK, a Japanese technology group, paid $32bn for Arm in 2016, it was the biggest deal in chipmaking history. That record held until September 13th, when Nvidia, a big American chipmaker, announced its intention to buy the Britain-based chip-designer for $40bn.
Although they share an industry, Arm and its prospective owner are very different. Nvidia makes GPUs: pricey, specialised accelerator chips for gamers and artificial-intelligence number-crunching in data centres. Arm licenses blueprints for general-purpose chips used in everything from smartphones to cars and computerised gizmos that make up the “Internet of Things” (IoT). Customers ship more than 20bn Arm-designed chips every year.

Arm’s keystone position was SoftBank’s rationale for buying the firm. But it has languished under Japanese ownership. Revenues have stagnated, and the firm has made a small but persistent loss (see chart). Geoff Blaber at CCS Insight, a firm of analysts, blames a slowdown in the smartphone market, and low margins on IoT gear. Arm’s $40bn valuation is only 25% higher than when SoftBank bought it—and just 5% higher if you deduct the $1.5bn Nvidia has offered Arm employees to stop them from leaving and a mysterious $5bn cash or stock payout that SoftBank may qualify for under some conditions. Meanwhile, Nvidia’s market capitalisation, four years ago not much bigger than what SoftBank paid for Arm, now stands at $309bn. Its sales have surged.

One motive for Nvidia’s purchase is a desire to expand beyond its existing markets. Arm’s technology could help it build its own versions of the general-purpose processors that power the data-centre computers into which Nvidia’s accelerators are installed, a lucrative market dominated by Intel, the world’s biggest chipmaker by revenue. Nvidia, for its part, hopes that baking its GPU expertise into Arm’s designs will make them more attractive to the firm’s customers.
Those customers, which include Apple, Qualcomm and Samsung, have kept a stony silence. Arm’s business model relies on being what Hermann Hauser, one of its founders, has described as “the Switzerland of the semiconductor industry”—ie, not competing with its customers by selling chips or gadgets itself. Nvidia’s purchase will threaten that neutrality if it tweaks Arm’s products to favour its own goals, or gives itself preferential access to Arm designs.

Nvidia has vowed to keep Arm’s business model intact. Having given such public assurances, says Patrick Moorhead, a chip-industry analyst, Jensen Huang, Nvidia’s boss, is unlikely to risk the opprobrium—or possible lawsuits from aggrieved licensees—that could arise from breaking them. But other analysts point out that Arm’s licensing revenues are, by Nvidia’s standards, small beer. If the Arm deal can be used to vault Nvidia into new markets, then cold commercial logic may encourage Mr Huang to push his luck. Custodians of RISC-V, a set of freely available designs, lost no time in noting that it remains independent and free of such conflicts.
Regulatory problems loom, too. Britain’s government is in an interventionist mood and is likely to attach strings, such as keeping Arm’s headquarters in the country. China may also object. It is already upset over American attempts to strangle its technology firms (see article). A takeover by Nvidia would bring Arm—a crucial supplier—firmly under American control. Even in normal times, says Mr Blaber, China might balk at such a prospect. It will be even less keen in the middle of a technological cold war. ■
This article appeared in the Business section of the print edition under the headline “Integrating circuits” More

ALL EYES of the oil world were on BP this week for the British energy giant’s annual three-day investor jamboree. Bernard Looney, who became chief executive this year, wants BP at last to make good on its old slogan, “Beyond Petroleum”. Annual capital spending on oil, gas and refining projects will fall from around $13bn in 2019 to an average of $9bn in 2021-25. Gas and oil production will remain relatively steady in the short term, before falling as BP ramps up its investments in renewable power. BP’s plan is more ambitious than under Mr Looney’s predecessor, Bob Dudley. It is also by far the most aggressive of any supermajor. That is admittedly a low bar.
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This article appeared in the Business section of the print edition under the headline “A less oily BP” More

ONE WAY to try to emulate Tesla’s success is to name your firm after the same person. Nikola, founded in 2014 to make electric and hydrogen-powered lorries, is, like Elon Musk’s carmaker, named after Nikola Tesla, a Serbian-American pioneer of electricity. Nikola’s market value nudged $30bn after it went public in June. Some investors were puzzled that a firm not yet selling vehicles could be worth more than Ford, which sold 5.4m last year. Nikola’s share price fell back over the next two months. It jumped again on September 8th, after General Motors said it would take an 11% stake in the firm.
This time the euphoria was even more short-lived. On September 10th Hindenburg Research, an investment firm (named after the airship disaster from 1937) released a report calling Nikola an “intricate fraud” that had told an “ocean of lies”. Nikola’s shares shed 36% of their value over the next couple of days.

Among other things, Hindenburg alleges that Trevor Milton, Nikola’s boss, made misleading statements when he unveiled the Nikola One, a hydrogen-electric lorry. Mr Milton, Hindenburg said, suggested a demo vehicle was driveable when it was not. A Nikola One shown travelling along a road in a separate video, Hindenburg claimed, was in fact rolling down a hill unpowered. The investment firm also gave short shrift to Nikola’s claims of revolutionary hydrogen and battery technologies, and cast doubt on the expertise of Nikola’s staff.
Nikola described Hindenburg’s report as “a hit job…driven by greed”. It pointed out that Hindenburg had a short position in Nikola’s stock, so it stood to profit if the price of Nikola’s shares fell (as Hindenburg acknowledged in its report). On September 14th Nikola published a statement accusing Hindenburg of “false and defamatory” claims designed to “manipulate the market”. It also appeared to concede that the Nikola One unveiled by Mr Milton had not been driveable and confirmed that the vehicle in the video had indeed been unpowered. But the firm notes that a later model, the Nikola Two, has driven under its own power several times. It characterised itself as an “early-stage” company trying to “prove its concepts”.
On September 11th Mr Milton tweeted a statement that Nikola “intends to bring the actions of the activist short-seller, together with evidence and documentation, to the attention of the US Securities and Exchange Commission”. On September 15th the Wall Street Journal reported that the Department of Justice had taken an interest in the case. General Motors says it is “fully confident in the value we will create by working together” with Nikola. Nikola itself says that all its other partners are sticking with it. Investors appear more jittery. Nikola’s share price is down 27% from the day before Hindenburg’s report.
This article appeared in the Business section of the print edition under the headline “Short circuit” More

A RECENT VIDEO of Elon Musk taking a spin in a new all-electric Volkswagen with Herbert Diess, the German carmaker’s boss, set tongues wagging. VW was forced to deny that a deal with Tesla was in the offing. A deeper bromance between Mr Musk’s firm and his main rival in the market for electric vehicles (EVs) looks unlikely. But the meeting highlights how the car industry is at last taking the impending EV revolution seriously.
Giant new businesses are gearing up to support the switch from petrol to electricity. Besides changing the way cars are propelled, this requires batteries, software to ensure these work in harmony with motors, and data harvested from cars that may one day allow them to drive themselves. Over 250 firms are manufacturing electric motors. Forty-seven battery factories are under construction. Anjan Kumar of Frost & Sullivan, a consultancy, expects total new EV-battery capacity to go from 88 gigawatt-hours in 2019, enough to power Texas for less than two hours if plugged into the grid, to 1,400 gigawatt-hours in 2025. Established carmakers are pondering how to loosen the grip of big tech on software.

The total market capitalisation of listed makers of exclusively electric cars now exceeds $400bn. Add producers of batteries that go into them, and the EV-industrial complex, which makes fewer than 400,000 vehicles annually, is worth at least $670bn (not counting miners of lithium and other battery minerals). That is nearly three-fifths as much as traditional carmakers, which churn out 86m cars a year, nearly all of them petrol-powered (see chart 1). Call it the Teslaverse.

As that moniker suggests, Mr Musk’s firm sits at its centre. In July it overtook Toyota as the world’s most valuable carmaker, and kept accelerating—never mind that it made 370,000 cars against Toyota’s 10m and a fraction of the Japanese firm’s revenues (see chart 2). By August Tesla was worth over $450bn. A market correction lopped a third off its share price but it has since rebounded. What would it mean to take it seriously, as investors appear to be?
Car sales could fall by 25% in 2020 owing to pandemic disruption. But the share of EVs on the road will continue to grow as emissions regulations tighten, the price of batteries falls and the choice of models expands. Next year three in every 100 cars sold will be pure electric or a plug-in hybrid. The share may rise to 20-25% by 2030, equal to 20m new EVs a year.
At the moment Tesla is the “apex predator”, says Adam Jonas of Morgan Stanley, a bank. It has been manufacturing EVs at scale longer than any other carmaker and sells more of them. Its elevated share price translates into the lowest cost of capital in the business. A growing offering, with a lorry and pickup soon to hit the road, will widen its appeal. It attracts the best engineers and possesses in Mr Musk, love him or loathe him, a leader with messianic zeal.
Mr Kumar puts Tesla two to three years ahead of rivals in battery technology. Its batteries have a higher energy density, which means better range and lower costs. On September 22nd Mr Musk is expected to present plans for new production capacity and fresh battery technology. Together, this would extend Tesla’s cost advantage.

The firm’s edge is even more pronounced in software. Rainer Mehl of Capgemini, a consultancy, calls Tesla cars a “shell around the software and applications inside”. Thanks to vertically integrated manufacturing, systems have been interlinked from day one. As Olaf Sakkers of Maniv Mobility, an Israeli fund, explains, big carmakers have outsourced almost all their technology apart from internal-combustion engines to suppliers, and focused on assembly and marketing. This makes for a “bird’s nest of complexity”, says Mr Sakkers. Tesla’s software and mechanics are seamless by comparison.
All this software means Teslas improve with age, thanks to regular “over-the-air” updates with new features, bug fixes and even performance upgrades. This makes up for a sometimes shabby finish and questionable reliability. Other big carmakers are five years behind, says Luke Gear of IDTechEX, a consulting firm.

Tesla also seems to have mostly put what Mr Musk has called “production hell” behind it. As Philippe Houchois of Jefferies, an investment bank, notes, a reputation for delivering models late and over budget has become one for being ahead of time and on budget. A rapidly built new factory in Shanghai began shipping in December and “gigafactories” are under construction in Berlin and Texas that will boost capacity from 700,000 units to 1.3m in 18 months, says Credit Suisse, a bank. Tesla cheerleaders talk of 3m-5m new Teslas annually by 2025, out of a global total of around 85m cars. Mr Musk eventually wants to make 20m a year.
Mr Jonas says that Tesla’s current share price implies it will end up with 30-50% of the car market. This overlooks other sources of revenue: from selling batteries, its operating system or an EV “skateboard” of battery pack and running gear to which others can add a body (and in time more futuristic data and self-driving systems). Even the most wildly optimistic scenarios for Mr Musk’s company, then, leave room in the Teslaverse for others.
Start with the established carmakers. Their lowly valuations may be read as implying they ought to give up trying to make the transition to EVs and quietly fade away. But even firms with the heftiest petrol-driven legacies should not be written off. Chinese carmakers show why. The government prodded them to go electric with tough mandates in the hope of dominating the future market. Around half the world’s EVs are currently sold in China. The likes of Geely and BYD (which also makes batteries) want to expand overseas.
There, big Western carmakers face a slog. Though some suppliers, such as Aptiv, have spun off legacy operations to concentrate on EVs and self-driving technology, most remain bound to the internal combustion engine. And lots of car firms, in particular the German premium ones, must contend with powerful unions fearful of job losses resulting from the move to EVs’ less complex—and thus less labour-intensive—mechanics.
Despite the difficulties, the industry is desperate to make the EV side work. Mr Kumar estimates that 60% of big car firms’ research-and-development spending now goes on EVs, up from 5-10% in 2012. Morgan Stanley reckons big carmakers will invest up to $500bn in EVs over the next five years. According to Bernstein, a research firm, they have been “terrible deployers of capital” but they are “waking up”. Potential big sellers on sale this year include VW’s ID.3 and Ford’s Mustang Mach-E.
Electric power to the people’s car
VW is leading the charge. It will spend €60bn ($71bn) by 2025 on EVs and digitisation. Carmakers typically develop 2-5% of software in-house. In an effort to reinvent itself as a software company, VW wants to boost its share to 60% by 2025. Other carmakers and suppliers harbour similar ambitions. Daimler’s recent tie-up with Nvidia, a giant chipmaker, should allow remote updates by 2024. Aptiv already offers integrated software.
Big firms could create distinct units to lure outside capital and talent, and take risks, suggests Morgan Stanley’s Mr Jonas. Some already are. General Motors (GM) has the Cruise self-driving arm, BMW has iVentures and Toyota has its Mobility Foundation. Another tactic is to invest in startups. On September 8th GM said it would buy an 11% stake in Nikola, a controversial electric-lorry firm, for $2bn (see article). Ford has backed Rivian, which hopes to crack the lucrative pickup market.
The likes of Nikola and Rivian are examples of another part of the Teslaverse. Although they face some big barriers, notably in manufacturing and distribution, raising money is not one of them. Capital is pouring in, helping cars move off the drawing board and into production. Chinese Tesla copycats have sprung up. In America Lucid Motors unveiled its first car at its headquarters near San Francisco on September 9th, with a Tesla-beating 800km range. One of its biggest backers is Saudi Arabia’s sovereign-wealth fund. Lordstown, Fisker and Canoo are aiming to follow Nikola, which went public in June through a reverse merger and is now worth $13bn. Firms working on next-generation solid-state battery technology, such as QuantumScape, backed by vw and Bill Gates, plan to go public soon.
Several Chinese Tesla wannabes, such as Nio, Xpeng and Li Auto, are already listed in New York. They enjoy the benefit of cheap domestic labour, a huge local market and proximity of battery-makers such as BYD and CATL, the world’s biggest such firm. Nio, which teetered on the brink of collapse in February before a bail-out by the city government of Hefei, where it has a big factory, is now valued at around $24bn.
Carmaking remains a tough business to crack. Assembling bodywork or brakes at scale is different to making gadgets or writing code. Dyson, a British maker of high-tech vacuum cleaners and hand-driers, sunk £500m ($640m) into developing an EV before scrapping the idea. Apple abandoned plans to make a car in 2016, though it is still investing in self-driving systems. Other tech giants are opting instead to invest in startups. In China Baidu, Tencent and Alibaba have backed WM Motor, Nio and Xpeng, respectively. Amazon has put money into Rivian and ordered 100,000 of its electric lorries (in part to show it is serious about reducing its carbon footprint).
To survive in the Teslaverse, companies have to demonstrate they have valuable intellectual property that sets them apart, as many of the upstarts claim. But they must also prove they can sell and maintain their cars, where legacy carmakers have a long track-record. It is too early to divine the winners and losers. Even Mr Musk’s firm could falter. But his vision of an electric future is already emerging victorious.■
This article appeared in the Business section of the print edition under the headline “Journeys in the Teslaverse” More