Philippa Kaur

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Few companies have had a worse start to the year than Boeing. In January a panel plugging an unused emergency exit blew out of a 737 MAX over Oregon. Thankfully the plane landed safely. A preliminary investigation into the near-disaster concluded that the bolts that should keep the panel in place were missing. The incident prompted internal investigations and brought federal regulators to Boeing’s factories to audit manufacturing processes. If that were not enough, on April 16th a whistleblower claimed that unacknowledged defects with 787 Dreamliners were symptomatic of a firm with “no safety culture”.The immediate consequences of the added scrutiny was a sharp fall in deliveries of planes—83 commercial jets in the first quarter, compared with 130 a year ago and, gratingly, with 142 by Airbus, Boeing’s European arch-rival (see chart). The damage was apparent when Dave Calhoun, its boss, presented quarterly results on April 24th. After announcing a net loss of $355m, he sought to assure sceptical investors that the company was making good progress in resolving its manufacturing problems. Hanging over the earnings call was also the question of who might replace Mr Calhoun, who a month ago announced his departure at the end of the year amid a big shake-up of management and the immediate appointment of a new chairman.Chart: The EconomistMr Calhoun’s successor will face an unenviable in-tray. A comparison with the fortunes of Airbus highlights Boeing’s slide. In 2017 Boeing’s market value was two and half times its only rival’s; now it is roughly the same. Since 2019, when the entire 737 MAX fleet was grounded for nearly two years after two fatal accidents attributable to faulty software, Boeing’s combined annual net losses have amounted to $24.5bn. In the same period Airbus has made profits of nearly $10bn. Boeing’s orders of 6,200 planes are far below the 8,600 in the European firm’s books.The roots of Boeing’s many crises are summed up by Aviation Strategy, a consultancy. An “obsession with quarterly results and share price momentum” resulted in too much cash being returned to shareholders and too little put into developing new products or ensuring production quality. Between 2014 and 2020 Boeing handed out $61bn in dividends and share buy-backs. It was not just shareholders who benefited. So did managers, whose bonuses were tied to their employer’s surging share price. Ron Epstein of Bank of America notes that a merger with McDonnell Douglas in 1997 foreshadowed a “cultural shift away from engineering excellence”. Boeing began to favour short-term financial management in a long-term industry, while Airbus focused less on investors and more on its aircraft, which might have a life-cycle measured in decades.Reversing the cultural slide will be the hardest job for the new boss. It could take years. More immediately Mr Calhoun’s replacement will have to ramp up production of the 737 MAX and guide new variants of this and other long-haul planes to certification. At the same time, he or she must prepare the ground for the next generation of short-haul passenger jets. Airlines are angry with Boeing for delivery delays of the 737 MAX. Regulators, awaiting Boeing’s plan to improve quality control, have capped production at 38 a month. Boeing’s troubles mean that it does not actually expect to hit that rate until later in the year, by which time Airbus may be making 65 of its competing A320s.Delays could have a lasting effect. Switching to Airbus would be no easy matter for airlines, not least because the European firm has no free delivery slots for its short-haul jets until the end of the decade. Yet a point could come when carriers feel they can no longer depend on Boeing. United Airlines is rumoured to be considering replacing an order for a larger version of the 737 MAX that is five years behind schedule but, with certification still pending, as yet with no prospect of delivery.Boeing’s reliance on its past reputation as an American industrial behemoth won’t cut it. As Mr Epstein observes, it may be “too big to fail but it is not too big to be mediocre”. A struggling Boeing could open the door for challengers. COMAC, a Chinese one, has long-standing plans to break the duopoly, though so far without a plane that can truly compete with a Boeing or an Airbus. Embraer, a Brazilian maker of smaller regional jets, could also move into bigger aircraft.New short-haul jets, likely to enter service around 2035, are another priority. It is a huge and expensive task that Mr Calhoun reckons will cost $50bn. To investors’ consternation, that is nearly double the figure for Boeing’s previous clean-sheet designs. Choosing the right technology is a task that Boeing has to get right. But some observers fear that the firm, which has not launched an all-new plane since the 787 in 2004, may have lost the institutional memory for such a huge undertaking.The new boss will inherit other headaches. A third of Boeing’s revenues come from its defence-and-space division. In the past those profits have insulated Boeing from the cycles of the passenger-jet business. In the past two years they have turned to losses. Boeing has mismanaged fixed-price development deals, even as the Pentagon increasingly favours these to conventional “cost-plus” contracts, which remove most financial risk from the contractor. Boeing has also fallen far behind Elon Musk’s SpaceX, whose rockets are already serving the International Space Station. Starliner, the rival vehicle from Boeing, has yet to make a crewed test flight.Who, then, might take the yoke? External candidates are thin on the ground. Larry Culp, who has successfully turned around GE, another troubled icon of America Inc, appears to have ruled himself out. Bill Brown, who led the merger that in 2019 created L3Harris, a defence company, is instead taking the top job at 3M, an industrial conglomerate. Pat Shanahan, currently the boss of Spirit AeroSystems, one of Boeing’s suppliers, could be a contender—were it not for the fact that Boeing is seeking to acquire his company in an effort to improve oversight. The most plausible insider is Stephanie Pope, promoted to head of the commercial-aircraft division in the recent reshuffle. Accepting the top job at Boeing would once have been a no-brainer. Now Ms Pope, or anyone else, will think long and hard about it. ■ More

On the night before Elon Musk unveiled Tesla’s first-quarter results on April 23rd, your columnist brought his car to a halt, noticing a futuristic vehicle hooked up to a Tesla charging station in Los Angeles. It was a dark-purple Cybertruck. Twinkling lights glittered behind the tinted windows. It looked so wedgelike, angular and otherworldly that it could have moonlighted as an armoured personnel carrier in “Civil War”, a new apocalyptic film.Its owner, Dennis Wang, is a Tesla devotee. Besides his four-month-old Cybertruck, he has owned Mr Musk’s original (“sexy”) quartet: the Models S, 3, X and Y. He has held shares in the company since 2018. He has full faith in Mr Musk. Despite a 40% plunge in Tesla’s share price this year in the run-up to the earnings report, as well as the announcement in recent weeks of falling vehicle sales and unprecedented lay-offs, he believes the billionaire remains the best person to run the company. Even an embarrassing Cybertruck recall, caused by a stuck accelerator, was quickly fixed, he says, pointing to a new bolt in the pedal.Yet however much Mr Wang loves Teslas, he does not think of Tesla as a car firm. He says it is a tech company. As he puts it, all electric vehicles (EVs) offer a similar driving experience. What differentiates them is the software—the brains beneath the dashboard. In Tesla’s case, that is the latest version of its self-driving technology, which he calls “fantastic”. His view is shared by many Tesla loyalists. It is why the company’s shares trade at a multiple of earnings typical of a zippy software firm, not of a metal-basher.Wall Street takes a different view. Though investors hope Tesla will one day make money from its snazzy artificial intelligence (AI), for now they want it to restore growth by selling more cars—the cheaper the better. Hence the sigh of relief when Tesla outlined plans within an otherwise dismal earnings report (revenues, profit margins and free cashflow all crashed) to start producing affordable vehicles by 2025 that would not rely on big new investments. Tesla’s share price promptly soared more than 10%. Call that a $50bn thumbs up from the unit-economics guys.Mr Musk has a history of trying to have it both ways. When investors were doubtful about demand for Tesla’s EVs at the end of the 2010s, he promised shareholders that its so-called full self-driving (FSD) technology would put 1m robotaxis on the road by 2020. That did not happen, so during the pandemic, as Tesla’s sales rocketed, he changed his tune. He boasted that sales were growing faster than Henry Ford’s Model T, and that Tesla aspired to sell 20m EVs a year by 2030.This year it is touch and go whether Tesla will sell more than the 1.8m cars it shipped in 2023. So Mr Musk has flipped the script again. Once more he is highlighting FSD, though this time with a twist: the latest version is so good, he told analysts this week, that it is impossible to understand the company without trying it. He went so far as to say: “If someone doesn’t believe Tesla will solve autonomy, I think they should not be an investor in the company.” His competing narratives create quite the conundrum among investment types. Can Tesla be a car company as well as a tech company? The answer, broadly, is yes. But it depends on which of its markets you are talking about.From a volume-growth perspective, no country is more important than China. It is the world’s biggest EV market, and though sales are slowing, they are still rising much faster than in America. However, competition is fierce and a price war is shredding Tesla’s business there. Tesla has not said where the cheaper model it is planning will be sold. But if it is made available globally, it could help it fend off competition from BYD, a low-cost Chinese competitor that is not just the biggest EV seller in China but also has a strong presence around the globe (though not in America).Tesla’s American home market is different. Mr Musk’s firm is already the market leader, so its growth prospects are probably constrained, more so because of the rising popularity of hybrids. Yet it needs to sell more cars in order to generate cash to fund the purchase of huge volumes of AI chips that it needs to run its FSD technology. That is where a cheaper car comes in. It could help Tesla cross a bridge to the future while it attempts to overcome the huge engineering and regulatory challenges necessary for cars to drive people, rather than the other way around.There are lots of potential roadblocks ahead. First is the risk of crumbling morale. Besides the sacking of one-tenth of its workforce, Tesla has lost several highly respected executives recently (the latest announced his departure on the quarterly earnings call). Second, trust between Mr Musk and big investors is gossamer-thin. Who knows how he will react if a majority at next month’s shareholder meeting vote against the board’s efforts to reinstate his $56bn payout from 2018 that was voided by a Delaware judge. Third, the difficulty of running many businesses besides Tesla is compounded by Mr Musk’s “demon mode”—irascible outbursts that can leave rubble in their wake.View from the CybertruckLike many Muskophiles, Mr Wang expects him to pull through. As a carmaker, Mr Musk excels. The Cybertruck, says its driver as his corgi scampers on the back seat, is the most comfortable car he has ever owned. As a technologist, Mr Musk continues to improve. Though Mr Wang acknowledges that the latest version of Tesla’s FSD requires driver supervision, he says being able to “sit back and decompress” on his commute is a value equivalent to money. Above all, no one matches Mr Musk when it comes to turning engineering dreams into reality. As he puts it, “If Elon wants to put a chip in your head, you will get a chip in your head.” Just don’t expect it to be implanted until years after it is promised. And be prepared for its Svengali to melt down in the meantime. ■ More

Joe Biden joined TikTok only two months ago, with a video entitled “lol hey guys”. Now America’s president is poised to sign a bill that could ban the popular app. On April 23rd the Senate approved a measure to crack down on “foreign adversary controlled applications”, including TikTok, as part of a bill approving military aid to Ukraine, Israel and Taiwan. Mr Biden has already said he will sign the bill into law, whatever the feelings of his 300,000 followers, or TikTok’s 170m American users.The law will give ByteDance, TikTok’s Chinese owner, up to nine months to sell to a non-Chinese owner. (A previous version of the bill allowed six months; the new deadline pushes the matter conveniently beyond November’s elections.) A wild selection of possible buyers is touted. Microsoft, Oracle and Walmart have all shown an interest in TikTok in the past. Steven Mnuchin, a former Treasury secretary, says he is putting together a group of investors.They may not get the chance to bid. China’s government, which owns a stake in ByteDance, has indicated that it does not want to part with TikTok. It has classified the app’s recommendation algorithm as a sensitive technology, whose export would need official approval. In March a Chinese government spokesman warned that, in the case of TikTok, “the relevant party should strictly abide by Chinese laws and regulations,” a comment which some read as a warning to ByteDance.That would leave TikTok no choice but to shut down in America, where last year it had revenue of $16bn, according to the Financial Times. So the company is pinning its hopes on an appeal to America’s courts. A memo sent to staff on April 21st described the new bill, then recently passed by the House of Representatives, as a “clear violation of [users’] First Amendment rights”, which enshrine freedom of speech.TikTok has a strong case, believes Evelyn Douek of Stanford Law School. “Decades of precedent hold that the government can’t ban a form of communication because they don’t like the content on it, even when it involves foreign adversaries,” she says. TikTok has won in court before. Last year a judge overturned a ban imposed by the state of Montana, partly on free-speech grounds. An executive order to ban the app by then-president Donald Trump was blocked by judges in 2020.Those in favour of a ban say the problem is not the content on TikTok, but the company’s conduct. It is accused of harvesting users’ data and manipulating what they see, both of which it denies. If courts can be persuaded that TikTok is up to no good, a free-speech defence will not necessarily save it. In 1986 an adult-book shop in New York lost a Supreme Court appeal against its closure, when judges argued that the reason for its shutdown was not the content of its books, but other, illegal activity taking place on the premises.If TikTok wins, it could become an even stronger force in social media. “TikTok has been fighting with one hand tied behind its back against domestic competition,” argues Mark Shmulik of Bernstein, a broker. While Meta, its arch rival, has come up with technical fixes to help its advertisers get around privacy changes Apple introduced for iPhones, TikTok has played it safe. If courts remove the threat of a ban, the company “could feel empowered to step on the gas”, Mr Shmulik notes. It might also stem the exodus of senior staff. Kevin Mayer, a former chief executive hired from Disney, left amid Mr Trump’s efforts to ban the app. Vanessa Pappas, its chief operating officer, departed last year. Now Erich Andersen, the chief counsel, is reportedly preparing to move on.Whatever happens in court, TikTok is already wondering which countries might follow America’s hawkish lead. India, where TikTok had 200m users, banned the app in 2020 (along with several other Chinese apps) following a skirmish at the border with China. Countries including Indonesia and Pakistan have imposed and then lifted short-term bans. The Taliban naturally outlawed TikTok on returning to power in Afghanistan.Juicier markets look safe for now. No big European country is demanding TikTok be sold. But Europe has a record of eventually following America in its approach to China-related security matters, as in the case of its belated clampdown on Huawei, a Chinese maker of telecoms gear. Countries’ willingness to act will depend partly on the closeness of their security relationship with America. America’s fellow members of the Five Eyes intelligence alliance—Australia, Britain, Canada and New Zealand—have already banned TikTok on government devices.Further restrictions on TikTok could disrupt more than the market for social media—if China chooses to retaliate. It fired a warning shot earlier this month, banning app stores from offering apps including WhatsApp and Threads, a pair of Meta products, on national-security grounds. China could make life difficult for plenty of other big American companies. Tesla is suffering because of falling car sales in China. Apple’s iPhone sales in China are ebbing. American chipmakers like AMD are being hurt, too, as China encourages its smartphone-makers to use domestic chips. America may find that banning a short-video app has long-term consequences. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

No firm is an island. All strike contracts and compete with others. Conversely, when bosses decide a relationship would be better governed by fiat, one firm may acquire another—as BHP, a $150bn mining giant, proposed to do with a $35bn rival, Anglo American, on April 24th. Yet between the poles of contract and total commitment are plenty of ways for firms to combine capital, knowledge or other resources, without fully tying the knot.Such in-between arrangements are winning favour across the economy, from tech and artificial intelligence (AI) to carmaking and energy. While corporate takeovers stalled in 2023, a few mega-mergers notwithstanding, the number of joint ventures (JVs) and partnerships jumped by 40%, according to Ankura, a consultancy. They are especially popular in areas of rapid technological change and in places given to protectionism, which these days afflicts rich and poor countries alike. With barriers to commerce rising, high interest rates contining to bite and regulators bridling at takeovers, such liaisons are becoming the go-to way to enlarge a business empire, as the recent actions of companies including Disney, Ford and Microsoft illustrate. Call it the age of the quasi-merger. More

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