Philippa Kaur

Listen to this story. Enjoy more audio and podcasts on More

Listen to this story. Enjoy more audio and podcasts on More

For someone who despises the advertising industry, Elon Musk has a way with viral slogans. At a New York Times event on November 29th the world’s richest man was asked how he felt about firms pulling ads from X, the social network he bought last year when it was known as Twitter. “If somebody’s going to try to blackmail me,” he replied, “go fuck yourself.” The “GFY” approach, as he dubbed it, may come naturally to billionaires. But it is bold for a company that last year made 90% or so of its revenue from ads. Those that have pulled ads from X include Apple and Disney, whose presence Mr Musk previously cited as evidence that X was a safe space for brands.Advertisers are worried about unsavoury content on the platform. Since Mr Musk fired 80% of X’s staff, including many moderators, more bile seems to be leaking through the filters. Last month Media Matters for America, a watchdog, reported that ads for brands such as IBM had appeared alongside posts praising Adolf Hitler (X disputes this and is suing Media Matters). Social networks are freer than mainstream media to tell advertisers to get lost. Whereas a typical TV network in America gets most of its ad revenue from fewer than 100 big clients, social networks can have millions of small ones. A year ago the largest, Facebook, was getting 45% of its domestic sales from its 100 biggest advertisers, reckons Sensor Tower, a research firm; a boycott against it in 2020 by more than 600 firms, including giants like Unilever and Starbucks, had little effect on sales. But X lacks Facebook’s sophisticated ad-targeting apparatus, and relies on campaigns by big brands. In October 2022, when Mr Musk bought Twitter, its 100 top clients accounted for 70% of American ad sales.image: The EconomistHalf of them have since left X, Sensor Tower says. On December 1st Walmart said it had gone, owing to its ads’ poor results on X. The impact has been severe. In September Mr Musk said that X’s American ad business was down by 60%. Advertisers in other regions may be less bothered by the culture wars that Mr Musk is fighting. But X is unusually reliant on America. Whereas Meta, Facebook’s parent company, makes most of its money abroad, 56% of Twitter’s revenue came from America before Mr Musk bought it. Even before GFY, Insider Intelligence, another research firm, expected X’s worldwide ad sales to fall by more than half this year (see chart).Mr Musk’s fans insist being rude to air-kissing admen and “woke” brands delights X’s everyman users. X still has nearly five times as many as Threads, a newish rival from Meta. Yet Sensor Tower reports that the X app is being downloaded less often than a year ago, and estimates that it has lost 15% of monthly users. Some observers put this down to a purge of bots and fake users. Still, X must monetise the users it has in new ways to make up for the declining ad dollars. One idea is X Premium, which offers extra features and fewer ads for between $3 and $16 a month. So far there seem to be few takers: Sensor Tower estimates that X has sold $60m-worth of subscriptions in the past year, equivalent to 1% of pre-Musk annual ad sales. Mr Musk has talked of turning X into an “everything app”, handling payments, calls and more. But even optimists concede this would take years.Until then, the aim is to replace the departing big advertisers with an army of little ones. X is said to be working on its ad technology for smaller firms, eyeing a Facebook-like long tail of clients. There is no time to lose. Further drops in ad revenue could necessitate a bail-out from investors, or from Mr Musk himself. X’s employees have their work cut out to attract advertisers faster than their boss repels them. ■ More

Every few days a Falcon 9 rocket takes off to ferry satellites into orbit. You might think it would feel commonplace by now. Not for the crowds gathered at Vandenberg Space Force Base in California on December 1st. First came the exhilaration. The sight of the rocket blazing through the sky, then dropping its reusable first stage, with Mary Poppins-like grace, onto the launch site provoked gasps of awe, as did the sonic boom that followed. “It never gets old. It’s like being at an AC/DC concert,” a bystander murmured. Then came the realisation of the accomplishment. This spacecraft had a geopolitical payload: it carried South Korea’s first spy satellite, trying to catch up with North Korea days after the hermit state reportedly put its own spyware into orbit. It also had a scientific one: it took Ireland into the space age, by carrying the country’s first satellite, built by students at University College Dublin.It was lost on no one that they had Elon Musk to thank for the spectacle. At the same time, the almost unwavering reliability of the engineering marvels the founder of SpaceX, the firm behind the Falcon, has fathered—SpaceX has launched and recovered its rockets 250 times—stands in stark contrast with the unhinged, error-prone remarks that in recent weeks have made him sound like a petulant space cadet. These included: appearing to endorse an antisemitic tweet on X, his social-media platform (an act he later called “foolish”); a cringeworthy trip to Israel that he said was to promote peace but looked more like an apology tour; a barrage of “Go fuck yourself”s to advertisers such as Disney at a New York Times summit, after they pulled their ads from X; and crass self-mythologising like his comment that he has “done more for the environment than any single human on Earth”.One attendee at the rocket launch sighed that Mr Musk, for all his genius, now reminded him of the messed-up Tony Soprano, from the mobster TV series. But another, a young British physics buff, put his finger on why the entrepreneur still enjoyed a cult following. “He’s clearly a very troubled man. But being strong and turning a troubled past into a successful future is attractive. He’s a mega leader. He has to make people believe he can walk on water.”This points to the quandary at the heart of the Musk phenomenon. Is the braggadocio just the showmanship of a business pioneer? Can a man who has challenged conventions of engineering, energy and economics to revolutionise land and space travel get away with defying rules of human decency because of the importance of his mission? Or has the mission itself gone to his head, creating a saviour complex that could eventually bring him down?The answer is a combination of all three. Mr Musk’s provocative humour, from boyish fart jokes to pranks like smoking pot in public, have helped burnish his reputation as a business maverick. Often he goes too far, riling regulators and raising concerns about the state of his mental health. But his rule-breaking also thrills his fans and, though his main marketing technique has been to sell great products, helps his brands get noticed; until this year, Teslas sold themselves by word of mouth, rather than by advertising. His showmanship has a Willy Wonka quality to it; it is hard to know where the magic ends and the madness begins, but you can hardly tear your eyes away.To be sure, now that Tesla, worth $750bn, is the most valuable carmaker in the world and SpaceX is reportedly valued at $150bn, his motives for continuing to behave obnoxiously are murkier. An anecdote in Walter Isaacson’s recent biography suggests they may be compulsive. Mr Musk’s friends once took his phone and locked it in a hotel safe to stop him tweeting overnight. At 3am he ordered hotel security to unlock the safe. Yet however toxic his tweets are for X, which lives off ads, they do not matter much to customers and investors of Tesla and SpaceX. Though his X antics have caused periodic drops in Tesla’s share price, over the years it is up spectacularly. If SpaceX goes public, investors will dive in, even if some hold their noses while doing so. For all his flare-ups, it is mostly thanks to his vision and drive that the company has such a head start in both rocketry and satellite communications.Most troubling is the messiah complex. From Tesla and SpaceX to artificial intelligence (AI), Mr Musk acts as if he is on a mission to save humanity, by preventing climate catastrophe, providing an exit route via interplanetary travel, stopping machines from out-thinking man, or averting nuclear Armageddon (last year he stymied Ukraine’s efforts to strike back against Russia by refusing to extend its access to his Starlink satellites to Russian-occupied territory, on the grounds that such an attack might lead Vladimir Putin to retaliate with nukes). At times he sounds like a capricious Greek god who believes he holds the future in his hands. “Finally the future will look like the future,” he bragged when launching Tesla’s Cybertruck pickup on November 30th.Saving humanity is in vogue right now. It is a dangerous fetish. Last month a charter to protect the world from the dangers of rogue AI almost destroyed OpenAI, maker of ChatGPT. A year ago Sam Bankman-Fried, now a convicted fraudster, claimed that the disastrous risks he took with his FTX crypto-exchange were in service of humanity. Such missionary zeal is not new in business. It pushed Henry Ford, inventor of the Model T, to raise workers’ living standards. But his saviour complex got the better of him and he ended up spewing antisemitic bile.X postMr Musk’s hubris, too, may end badly. For all the futuristic twaddle about the Cybertruck, drivers struggled to find its door handles. Yet in the grand scheme of things, his technical accomplishments will probably outweigh his all-too-human imperfections. For pioneering electric cars and reusable rockets, he has earned his place in history. Future generations will probably judge him the way today’s judges Ford: a handful will decry his flawed character; most will remember the majesty of his creations. ■ More

A FEW YEARS ago renewables were having their moment in the sun (and wind). Rock-bottom interest rates lowered the cost of clean power, which is expensive to deploy but runs on sun and wind that come free of charge. The price of solar panels and wind turbines fell as technologies matured and manufacturers gained scale. These developments brought the levelised cost of electricity (LCoE)—which accounts for capital and operating expenditures per unit of energy—for solar, onshore wind and offshore wind down by 87%, 64% and 55%, respectively, between 2010 and 2020 (see chart 1). Clean energy became competitive with dirty alternatives, and was snapped up by big corporate power-users directly from developers.image: The EconomistInfrastructure investors such as Brookfield and Macquarie made big renewables bets. So did some fossil-fuel firms, such as BP. Utilities such as EDP and Iberdrola in Europe and AES and NextEra in America poured money into projects. Average returns on capital put to work by developers rose from 3% in 2015 to 6% in 2019, a similar level to oil-and-gas extraction but with less volatility. The industry’s prospects looked so bright that in October 2020 the market value of NextEra briefly eclipsed that of ExxonMobil, America’s mightiest oil giant, making it America’s most valuable energy company.image: The EconomistToday these prospects look considerably dimmer. Over the past two years the economics of renewables have been hit by rising interest rates, supply-chain snags, permitting delays and, increasingly, the protectionist instincts of Western governments. The “green premium” in stocks has turned into a “green discount”. The S&P Global Clean Energy Index, which tracks the performance of the industry, has declined by 32% over the past 12 months, even as the world’s stockmarkets are up by 11% (see chart 2). AES has lost more than a third of its value. NextEra is worth roughly a third as much as ExxonMobil, which has been buoyed by a surge in the oil price. Manufacturers of wind turbines went from just about profitable to lossmaking (see chart 3).image: The EconomistThat is a problem, and not just for the renewables companies and their shareholders. On December 2nd, at the annual UN climate summit being held in Dubai, 118 countries pledged to increase their combined renewable-energy capacity to 11,000 gigawatts (GW) by 2030, up from 3,400GW last year, as part of their decarbonisation efforts. That will require adding some 1,000GW a year, three times what the world managed last year. For this to happen, renewables must once again look like a business to bet on.The industry’s recent troubles are the result of a confluence of factors. One problem is rising costs along the supply chain. The price of polysilicon, a key material in solar panels, rocketed from $10 per kilogram in 2020 to as much as $35 in 2022, thanks to pandemic-era supply-chain issues in China. The price of solar modules jumped in response.Costs related to wind turbines have soared, too. Russia’s invasion of Ukraine pushed up the prices of steel, an important input of which both countries are large producers. What is more, to create longer and more powerful blades, manufacturers have pushed into new frontiers with the technology, including experimenting with materials like carbon-fibre composites rather than fibreglass. To capture stronger winds at bigger heights, the average tower now stands at almost 100 metres tall. In 2018 GE unveiled a 260-metre offshore wind turbine, not much shorter than the Eiffel Tower. Suppliers of the 8,000-odd parts in a wind turbine have struggled to keep up. Ships and lorries are having trouble transporting parts the size of football fields.All this has led to delays and manufacturing failures for wind turbines. In October a turbine made by Vestas, a Danish firm, caught fire in Iowa. Around the same time the blades on a GE turbine in Germany snapped and fell into a field. Warranty provisions in sales contracts make manufacturers bear the cost of such incidents. In the past 12 months such warranties cost Vestas €1.1bn ($1.2bn). Quality problems at Siemens Gamesa, including creases in its blades, drove annual operating losses for its parent company, Siemens Energy, to €4.6bn. On November 14th it was granted a loan guarantee by the German government to help it avert a crisis.To stem the bleeding, equipment-makers have been raising their own prices. Western ones now charge a fifth more than they did at the end of 2020, according to S&P Global, a data provider. These price rises have combined with higher interest rates to push up the LCoE for American offshore-wind projects by 50% over the past two years, calculates BloombergNEF, a research firm—even after including subsidies wrapped up in the Inflation Reduction Act (IRA), President Joe Biden’s mammoth climate law.Developers that locked in electricity prices with customers before locking in costs have found themselves stuck with unprofitable projects. In America they have either cancelled or sought to renegotiate contracts for half of the offshore-wind capacity being built in the country, according to BloombergNEF. In October Orsted, a Danish firm that is the world’s largest offshore-wind developer, took a $4bn writedown when it cancelled two large projects off the coast of New Jersey. In Britain, a government auction in September to provide offshore wind power to the grid at a maximum guaranteed price of £44 ($56) per megawatt-hour (MWh) received no bids.Renewables bosses also grumble about bureaucratic delays. In America it takes on average four years to get approval for a solar farm and six for an onshore wind one. An EU rule that permitting times for renewable projects in the bloc should not exceed two years is honoured mostly in the breach. Because solar and wind farms typically produce less energy than conventional power plants and, with easy-to-connect sites already taken, are being built in increasingly remote locations, they often need new transmission lines. These, too, need to be approved. In America the interconnection queue for renewable energy is 2,000GW long and growing.All this is made worse by rising green protectionism. America has in effect locked out Chinese solar manufacturers with hefty anti-dumping duties and the Uyghur Forced Labour Prevention Act of 2021, which bars American developers from importing modules containing polysilicon from the Xinjiang region, source of half of the global supply. As a result of such policies, solar modules are more than twice as expensive in the country as elsewhere, according to Wood Mackenzie, a consultancy.Those costs may rise further. In August the Department of Commerce found that some South-East Asian suppliers were merely repackaging products from China, and would thus also be slapped with the same anti-dumping duties from the middle of next year. The Biden administration is using the IRA’s domestic-content requirements to lure production home. First Solar, the biggest American maker of modules, is expanding its domestic production capacity from 6GW this year to 14GW by 2026. Yet that is a tiny fraction of what America will need to meet its decarbonisation goals. It will also do little to lower prices in the industry as a whole.image: The EconomistEurope is sending mixed signals. The EU has dropped earlier anti-dumping duties on Chinese solar panels. But on November 22nd the European Parliament passed the Net Zero Industry Act, which will introduce minimum domestic-content levels for public renewable-energy contracts. The European Commission is also mulling a probe into China’s subsidies for its turbine manufacturers, which sell their gear for 70% less at home than what Western rivals charge elsewhere in the world (see chart 4). Chinese firms are already gaining traction outside their home market. They are now bidding more regularly on projects around the world, notes Miguel Stilwell d’Andrade, chief executive of EDP.Trade restrictions will not just keep out cheap Chinese solar panels and wind turbines. They will also affect the availability of parts. Siemens Gamesa plans to outsource more of its supply chain to trim costs. Western turbine manufacturers already purchase nacelles, towers and other components from China, which dominates their production. For offshore-wind projects America will need to import the majority of components to meet its 2030 targets, according to the Department of Energy. Supply shortages are likely as the world races to deploy more renewable power. Tariffs and local content regulations could make the problem worse.There are few signs of the protectionist mood lifting. But the industry is at least starting to get a grip on some more immediate challenges. Polysilicon prices have fallen and production capacity is increasing up and down the solar supply chain. Western turbine manufacturers may be turning a corner, too, helped by a fall in commodity prices and greater technological and financial discipline. The industry is realising that “bigger is not always better” for turbines, says Henrik Andersen, chief executive of Vestas. On November 8th the Danish firm reported that it returned to profitability in the third quarter.image: The EconomistDevelopers, for their part, are managing to raise prices without hurting demand. In the past two years prices for solar and wind power received by developers in America under power-purchase agreements have risen by nearly 60%, according to figures from LevelTen Energy, an energy marketplace (see chart 5). Andres Gluski, boss of AES, says that his company is on track to put more than twice as much renewable-energy capacity into service this year as in 2022. Returns are holding steady, he adds. In next year’s offshore wind auction Britain will lift the maximum price from £44 per MWh to £73. Germany, too, has been raising ceiling prices for solar and wind auctions.“No one enjoys seeing prices go up, but they are accepting it,” says Mark Dooley of Macquarie. If permitting rules aren’t relaxed and protectionism goes unchecked, a lot more acceptance will be necessary. ■ More

Listen to this story. Enjoy more audio and podcasts on More

Listen to this story. Enjoy more audio and podcasts on More

THE RECENT history of foreign business in India is littered with failures. Even as the country has tried to lure global businesses keen to diversify into a fast-growing emerging market and, amid rising geopolitical tensions, away from China, many multinational companies are throwing in the towel. Notable departures over the past couple of years include Abu Dhabi Commercial Bank; Ford, an American carmaker; Holcim, a Swiss cement giant; and Metro, a German retailer. Disney is negotiating the sale of all or part of its streaming business. On November 24th Berkshire Hathaway, a $780bn American investment Goliath, offloaded its 2.5% stake in Paytm, an Indian payments processor.These are only the latest companies to call it quits. Inbound foreign direct investment has been flat since 2018. Although nearly 11,000 foreign firms entered India between 2014 and 2021, a government report found that 2,783 had left or closed in that period—a dispiritingly high number for a supposedly fast-charging economy.Some were probably put off by practical challenges, such as clogged roads, unbreathable air and patchy telecoms networks. Some no doubt balked at the legal obstacles to hiring workers, buying land or paying the right taxes. Some may simply have felt unwelcome; local bureaucrats and business leaders often see foreigners as a direct threat to domestic interests. Crucially, many fared less well than home-grown rivals. According to BCG, a consultancy, their gross operating margins average 12%, against 15% for Indian firms. When confronted by India’s reality, as opposed to its potential, plenty of excited foreign chief executives quickly find themselves “disabused”, sighs a consulting boss.Plenty, but not all. Dove soap, Knorr stock cubes and other consumer staples made by Hindustan Unilever, the Indian arm of a British giant, can be bought in 9m shops across the country. India’s top car-seller is Maruti Suzuki, a joint venture with a Japanese firm, followed by Hyundai of South Korea. Honda of Japan may soon dethrone Hero, an Indian rival, as the bigger maker of two-wheelers. Indians snap up Samsung phones and use WhatsApp, part of Meta’s social-media empire, to talk private and, increasingly, commercial business. They make half of all their digital payments via PhonePe, which is owned by Walmart, an American retailer.Far from quitting, some foreign companies are doubling down on their Indian bets. Which businesses persevere—and why—helps understand what it takes to succeed in India as a foreign enterprise.One group of corporate outsiders that can thrive in India are those whose business is aligned with the priorities of the Indian state, such as boosting export-oriented manufacturing. Apple has become the poster child of this approach, by moving some iPhone-making to contract manufacturers setting up shop in India. Vestas of Denmark and Senvion of Germany are producing wind turbines for sale abroad. Tesla is reportedly negotiating lower import tariffs on its electric cars in exchange for setting up an electric-car factory.An indirect way to shore up India’s economic ambitions is to help build the roads, ports and other infrastructure needed to get products from the factories to faraway markets. An investment manager at a big financial firm lists the Indian subsidiaries of engineering companies as good wagers on Indian growth. Over the past ten years ABB’s Indian affiliate has generated annual total stockmarket returns of 21%, two and a half times those of its Swedish-Swiss parent. America’s Honeywell averaged 11% globally but 28% for its Indian arm.Another successful group are foreigners who make an effort to indigenise their Indian business. Some team up with well-connected locals. Google and Meta have invested billions of dollars in partnerships with Reliance Industries, India’s biggest conglomerate, whose Jio telecoms unit brought mobile internet to 440m Indians. In August BlackRock, the world’s biggest asset manager, returned to India in a joint venture with Reliance. Its earlier foray involving a smaller partner was discontinued in 2018. If this time works out, BlackRock will have succeeded where those trying to go it alone, such as Fidelity, had failed. SAIC Motor, a Chinese car firm, is reportedly looking to sell a large stake in MG Auto, a local subsidiary facing a pernickety tax exam, to JSW, India’s steel champion.Outsiders have other ways to make their business more Indian. Rather than run its Indian bank from its home in Singapore, DBS set up a local affiliate complete with an Indian board accountable to Indian regulators. Walmart strengthened its Indian presence by acquiring a controlling stake in Flipkart, a local e-commerce platform, in 2018. In July the American retailer increased its interest by buying the stakes held by two American tech-investment firms, Tiger Global and Accel.image: The EconomistOne last important group is staying put—firms that are already big in India. Often, says the India head of a sovereign wealth fund, they flourish not by creating new markets but by replacing informal provision of existing goods and services. Many, similarly to ABB and Honeywell, earn better returns from their Indian subsidiaries, notes Nikhil Ojha of Bain (see chart). Some, like Hindustan Unilever or Maruti Suzuki, have been in the country for decades. Many Indians would consider them homegrown.Some are not so well liked, at least at first. Since it entered India ten years ago, Amazon has faced limits on local acquisitions, restrictions on selling own-label products, rules on inventory size and accusations that it threatened millions of kirana corner shops. Rather than give in, the e-emporium has stood firm. In June its boss, Andy Jassy, said it would invest an extra $6.5bn in India by 2030, bringing its total spending in the country to $26bn. It is expanding its e-commerce distribution network and building cloud-computing data centres. In November it launched FanCode, a channel on its Prime Video streaming service dedicated to sports including cricket, the national pastime.This resolute approach appears to be paying off. Resistance to Amazon’s Indian growth seems to be easing among government officials, who may have concluded that its logistical expertise is what India needs to connect its factories to the world. Billions of dollars in promised investments can’t have hurt, either. ■Stay on top of our India coverage by signing up to Essential India, our free weekly newsletter.To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More