Trouble in MAGA Paradise

Peter Zeihan here coming to you from Colorado. Apparently yesterday when I was presenting to a client and, on a plane, Elon Musk of Tesla and Donald Trump, president of the US, had a bit of a tiff and a falling out. Now, for anyone who wasn’t headless, we all saw this coming. We’ve got two divas who are not great people, and we always knew that sooner or later, there was only going to be enough room on stage for one of them. 

But kind of like how we all knew that when the US left Afghanistan, the place was going to fall apart. We didn’t necessarily think it was going to happen this fast or this bloody. Just to sum up, yesterday, Musk says that the budget bill that is going through Congress is an abomination and should be cut up and used as bait, and that anyone who is supporting it is a fool. 

He’s going to try to form a new party to challenge the Republicans at every step. And he is now personally putting his fortune behind impeaching Donald Trump. For his part, Donald Trump says that Musk was always a blowhard. Really never did any good work. Was the worst adviser ever. And the United States needs to reevaluate all of its contracts that it has with Musks family of companies and probably cancel most of them. 

And by the way, Musk should just go back to Africa. So, I don’t have an ear on the inside. It sounds real. It was very public. We had press reports out of the white House. Musk, of course, was going all day on Twitter, which is now his personal safety. Rather than talk about how it’s going to denigrate or recombine between the two of them or the political implications of that, I want to focus more on what we know for sure. 

This is the end of Tesla. Let’s start with that. Tesla, of course, is America’s initial electric car company, and they haven’t issued much of a new model in almost four years. Now, they’re no longer the industry leader in terms of technology, simply in terms of the number of units are actually out on the roads. But since Musk basically revealed himself to be a bit of a white supremacist of a really nasty type, environmentalists have found him far less, loving. 

And we’ve seen sales on a global basis of Tesla tank. Now, that would be bad enough as it is, but we now have an administration who isn’t, bleary eyed when it comes to doing environmental math in the same way that the last administration does. And if you’re willing to put aside your political leanings and actually look at the numbers, Teslas are some of the most environmentally damaging vehicles on the road. 

Making the lithium requires a huge amount of energy. Turn it into a battery chassis requires more. But what is left out of most of the math is the frame, which is a alloy of silicon and aluminum, which requires something like 40 times the energy that it takes to smelt steel. So in most jurists in the United States, a Tesla vehicle is not going to break even on a carbon count within a decade. 

All the math that Tesla puts out in its marketing is basically lies. They basically say that it’s produced with 100% Greentech energy, and it’s charged with 100% green tech energy. And if you believe that, then yes, a Tesla breaks even in carbon math in about a year. But it’s just utterly false. Anyway, that’s part one problem with Tesla. 

Part two is financing, because a lot of people, especially in Silicon Valley and Wall Street, saw Tesla as the brand of the future. People invested it in a huge way that was not reflective of what it would be for a manufacturing company or a manufacturing company. Its valuation is usually based on the amount of product that they have or that they sell, because there’s a production supply chain system that you have to cost in. 

Instead, Tesla was costed out as a software company where whatever your output is, you can then sell over and over and over and over and over and over. So the stock value is justified to be much higher. It’s valued as software company, but it produces and has income as a vehicle company. And the only way that you can justify that, disconnect is by saying that the federal government will basically subsidize everybody to buy electric cars. 

Well, that’s not going to happen now. The third problem is debt, because Musk basically ran this company with an enormously inflated stock valuation. He was able to borrow a lot of cash for all of his other projects. 

The next company that is doomed is SolarCity, which is a solar installer that he bought a few years ago. You guessed it, by issuing some Tesla stock and borrowing some money. Now, solar in the United States overall is kind of in a tight spot. And by a tight spot, I mean is probably going to take a decade off. 

And the problem is financing. When you have a conventional thermal plant, coal or natural gas, about three quarters of the cost of that plant over the lifecycle of the plant comes from purchasing the fuel. And only about 20% comes from the actual installation cost of building the facility in the first place. So you finance that 20%, and then the rest of it is kind of a subscription model. 

You sell power, you take money from your clients, use it to buy more fuel, you burn it, you make more power. You sell it to clients, you get some more money, and it’s cycles like that. That’s not how it works with green tech. Part of the attraction of green tech is there’s no fuel. That’s great, but there’s a much, much larger upfront cost, roughly two thirds of the cost of a full life cycle for a green tech plant is an installation, and that has to be financed. 

And because the baby boomers have basically exited the American economy and taken their savings and put them into relatively low velocity investments, we’ve seen the cost of capital go up by a factor of 4 or 5 in the last few years.  

It’s not because of policies from the Biden or the Trump administration’s. It’s not because of the fed. It’s not because of Covid. It’s not because the business cycle. It’s simply the boomers doing what you do when you retire. And since the largest generation we’ve ever had, that has generated a massive increase in capital costs. Well, most solar programs in the United States aren’t viable unless there’s some sort of concessionary financing. 

That’s how it was two years ago. Now, with finance being even more expensive now with the federal government under Trump getting out of that business, of subsidizing most of these projects don’t make sense at all. So if you’re in Southern California or Arizona or New Mexico or West Texas, you know there might still be a place for you because the numbers are really good in those zones for solar. 

And where I live, seeing Colorado in the Highlands, where there’s not a lot of moisture and we get a lot of sunny days, works here too. But the rest of the country, the rest of the world, not so much. So Solar City, which was already suffering from overcapacity, was already suffering from a lack of penetration options, was basically being subsidized by Tesla. 

That’s gone too, the third one that gets really interesting is, SpaceX. That’s, Elon Musk’s SpaceX launch facility, which has dropped the cost of space launches by roughly 90% per pound of cargo. And with some of the changes that they’re making with the new Starship that they are hoping to have flying for real and taking cargo soon, those numbers are going to drop even more. 

They’ve basically driven out of business all the other space, large industries, because they simply can’t compete. 

This is something where Musk actually did, in my opinion, something really good, a good solid for the U.S system. The old model of rockets was, you know, rocket science is hard. So let’s baby every individual piece of every individual rocket and run every conceivable test we can on it before and after each launch. 

So we have few losses. But the cost, the insurance cost for losing a rocket is huge. So we just don’t even want to pretend to take the risk. Musk had a very different approach. He’s like, is it ready to go? Oh, not really. Will launch it anyway. We’ll learn from the mistake and something would blow up. A lot of things blew up Tesla. 

I’m sorry SpaceX blew up a lot of rockets, but they learned so much more, so much faster because of it. And now have this cycle of launches that is so much more rapid than anything happened before. So at the moment, the Dragon capsule is the only way to get people to and from the space station. And so in the little tiff with Trump over the last couple of days, he basically says that they’re going to decommission that and the United States can just suck it. 

What this tells me is that Musk is deliberately making himself a national security threat for the United States. And so the, the nationalization of, SpaceX is probably not too far in the future. And since Donald Trump has already got NASA, in part in order to give a totally corrupt payback to Musk, there’s no longer an institution. 

It’s states that can really effectively run this thing. I mean, you could turn it over to Boeing, I guess. But Boeing hasn’t been able to keep up at all. Same with Lockheed. So we’re about to have state intervention in the space. Space? That is an unknown because there aren’t personalities involved that Trump will trust because they all work for Musk. 

Now, this hurts me personally because I live in a rural area on the top of a mountain, and I can’t get good Wi-Fi. So I have a Starlink system on my roof. But the only way Starlink works is if SpaceX keeps launching dozens of new satellites and repeaters every single month because they have a limited life span. 

Space is a tough environment. They’re falling out of the sky pretty constantly, and so you have to keep injecting more and more and more and more. That only works. That only works if SpaceX is flying. So. So that’s the, that’s the Elon side of things. Let’s talk about the U.S government side of things. One of the biggest mistakes that Donald Trump made is refusing to treat with Congress. 

So normally when the president wants something done, he looks to his allies in Congress or he looks to his own staff and he builds a bill either over there or in the white House or together sends it to Congress to go through the process and eventually become a law. But that requires having conversations with people who might not be as worshiping of Trump as he feels he deserves. 

And he doesn’t even have the staff in the white House to do so. He gutted the top ranks of the entire federal government, hasn’t replaced the staff. So there really is no one to write the laws, and there’s no one in the bureaus to advise them on how you might make this happen. So what he’s told his congressional allies is I want every thing that I want and done put into one bill so I can just sign at once and be done for the year. 

And that is just moronic. So the budget bill is in there. The reconciliation bill is in there, giving the president new legal powers so he can go head to head with the media or the universities that’s in there. Some of the legal troubles he’s got new indemnification are in there. Tariff authority that’s in there. Anyway, the point is, is this this massive thing. 

And even if it was just Musk’s concern about the budget deficit, which is also true, it’ll be like the third largest budget deficit that we’ve ever had. The point is, everyone in Congress has a reason to oppose this. And the only reason that, it hasn’t completely collapsed already is because the line is held within MAGA. Well, now the MAGA line has been broken wide open, and you only need a couple of votes to not go Trump’s way. 

Like a couple individual senators, and the whole thing falls apart. So from a legislative point of view, the Trump administration has found itself today in a position where Jimmy Carter was three years in, when he’s burned all of his political capital, he’s alienated almost all of his allies, and now he’s fighting a rearguard action just to appear like he’s in charge. 

And we’re not even six months in. If you go back to some of the pieces that I did back in January and February, I’ve never seen a political leader in any country burned through political power and political capital. At the rate that Donald Trump was into order to achieve very, very little. Everything that Trump has done to this point has been an executive action, which means that just like Biden and just like Trump won and just like Obama, it can be unwound in a matter of days by whoever happens to come in next. 

And there is no legislative path out of this any longer, because the coalition has already broken.