Tesla Missed the ESG Moment, and Twitter Could Bury It

Tesla CEO Elon Musk issued a withering criticism of the corporate environment, social and governance movement last May after S&P Global booted the company from its ESG Index. The downgrade is a stain on the reputation of an automaker that has fashioned its brand around sustainability, and Musk’s antics on Twitter are not helping.

Misdirection on the S&P 500 ESG Index

Musk deployed his personal Twitter account to complain about the updated S&P ESG Index. “Exxon is rated top ten best in world for environment, social & governance (ESG) by S&P 500, while Tesla didn’t make the list!” he tweeted on May 18, 2022.

That was an apparent reference to an S&P Dow Jones blog post published a day earlier that explained the methodology behind the update. There is actually no such thing as an overall “top ten” ESG rating in the Index, but the post did include a chart that listed the 10 largest companies by their market capitalization. The list included Exxon at the No. 9 spot.

If Musk was referring to that chart, he clearly mistook what it represents. It is not a “top 10 best in the world” list, as Musk implied. It is simply a list of the 10 largest companies.

Whether or not the mistake was deliberate, it was misleading. ESG ratings compare companies to their peer groups, not to a random assortment of other industries.

As the S&P blog explained, Tesla did not make the cut because it did not meet the bar set by other companies in its own industry.
“Tesla was ineligible for index inclusion due to its low S&P DJI ESG Score, which fell in the bottom 25 percent of its global GICS industry group peers,” wrote Margaret Dorn, senior director and head of ESG indices for S&P Dow Jones in North America. 

In the same tweet, Musk also deflected attention from the concrete, bottom-line reasons for leaving Tesla off the Index. “ESG is a scam. It has been weaponized by phony social justice warriors,” Musk wrote, even though Dorn described two specific areas of risk exposure, in addition to Tesla’s underperformance relative to its auto industry peers.

The Twitter factor, part 1

One factor Dorn did not bring up was the potential for Musk’s personal behavior to contribute to perceptions of risk at Tesla. 

Musk has long cultivated a reputation as the planet-saving, visionary CEO of Tesla, but the seams have been showing in recent years. At the outset of the COVID-19 pandemic, for example, Musk deployed his personal Twitter account to align himself with former President Donald Trump’s misdirection on handling the crisis, while also raising doubts about vaccine safety.

After Trump left office, Musk further aligned himself with right-wing politics. He deployed Twitter to criticize and insult President Joe Biden on a regular basis, at one point calling him a “damp sock puppet in human form.” Musk also cheered for the “trucker convoy” that disrupted the Canadian government and bottlenecked key international crossings last winter, even as the Biden administration was struggling to rally Canada and other NATO members against the rising threat of a Russian invasion of Ukraine.

Musk continued to pour gasoline on the international fire last fall when he suggested that Ukraine should cede part of its territory to Russia. More recently, he set off an uproar when his SpaceX company abruptly stopped Ukraine from using the Starlink communications network to operate drones.

The Twitter factor, part 2

Musk’s partisan political activity came into full focus last fall. He completed his acquisition of Twitter just days before the 2022 midterm elections, then used the platform to advocate for Republican candidates.

The Twitter acquisition coincided with a steep drop in the value of Tesla stock in 2022 — reportedly culminating in a loss of $700 billion, 65 percent of its value, over the course of the year.

Though bottom-line factors contributed to the crash, Musk’s actions as head of Twitter also raised questions about the state of his executive skills. His reputation for cultivating right-wing extremists and vaccine disinformation sent advertisers running for the doors, and his elimination of content moderation teams led to a reported increase in anti-LGBTQ+ rhetoric on the site. His promotion of the “Twitter files” also contributed to an environment rich in conspiracy theories.

More bad news for Tesla

All things being equal, none of the goings-on at Twitter would necessarily impact investor interest in Tesla. In fact, so far in 2023 the company’s stock has recovered some of its dramatic losses from the previous year.

However, attracting U.S. car buyers is a different matter. Last November, S&P forecast that Tesla’s share of new vehicle registrations in the U.S. would shrink from its current level of 65 percent down to 20 percent by 2025. S&P attributed the drop to competition from industry peers.

With EV sales increasing overall, Tesla could make up in volume what it loses in market share. However, the company’s high profile makes it a target for bad news, potentially turning off consumers. A recall of the self-driving software on 362,000 Tesla vehicles in the U.S. made headlines last week, as did an accusation of union-busting at the company’s Autopilot plant in Buffalo.

In past years, brand surveys have indicated that most car shoppers ignore Elon Musk. They buy a Tesla because of its reputation for quality. However, that narrative may change when other automakers establish firmer reputations of their own in the EV market. 

The growing demand for pickup trucks is one indicator that the storyline is shifting. Legacy automakers have a long head start in that market, and Ford in particular has demonstrated that brand recognition can stimulate sales of new electric pickup trucks.

Tesla had an opportunity to beat other automakers to the electric pickup truck punch several years ago, but its much-delayed Cybertruck pickup has yet to go into production. Industry observers have also taken note of cost and safety issues related to the decision to use stainless steel instead of standard automotive steel. 

Ten years ago, electric cars were new to the mass market and Tesla practically had the field to itself. Now, the company and its CEO need to adjust to the realities of today’s auto industry. Treating ESG considerations seriously would be a good place to start. 

Image credit: Edgar/Unsplash