Elon Musk vs. Twitter Part V: Cracks in the Empire

ERICA PANDEY: Hi. I’m Erica Pandey, host of this season of How It Happened. We waited a bit to drop our last episode as we've been watching and reporting on Elon Musk's leadership of Twitter. A few months in, a narrative has started to emerge.

It's been tumultuous. Both Musk critics and supporters have found plenty of reasons to root against him and to cheer him on. And as we watched Musk's takeover play out, it seemed to mark a clear, unmistakable milestone in his career. Axios tech managing editor Scott Rosenberg has watched Musk's ascent since the 1990s.

SCOTT ROSENBERG: I think someone like Elon Musk — has had so many victories in his career that he sort of reaches the point of feeling invulnerable, right? Like he can't lose. And this is the logic of every sort of conquering emperor, right? You just keep adding provinces to your empire. Elon Musk makes companies — that's what he does.

ERICA PANDEY: But every empire reaches a tipping point. It grows so large that it becomes unruly, unrule-able even. It's possible that Musk's takeover of Twitter will be that point for him.

It's not just the chaos his reign brought to Twitter. Tesla's stock is falling, his biotech company Neuralink is reportedly under federal investigation, SpaceX is facing a complaint from former employees filed with the National Labor Relations Board.

No one can put out multiple fires at once. Musk, a CEO numerous times over, likes to run his companies himself. Right now, each one is facing a unique set of challenges.

SCOTT ROSENBERG: There's this kind of chaos and indecision that's communicated which actually undercuts the vision of Elon Musk as this superhero who can work miracles. Because instead what we're seeing is a kind of slow motion train wreck a lot of the time.

ERICA PANDEY: Across this season, we've charted the rise of Elon Musk, business titan and tech mogul. We've examined his tolerance for risk, his impulsive behavior online, and the devoted fanbase he's cultivated as he's conquered industry after industry: from online payments to electric vehicles, to space and biotech.

Elon Musk's Twitter

In this episode: We'll go deeper on Musk's first months at Twitter. He's disrupted Twitter as we knew it, and it remains to be seen if it's for better or for worse, and that depends on who you ask. At the same time, his actions have called into question his leadership at the rest of his companies.

There's always been a debate about how to view Musk, his achievements, and his behavior. It's never been louder than it is right now.

From Axios, this is How it Happened: Elon Musk vs. Twitter. Part Five: Cracks in the Empire

ERICA PANDEY: Musk stepped into the role of Twitter CEO with a Must-Do list. He said he wanted to change how Twitter handled content moderation. He said he wanted to change how the platform makes money and he made a bet on subscriptions. And he wanted to add new features to Twitter to dramatically expand the platform's role in our lives.

That was a long list to walk in the door with, it has only become longer, because Musk introduced new problems to Twitter himself.

From the jump, there were Twitter users, political figures and fellow Silicon Valley titans applauded Musk's fearlessness in laying off staff and his relaxed boundaries on free speech, including letting people previously banned for hate speech back onto Twitter.

We reached out to Musk and his companies for comment and they did not respond.

Twitter's misinformation problem

As Musk settled into his new job in November, Netflix CEO Reed Hastings gave an interview at the New York Times DealBook conference. In that interview, he called Musk:

REED HASTINGS ARCHIVAL: ... The bravest, most creative person on the planet. I mean, you know, what he's done in multiple areas is phenomenal. Um, you know, his style is different than like, I'm trying to be like a really steady, respectable leader. You know, he doesn't care.

ERICA PANDEY: But many of us at Axios who have been covering Musk were shocked by some of the things he did in the immediate aftermath of his takeover. Especially because the chaos wasn't playing well with some important audiences.

SARA FISCHER: Elon Musk started to really get in trouble with advertisers.

ERICA PANDEY: Sara Fischer, media reporter for Axios. Musk himself said in November that fleeing advertisers caused a quote "massive drop in revenue."

SARA FISCHER: He started to tweet misinformation. Advertisers were becoming frustrated because their points of contact at the company were getting fired or resigning. So to watch him decimate Twitter's ad business is shocking to me because somebody who wants to really move fast and break things knows you need some money to do it.

SCOTT ROSENBERG: So far, pretty much everything that Elon Musk has done at Twitter has been an improv act,

ERICA PANDEY: Scott Rosenberg again.

SCOTT ROSENBERG: ... And if he continues with that, I think he will only cause more chaos and sort of destruction of value at the company. And as an observer of social media and of Elon Musk, I don't think he has yet really taken Twitter seriously as a company or as a platform for human communication.

ERICA PANDEY: For Rosenberg, there was an early tell that Musk wasn't going to recalibrate his use of Twitter, which is often irreverent and can even be irresponsible for a figure of his stature, with a following of his size. A conspiracy theory about an attack on Nancy Pelosi's husband Paul Pelosi that had been circulating on the far-right made its way to Musk. And he shared it.

SCOTT ROSENBERG: So on the weekend right after Musk took over Twitter, he just casually sent out this tweet about Paul Pelosi in a way that was so colossally irresponsible, it would've been irresponsible for him to do this as not as the owner of Twitter, right? Just as somebody with a huge following, it would be a bad thing to do.

But he did this within 48 hours of assuming the role as owner and effective CEO of Twitter.

And I think everyone, not only at Twitter, but the world at that moment sort of backed up a second and thought, Wait, is this, is this what we're gonna be dealing with now that Elon Musk owns Twitter? Two months later, the answer is absolutely yes.

SPEAKER ON YAHOO FINANCE: The fact that Musk tweeted a totally unfounded tweet about Paul Pelosi last week and then deleted it ... I don't know if that bodes well.

Resignation wave at Twitter

ERICA PANDEY: Meanwhile, Musk also decimated Twitter's workforce.

SPEAKER ON BLOOMBERG TV: Chaos at Twitter continues. They may have fired too many workers, may have fired the wrong ones. Maybe fired them too soon.

SPEAKER ON BLOOMBERG TV: A bit of a reversal here. Twitter is bringing back dozens who were fired….

ERICA PANDEY: On Nov. 16, Musk sent a note in the middle of the night telling all employees there would be a new work culture and that could opt-in or opt-out and lose their jobs. My Axios colleague Zach Basu is reading the letter.

A Fork in the Road

Going forward, to build a breakthrough Twitter 2.0 and succeed in an increasingly competitive world, we will need to be extremely hardcore. This will mean working long hours at high intensity. Only exceptional performance will constitute a passing grade.

Twitter will also be much more engineering-driven. Design and product management will still be very important and report to me, but those writing great code will constitute the majority of our team and have the greatest sway. At its heart, Twitter is a software and servers company, so I think this makes sense.

If you are sure that you want to be part of the new Twitter, please click yes on the link below:

forms.gle

Anyone who has not done so by 5pm ET tomorrow (Thursday) will receive three months of severance.

Whatever decision you make, thank you for your efforts to make Twitter successful.

Elon

SARA FISCHER: That whole resignation wave of people who didn't respond yes to Elon Musk's hardcore was pretty significant. And you know, there's pictures going viral of beds and Twitter, and that's riled up regulators in San Francisco who wanna make sure that corporate housing is being used for the right stuff.

Most of their big lawyers and the folks that are responsible for keeping Twitter out of trouble with regulatory compliance, etc., are all out.

ERICA PANDEY: There was product chaos when a new process to verify users on the platform went awry.

SPEAKER ON NBC NEWS: Wall Street is watching pharmaceutical giant Eli Lilly today. Its stock plummeted last week after someone impersonated the company on Twitter. Said it would make Insulin ... free.

ERICA PANDEY: It was hard to keep up with all of the headlines coming out of Twitter. Cable networks and news outlets covered the minute to minute drama.

SPEAKER ON YAHOO FINANCE: Elon Musk is making more waves after his Twitter takeover tweeting that Apple is threatening to withhold Twitter from its app store.

Musk reinstates Trump's Twitter account

SPEAKER ON CNN: Late last night, Twitter's owner and chief Twit Elon Musk said that Trump who has been banned since inciting an insurrection at the Capitol on Jan. 6 is now back on the platform.

SPEAKER ON CNN: Musk tweeted at 6:44 last night with two popcorn emojis. He alerted his 119 million followers to a long thread called the Twitter files posted by CK journalist Matt Taibbi. Taibbi said that it was the first installment in a series quote based upon thousands of internal documents obtained by sources at Twitter. Musk promised that more is coming today.

ERICA PANDEY: There was one news cycle where I felt Musk was really flexing his power over the platform and articulating a very specific vision of free speech: one that seemed to actually exclude journalists.

In December, the Twitter accounts of several prominent journalists who cover Musk were suddenly suspended. First, Musk banned the account ElonJet, which tracks the location of his private plane. Musk said this account threatened his privacy and safety and violated Twitter's guidelines. But then, journalists reporting on ElonJet getting banned lost their own accounts. And then, at least one journalist reporting on other journalists getting banned also got banned.

To Musk's fans, banning journalists from Twitter felt like a fresh interpretation of Twitter's free speech rules. The suspensions were viewed as justified to those who didn't trust the mainstream media.

But to others, it looked like a zero-tolerance regime, with new rules meant to serve the new CEO above anyone else.

SPEAKER ON ABC NEWS: Breaking news overnight, Twitter suspended multiple journalists from prominent outlets including the Washington Post, the NYT, and CNN, Elon Musk claimed a violation of policy.

ERICA PANDEY: The suspended journalists tried to press him on why they were banned, in a Twitter Spaces conversation and he offered one defense, then quickly dropped off the call.

TWITTER SPACES AUDIO: Oh, I think, I think Elon has, uh, has left.

ERICA PANDEY: The day after the Spaces with the banned journalists, Musk tweeted this:

@elonmusk: So inspiring to see the newfound love of freedom of speech by the press 🥰

ERICA PANDEY: This kind of open trolling of the mainstream media seemed to many on the right as payback to what they saw as quote-unquote "liberal shadow-banning" — they felt social media algorithms had been stacked against them, de-amplifying their posts to favor liberal perspectives. Taken together his individual actions and decisions raised a question: was all this chaos a means to an end?

DAN PRIMACK: I do believe that when new owners come into a company, they often view there as being value in shaking things up, particularly if it's become a stale and kind of complacent company.

ERICA PANDEY: Dan Primack, business editor at Axios.

DAN PRIMACK: There was a group of people who viewed Twitter as something that needed to be burned down to be rebuilt, not just tinkered with not just. Playing around the edges, but really had the, some creative destruction here.

And Musk, I think, to a certain part, was part of that group. And if that's your belief, then when there is destruction, whether that be in terms of employees or even certain technologies or even reputations, what so many people kind of flinch at and say, "Oh my God, what's happening there?" These people look and say, "Yeah, that's what we have to do."

When you speak to folks, including investors, in Twitter or in Elon Musk's version of Twitter, they always go back to: "He ran SpaceX and Tesla like this to some extent."

ERICA PANDEY: Sure, his successes at Tesla and SpaceX can cast Musk's management of Twitter in a new light, but the chaos at Twitter is arguably overshadowing those very same successes.

DAN PRIMACK: Until April, Elon Musk was best known for SpaceX and for Tesla, and for every now and then being a little bit eccentric or, or being a bit of a troll on Twitter, but I think even the trollish on Twitter was, was very much overshadowed by what he had done at Tesla and SpaceX. I think that's way, way down on the resume.

I think right now, if you ask people, "What does Elon Musk do?" Twitter would be in the first sentence, if not the first word, of what most people would respond, and it hasn't gone great. Even Musk, you know, keeps talking about how the company is in tough financial shape. He's gone from wunderkind to kind of a little bit of a laughing stock when it comes to Twitter.

ERICA PANDEY: That perception could be because this is all playing out on a split screen: On one side are headlines about Musk's decisions regarding Twitter, and on the other are his tweets that continue to often come across as crass or out of touch.

TOM NICHOLS: He seems not to understand that running a company is not the same thing as being the most visible and obnoxious executive in a company.

ERICA PANDEY: Tom Nichols is an author and academic focusing on international affairs and political leadership. He wrote a book on the death of expertise, examining figures who came into power because they rebuked conventional wisdom.

TOM NICHOLS: I think Twitter was perhaps his biggest mistake because this was the one place he was going to have complete control and be in charge instead of being a kind of wealthy regent who tasks things out to experts. In this case. He said, "OK, I'm gonna get my hands right into it. I'm gonna plunge my hands into this problem." And he's completely screwed it up because he really has no idea what he's doing.

ERICA PANDEY: Musk's disruption is celebrated by some, but in the eyes of Nichols and others, Musk has been flailing. And from their perspective that appearance is taking a toll on perhaps his most valuable entity: the Elon Musk brand.

SCOTT ROSENBERG: I think Musk's brand has always been this kind of superhero world-changing tech CEO who was going to convert the auto industry to electric vehicles and bring humanity to Mars and save human civilization. And he's tried to tie his acquisition of Twitter to that by talking about how he is going to preserve the public square and make it safe for free speech and the future of human consciousness.

But what people are seeing as his brand, at least since he's been running Twitter, has become much more chaotic, much more partisan, much more tied to almost like a robber-baron CEO who comes in and fires three-quarters of the company and says, "You have to sleep in the office now. And the only way we will survive is if you are hardcore with me."

ERICA PANDEY: Musk is giving so much time and energy to Twitter — and that has consequences.

TOM NICHOLS: It will become tiring and exhausting and it's already hurting his other business.

ERICA PANDEY: That's where we're going. How the drama at Twitter is impacting his other companies — and whether he can sustain an empire that has become this large.

We'll be right back.

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ACT 2 - EMPIRE CRACKS

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ERICA PANDEY: We're back. When Musk took over Twitter, it became another province in his already massive empire.

SCOTT ROSENBERG: Musk's Empire now is huge, right? Its heart is Tesla, but he also owns SpaceX, which has become a hugely important company. He owns Neuralink, which is trying to embed chips in the human body. He owns the Boring Company, which is digging tunnels under cities.

ERICA PANDEY: Musk runs his empire in a unique way. He tends to share resources between his companies, spreading his leadership as CEO across all of them, for example. But this means that shocks in one part of his empire reverberate throughout the others — each of which faces its own challenges. Let's start with Tesla.

JOANN MULLER: Tesla is facing some pretty serious problems. If it were any other car maker, I think the CEO would be intensely focused on trying to correct the course and, and it would be all hands on deck.

ERICA PANDEY: Joann Muller, Axios transportation reporter. She's watched as Tesla's stock has plummeted. It is down roughly 46% in the last six months. And the company missed its deliveries goal for 2022.

Tesla alone accounts for about 10% of all retail investors' portfolios. That's according to a Vanda Research report. At one point, the stock’s downturn had erased nearly $78 billion of individual investors' wealth.

This isn't hedge funds or index funds. This is mostly average people who are investing their money by themselves. Muller says the stock's fall is a reflection of a few things.

JOANN MULLER: Tesla is seeing some pretty significant weakening demand in China, which has been, you know, one of their biggest markets. On top of all of that, you have all the COVID shutdowns that have affected production. So that in itself is a giant headache.

The other thing is that Tesla is also having issues ramping up production in Germany and in their new plant in Austin, Texas, and they're trying to put in some really new high tech manufacturing processes and they're having trouble getting it right and, and this, too, is a major headache for any automaker, and they've had some logistics snafus that have delayed the delivery of vehicles.

So you have macro issues, you have Tesla issues, and then you have the Twitter chaos and the leadership vacuum that I think people are fearing.

ERICA PANDEY: And then, of course, there's this other thing: By the end of 2022, Musk sold off roughly $23 billion worth of Tesla stock, possibly using his profits from that to fund the Twitter acquisition. But flooding the market with that much Tesla stock at once has driven down its price. As you might imagine, some of Tesla's investors have concerns about how things are going.

In 2018, one shareholder sued Musk over his financial compensation package from Tesla. There were specific concerns that he was over-paying himself, but it opened the floodgates for other kinds of criticism. Recently, a Tesla investor filed a separate complaint, alleging that Musk has done irreparable damage to the company's reputation. Musk is also facing an additional lawsuit related to his 2018 tweet that he had secured funding to take Tesla private. As of this recording, that suit's trial has just begun.

In November, Musk appeared in court in Delaware for the compensation lawsuit where he denied having a role in putting together his compensation package, which is potentially worth more than $55 billion.

While he was on the stand, another recent issue came up, Musk had said that Tesla engineers were examining the code that underpins Twitter. It almost seems like he thinks of the engineers he's hired as one army, able to flit between provinces within the Musk empire.

@elonmusk: So much to fix at Twitter (sigh)

JOANN MULLER: I have to wonder, what can a car software engineer for an automobile company do at Twitter?

But you've gotta wonder what that means for Tesla. Like if you're sucking out the brains of Tesla and shifting it over to Twitter, who's running the shop at at Tesla?

Elon later said he took some criticism for this and said that these engineers were just volunteers and they were working after hours.

But that's hard to believe when you consider what is happening at Twitter and how urgent the needs are over there. You don't just pull in volunteers after they've spent all day trying to solve Tesla car problems.

ERICA PANDEY: While Musk has been making changes to Twitter's policies and company culture, he's also been facing this Tesla shareholders' lawsuit. And on top of all of that, SpaceX has been dealing with a complaint from former employees to the National Labor Relations Board. The employees argue they were unlawfully retaliated against after openly complaining about Musk's behavior on Twitter.

MIRIAM KRAMER: Compared to Tesla, SpaceX is the piece of Musk's empire that has always seemed the most stable. But SpaceX is facing unprecedented challenges right now.

ERICA PANDEY: Miriam Kramer is the space reporter at Axios. She's been following how the Twitter takeover has been affecting workers at SpaceX.

MIRIAM KRAMER: Cracks in the SpaceX veneer are starting to show, and they have to do with Musk's Twitter. In June, a group of SpaceX employees sent a letter to management saying, "As our CEO and most prominent spokesperson, Elon is seen as the face of SpaceX — every tweet that Elon sends is a de facto public statement by the company." Adding, "Elon's behavior in the public sphere is a frequent source of distraction and embarrassment for us, particularly in recent weeks."

SpaceX alleged that the letter was distracting from the greater company mission and some of the employees involved were fired within days.

ERICA PANDEY: Those recent weeks the employees were referring to were back in May and June, when Musk declared the Twitter deal was "on hold." And he openly trolled Twitter's executive team by replying to then-CEO Parag Agrawal with a poop emoji. He tweeted about voting Republican for the first time in his life, he undermined the trans community, and also threw in ... a meme about dildos.

MIRIAM KRAMER: A complaint with the National Labor Relations Board was filed on behalf of eight of those terminated workers. I've spoken with several of them.

SpaceX and Musk himself have not publicly responded to the employee complaint. One former SpaceX employee involved in the letter and the complaint, Tom Moline, told me that Musk's tweets had a clear downstream influence on his employees.

TOM MOLINE: Whenever he would tweet something that could be classified as like sexist or anti-trans or you know, anything of that capacity, it had a direct effect on people.

Like there's a lot of male engineers within the company who like echoing whatever Elon says, and they would, you know, start directly translating those tweets into like, behaviors, you know, making jokes with like any sort of women engineers that might be on their team as well as sort of like giving them an excuse to like bring out their like worst behavior.

MIRIAM KRAMER: SpaceX is currently under investigation as a result of that complaint — and it's happening as the company tries to maintain a very precarious balance.

On the one hand, the company is so intertwined with Musk that employees were told in a meeting that "SpaceX is Elon and Elon is SpaceX."

But the company also wants to seem distant enough, removed enough from his drama, that NASA and other U.S. agencies and private companies will continue to enter into multi-million dollar contracts with them.

From my reporting, I learned that this is all taking a toll on employee morale.

ERICA PANDEY: Musk's companies have to keep up morale, because Musk may be the vision holder, but it's not like he can build everything himself.

TOM NICHOLS: He pours a lot of money into it and unleashes a bunch of very smart engineers. And the engineers say, "OK, self-driving electric car that does cool things, we got it."

ERICA PANDEY: Meanwhile, Musk's lesser-known companies, Boring and Neuralink have their share of headaches, too. Local, state and federal government officials told the Wall Street Journal that Boring has ghosted on its contracts to build transportation infrastructure in some American cities.

And Reuters reported that Neuralink, the brain chip company, is under federal investigation for its treatment of test animals after it was discovered about 1,500 animals died in experiments.

ERICA PANDEY: To many Musk observers, the most likely path forward for Musk’s companies is that he hands them over to other people who know how to run a company in these specific industries well. Here's Tom Nichols again.

TOM NICHOLS: If I had to bet, I would say his ego will not allow him to just walk away and wash his hands of it and dump it. My guess is that he would do probably what he's done in other places.

He's gonna find a CEO, get a group of people who know how to run something like this and say, "OK, I'm still the chief tweeter, I'm still the boss, I'm still in charge." And a bunch of guys behind him are gonna say, "Alright, you know, boss, if you could just step over to the left here while we, you know, get the fire extinguishers and put out this smoldering wiring over here, you're still the boss."

ERICA PANDEY: The current picture of Musk's empire isn't pretty. Cars delivered late, investors' wealth erased, offensive tweets that can have real world consequences, employees terminated for speaking out, and stock gains lost.

On Dec. 18, Musk did something I’ve never seen a CEO do before. He put up a referendum on his leadership of Twitter, asking users to vote on whether he should continue to run the platform or hand it over to someone else.

@elonmusk: Should I step down as head of Twitter? I will abide by the results of this poll.

ERICA PANDEY: About two hours into the poll's 12-hour timeline, presumably as he was watching the results come in, Musk tweeted this:

@elonmusk: Those who want power are the ones who least deserve it

ERICA PANDEY: Over 12 hours, 17.5 million votes came in. And 57.5% said, "Yes, you should step down." Musk's poll — and its results — raised a lot of questions.

The biggest one is whether Musk will follow through and step down as CEO. And if he does, could transitioning Twitter's leadership to someone else be enough to rebalance his many responsibilities? Musk's business empire could hang in the balance.

CREDITS

I'm Erica Pandey. Amy Pedulla is reporter-producer. Naomi Shavin is senior producer. This series was reported by the Axios newsroom, including Dan Primack, Sara Fischer, Miriam Kramer, Joann Muller, Javier E. David, Jonathan Swan, Ina Fried, Hope King and me. Fact-checking by Jacob Knutson. Zach Basu is reading Elon Musk's tweets.

Scott Rosenberg and Alison Snyder are series editors. Sara Kehaulani Goo is the editor-in-chief and executive producer. Mixing and sound design by Ben O'Brien. Music supervision by Alex Sugiura. Theme music and original score by Michael Hanf.

Special thanks to Axios co-founders Mike Allen, Jim VandeHei and Roy Schwartz. And thanks to Lucia Orejarena, Priyanka Vora and Brian Westley. If you're enjoying the season so far, please take a moment to rate and review the show.

Thanks for listening.