Lessons in Why Private Enterprise and Public Services Don’t Mix

Blain’s Morning Porridge 19th March 2025 – Lessons in Why Private Enterprise and Public Services Don’t Mix

“Spring is sprung and the bird is on the wing. Why, that absurd, the wing is on the bird!”

What’s not to like as the sun rises on a beautiful spring morning? Well… As the UK watches its public infrastructure tumble into wrack and ruin as a result of privatisation and financialisation, the USA is excited Elon Musk is doing such a great job at DOGE saving their tax-dollars. They might want to avoid a look at the shaky edifice of Musk’s tech empire as its core, Tesla, increasingly looks a hollow sham.

I am going to remain resolutely happy today… because… there is much to be happy about. The sun is shining. She-Who-Is-Mrs-Blain has given me a pass to nip over to Chamonix for the weekend and its going to snow. When you reach my age, what else really matters? Oh, there is the minor problem my aching old bones getting older and older. But, in just a couple of years my ski pass will be much, much cheaper… What really cheers me up these days? I was woken by a blackbird singing as the sun came up. Magical. I look outside and all the signs are Spring is here – so why does it feel like Winter is Coming?

There is, of course, some good stuff in the news. “Radical rogue judges have no authority to administer the executive branch” say Trump’s minions. The Chief Justice of the USA reminded him they do when he called out Trump for threatening judges with impeachment. Yep. At least one Republican is willing to stand up and be counted.

But, if you want unremitting misery, how about Thames Water: inside the Crisis; a simply marvellous programme on BBC2 last night chronicling the day-to-day Gormenghastian decline and fall of Thames Water as its debt mountain collapses over it? It’s a lesson the whole Western World should watch. The film-makers simply let the staff talk.

The guys trying to make it work on the front lines of decaying pumping stations are decent folk struggling to make our water and sewerage systems work. They unload their frustrations to camera as they struggle with the consequences of privatisation and the fruits of financialisation: how Macquarie and the other “inverstors” raped the company for dividends paid by leveraging it with debt, leaving London’s water supply failing due to chronic underinvestment, a lack of logistics, day-to-day make-and-mend rather than long-term solutions, and inertia across the management floors.

As the private debt funders seek to reap even greater returns by lending yet more money at usurious rates from the rotting carcass of Thames Water’s failing treatment plants (while demanding tax-paying consumers pay for it by doubling their bills), the CEO comes over like a bewildered and befuddled Lord Grantham from Downton Abbey, trying to make sense of it all – but utterly uncomprehending of why it is what it is. In his world, no one is to blame so why waste time thinking about it… The rest of the senior management try to present as “nice” people, in the business of “concerned” excuses rather than solutions. They don’t act – they wait.

I did a double take when I read this morning Thames Water’s CEO pocketed £2.25 mm in salary and bonuses last year. For what? Being the numpty left to take the flack when it inevitably went wrong? Axeman swing that axe!

There are lessons from Thames Water about Public Goods vs Private Returns that should be nailed to the head of the next politician who says anything deeply stupid about the benefits of private enterprise running public services and government…

Speaking of which, let us turn to DOGE and Elon.

I guess what really makes me happy this morning is a quick glance at a chart of Tesla’s price action in recent weeks. I’m loving Tesla’s death-spiral. (The rest of the market’s correction? Not so much.) Everything I’ve been predicting about Tesla is finally moving my way – and its entirely due to Musk’s own actions! My levered short on Tesla since Jan more than makes up for my losses since Trump’s election.

(In case you are under 40, you might want to check out Ratners Moment and Betamax which I have helpfully linked to Wikipedia for you..)

Musk’s Ratners Moment – trashing his own brand by insulting his buyer base – has effectively halved Teslas sales in Europe, China and Canada. Even one of my most right-wing neighbours has a “I bought this before Musk went mad” sticker on his. He’s been told there is effectively no chance he can sell it – the second hand market is swamped.

But it’s not just Musk that’s the problem. Until now I’ve always said Tesla was a good, but massively overvalued, car maker – run by a terrible person. Being able to drop the cost of producing cars means Tesla’s margins have protected it from new entrants for some time. But even superior margins can’t stem the inevitable. I’ve now dropped my rating on the firm to “troubled car maker with a limited space in an increasingly competitive market”. It pioneered EVs, but its range of old models and obsolete tech will see its’ competitive space further infiltrated by nimbler newer firms, and worst of all, by the Auto dinosaurs who set to eat its breakfast, lunch and dinner.

I’ve used this comparison before, but Tesla increasingly follows the path of the Wright Brothers in the early days of aviation. In 1903 the Wright Brothers made the first powered flight. By 1910 they were selling aircraft across Europe and the USA, creating an industry and winning critical military orders. Private flyers first call was to buy a Wright aircraft. Yet by 1918 Wright Brothers has been pushed out by more nimble plane manufacturers who invented, innovated and improved better aircraft through WW1 – an event similar in demand push to the rush to introduce EVs as net Zero solutions. Tesla is beginning to look a lot like the Wright Brothers.

If you are still a Tesla believer, you need to step back and bite hard on reality. Do not blindly trust the Musk propaganda machine:

Whatever Donald Trump says, it is not illegal not to buy a car because you dislike the owner of the company.
Other, cheaper, better, EVs are available.
Telsa’s Full Self Driving is not the leading Automous Driving technology – Musk chose the wrong tech solutions and it’s not even the BetaMax. Tesla’s FSD software makes it look the Hindenburg vs a B-787 Dreamliner.
The Cybertruck has been a financial and sales disaster.
For every car it no longer selling to climate aware buyers, it loses the regulatory credits that still make up a significant portion of its earnings.
Other firms battery tech has evolved faster and is cheaper, longer-ranged and faster charging.
The whole Robotaxi concept is unproven and underdelivered. When it emerges it will be an ultra-competitive space where other firms will have the advantage of using approved and better automous driving systems. (By going down the wrong Tech route, Tesla might not even be approved when the RoboTaxi market launches. Just this week Tesla failed to win necessary FSD approvals in the UK and Europe.)
If Tesla is an AI firm – it’s in a very competitive space.
If Tesla is actually a personal robotics firm (and I can tell you a great story about how a UK company installed the robots that made the first Gigafactory work) then its startup.

There is increasing speculation about what happens to Tesla and Musk if the stock continues to fall. I reckon it was once worth a premium to other Automakers – say 10x earnings rather than the 7x other automakers trade off. That would put Tesla stock closer to $25 a share rather than today’s $220. Such a fall would trigger margin calls on Musk’s Tesla collateralised loans he’s used to fund his other ventures like Space X. The value of Twitter/X (set at $44bln for some dubious reason yesterday) is entirely due to Musk’s current status rather than its actual value as social media. If Musk was suddenly forced into margin trigger stock sales – what would that do to the rest of Tech sector pricing dynamic?

Ouch..

Stock market crashes start with a single pebble rolling down a hillside. Musk’s secret ingredient is the overwhelming confidence he exudes to his legions of fan boys and investors willing to back him and his businesses. Donald Trump’s career demonstrated its possible to have multiple business failures – from Trump University, Trump Airlines and his Casinos – yet he was still able to pull the wool over fans about his business acumen. Perversely, Trump’s success was because he was able to show how smart he was because other people ended up paying for his business failures!

That is not the case with Musk. His brand is founded on brilliance, wealth and success. If Telsa were to plumet, forcing Musk into a fire-sale – then just how much would he find left backing him? There would be much of value for smarter and quieter Tech lords to pick out from the wreckage of Musk Inc. I expect many are already looking forward to it.

Out of time, and back to the day job…

Bill Blain

Author the Morning Porridge

Founder Windshift Capital

Partner Shard Capital