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Countless Companies invest in AI tools without tying them to tangible business outcomes. Join McKinsey later to learn how leaders rewire their organizations for sustained impact and value.
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Welcome to Tech News briefing. It's Friday, July 24th. I'm Imani Moiz for the Wall Street Journal. Tesla became the most valuable car company in the world by acting less like an automaker and more like a tech company. So why did investors send the stock lower after the company poured billions into AI and robotics? Then AI executives are beefing up security and telling employees to leave their company branded fleeces at home. As the backlash against AI translates into more threats, we'll look at the growing trend putting the industry on edge. But first, on Wednesday evening, Tesla reported second quarter earnings. And though the company sold more cars than expected, that wasn't the figure. Investors fixated on Elon Musk's ambitions to transform the company into something more than an auto manufacturer overshadowed its performance. The company spent nearly $6 billion on AI, robotics and other futuristic technologies, sending its free cash flow into negative territory for the first time in more than two years. Wall street wasn't too happy about that and shares continued to tumble. Yesterday, Wall Street Journal Detroit Bureau Chief Patrick George dug into the numbers and joins us now to explain how Tesla is really doing and what has investors so rattled. Can you tell us why investors are so fixated on this negative free cash flow figure?
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This is kind of when the check is due for Tesla a little bit. For many years now, this company has said that it plans on transitioning from being kind of a traditional automaker as much as a disruptor like Tesla can be traditional. And becoming a powerhouse in artificial intelligence and robotics and autonomous cars. And developing all these nascent technologies requires a massive, massive capital spend on the earnings call. Elon Musk was saying. One thing they're finding is that as they try to branch into humanoid robotics, there's not really a supply chain to serve that. It doesn't exist with Optimus.
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There's, there is no supply chain. So we've had to build up a supply chain in its entirety or in house the production. And we actually announced a tremendous amount.
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They had to build out a lot of that supply chain when they pioneered the modern electric car industry, but there was still a lot of auto related parts and expertise they could draw on. And they're supposedly writing the book as it goes in the robotics front. So that's a very expensive endeavor.
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So how does this most recent quarter's results compare to how the company's been performing more generally?
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I'D say it was a tougher quarter overall. At the outset of the year, it announced it was going to spend $25 billion on capital expenditures, updating factories, investing in AI infrastructure, starting its new it's called a Terrafab. It's a chip research facility. It's working on Intel. So it certainly told investors that it was going to be spending a lot of money this year. A lot of analysts are wondering when that payoff is going to happen, which seems to be a continuing trend with a lot of AI heavy investments right now. Even when they have a bad quarter like this, Tesla is still king. It's still on top. The most recent numbers put them larger than the next 35 to 40 automakers combined. Just massive. Ahead of Toyota, ahead of General Motors, ahead of the rising Chinese giants. Even though Tesla is often dwarfed by many of those companies in terms of overall sales and overall revenue, there is a long standing belief that by investors that this company is going to be the one that makes cars fully autonomous while integrating that with robotics at the same time. And it also has a lot of other diversified business lines too. It's increasingly a battery powerhouse as well.
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Tesla is pitching itself as a company that does so much more than just selling cars. How much money does it actually make from its non car business right now and how much of that shift is aspirational?
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That's the fascinating thing, is that though it touts itself as a tech company and it is definitely branching into robo taxis at a slower rate than expected. And it's certainly a major player in the battery space, the bulk of its revenue, more than 70% last year, is made the old fashioned way and that's selling electric cars. So it is very much a car company in terms of its balance sheet. I'd say one of the things that surprised me the most was the comeback that they mounted in Q2, just in auto sales. Tesla sold 480,000 electric vehicles globally, you know, compared to the same period last year. And most of those, it seems, were in Europe and China. Less so the United States now that EV tax credits and things have gone away. But the politics of Elon Musk, regardless of what you think of them, had affected the brand's popularity in a lot of markets, especially Europe. And the fact that Tesla has rebounded so hard in Europe is pretty fascinating to see. And I think that's also a symptom of high European gas prices amid the conflict in Iran. They are also now back to being the majority EV seller in the United States. So Tesla, as an automaker continues to be really, really resilient.
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That was WSJ Detroit Bureau Chief Patrick George. And a quick reminder for listeners, we want to hear from you. Have you seen an AI generated post that you thought was real? Shoot us an email@tnbsj.com or leave us a voicemail at 212-416-2236. That's 212-416-2236. Or if you're a listener on Spotify, leave us a comment. Coming up, police reports are revealing a troubling new reality for the AI industry. Why are threats against CEOs becoming more common? That's after the break.
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True AI value comes from rethinking workflows, not just layering on tech. Here's Dan Swan, senior partner at McKinsey.
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When we talk about rewiring, we're talking about getting into the chassis of the organization. And that means, yes, there's technology to it, but how are you redesigning the organization or the capabilities of the people that are actually doing the work and linking that to the technology? So for us, the technology, yes, is critically important. But these other pieces are 70, 80% of the work to get that right.
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As concerns build over AI's impact on jobs, the environment and local communities, violent threats directed at the companies and executives behind the technology are on the rise. The most high profile example came earlier this year when a man allegedly attempted a firebombing of OpenAI CEO Sam Altman's home.
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Breaking news in San Francisco right now,
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where one person is under arrest accused of throwing a Molotov cocktail at the home of OpenAI CEO Sam Altman. But an exclusive Wall Street Journal analysis found that it was far from an isolated incident. Zusha Ellenson covers crime for the Wall Street Journal and joins us now to explain what kicked off this new era of threats against corporations and how companies are responding. Can you give us a sense of how widespread threats against AI companies and their executives have become?
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So we talked to one firm called Liferaft, and they said the volume of digital threats targeting AI chiefs and data centers grew sevenfold between late February and May. So you can see it's a giant increase. Now, obviously, all of those threats may not be real, Right. People talk a lot of trash online, but these cases are getting serious enough where these companies are reporting them to police. We had an incident and anthropic that we found in the police reports where a guy kind of became obsessed with the company. He thought that the company had stolen some of his work and he threatened to skin the children of company employees. So Anthropic reported that to cops. They categorized that as a terroristic threat, even, but they made no arrests.
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Does this reflect the actions of a small number of extremists, or does it point to a broader shift in public sentiment towards AI?
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So I think it points to both things, actually. On the one hand, you have this sort of broadening backlash against AI. First, this seemed like this very magical technology. People are excited about it. But as the threats of job loss, data centers coming into everyone's towns, a bunch of other issues, the public is turning against it. You can see in the polls. Quinnipiac University has been tracking Americans attitudes toward AI, and we cited one of their polls in our story. It said 55% of Americans believe AI was doing more harm than good. 70% believe it's going to lead to a decline in jobs. So I think people are growing more and more concerned. And then whenever you have sort of an issue with so much heat, it obviously inspires people on the fringes who may not be that stable and may turn to violence or violent threats. And so it's both things happening at the same time. Certainly it's not the broader public that's making these threats to skin people's children. We found another threat against Anthropic that I think maybe more people, people couldn't relate to the threat itself, but to the frustration. There was a guy in Oklahoma who had bought the AI company's service, and he wanted a refund. And as he was trying to get a refund, according to the police report, he couldn't actually talk to a real human being. He was talking to various chatbots. And so allegedly he messaged the company, said, since y' all refuse to have a real person to contact me and refund my money, I'll be coming to your office with my pistol, and then we will effing talk about my money. So Anthropic, of course, reported that to the cops as well.
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How unusual is this? Have we seen this kind of hostility towards executives during other periods of technological disruption?
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I cover law enforcement and I cover violent threats. And I've been doing this for over a decade. And I would say that before the execution of UnitedHealthcare CEO by Luigi Mangione, you didn't see this type of vitriol against CEOs, but that really kicked off a new era where people sort of, in a very dark way, wanted to follow Luigi. And you've just seen a ton of more threats against chief executives across all industries. So I think we are in a new age of threats in a way that we haven't seen before.
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How is the industry responding to these threats?
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AI companies and tech companies in general are just totally ramping up their security apparatuses. We talked to a security firm down in Silicon Valley who was saying that a couple years ago, barely any tech CEOs had security. Now everyone's got security. But he also said that a lot of them are requesting armed security guards for the first time in years, and that's largely because of this backlash. So there's a big sea change in the world of security in Silicon Valley. And in speaking with the companies, they have ramped up their security efforts.
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One thing about Silicon Valley is that they have a very strong swag culture. But I understand that even that's changing as AI companies are drawing more backlash. Can you talk about that?
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Oh, yeah. I'm glad you brought that up. So that's one of the interesting changes you're seeing. So some companies are asking their employees or telling them not to wear, you know, their little T shirts, their little fleece vests with the company logos for fear that they might be targeted. And what a big change that is, right? Like, you know, for decades and decades, I've lived in this area, and it's kind of like a badge of honor. You're wearing your little Google shirt around. You're wearing a little anthropic shirt. It's like, yeah, I work for the hottest company. And now they're ashamed to do that or they're afraid to do that. And that really shows, I think, how the public attitude has shifted around this sort of thing.
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That was WSJ reporter Zuzia Ellenson. And that's it for Tech News Briefing. If you're a listener on Spotify, be sure to leave us a comment. Today's show is produced by Julie Chang. I'm your host, Imani Moise. Jessica Fenton and Michael Lavall wrote our theme music. Our supervising producer is Katie Ferguson. Our development producer is Aisha Al Muslim. And Chris Sinsley is the deputy editor of audio for the Wall Street Journal. We'll be back later this morning with TNB Tech Minute. Thanks for listening.
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AI transformation is more than a tech initiative. It requires a broader rewiring of human skills and ways of working. Here's Dan Swan, senior partner at McKinsey.
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One of the biggest unlocks we see is the human being capabilities around the technology. Whereas before, you may need to be really good at analysis, now the skill skill might be how do you prompt these tools to get the right answers and outcomes. And so for us, it's a really big priority to help companies to understand how do you need to change the operating model of your organization and change the underlying capabilities of the people that are interacting with the technology. And when you see that all humming together, it can be really, really Special.
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Discover how McKinsey helps organizations Rewire to out compete with AI@McKinsey.com TechMove this content
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