Sunday, May 26, 2013

Tesla Motors and Elon Musk

When talking about the CEO of Tesla Motors, Bloomberg News almost always says "Billionaire Elon Musk", this happens so often that many people probably think his first name is "Billionaire". The recent news about high-flying Elon Musk is that he has paid back $465 million in low interest-bearing loans from the US Government that the company received in June 2009. The low-interest loans are not related to the "bailout" funds that GM and Chrysler received or to the economic stimulus package but part of a program created in 2007 during the George Bush administration in order to get more fuel-efficient vehicle options to consumers and to decrease the country's dependence on foreign oil. The funding, for advanced vehicle technologies, was to support engineering and production of the Model S sedan, as well as the development of power-train technology that Tesla planned to sell to other automakers.

Much of the aura that surrounds Musk comes from his success at PayPal. Musk co-founded X com., an online financial services, and e-mail payment company, in March 1999. One year later, in a 50/50 merger, joined PayPal a company that operated an auction payment system similar in size to Musk was instrumental in organizing this deal due to his belief in emerging online transfer technology. The combined company at first adopted as the corporate name, but in February 2001 changed its legal name to PayPal Inc. Musk is credited in driving the new PayPal to expand and focus on a global payment system, in October 2002, PayPal was acquired by eBay for $1.5 billion in stock, Musk, the company's largest shareholder, owned 11.7% of PayPal's shares.

Tesla Motors announced in early August 2009 that it had achieved overall corporate profitability for the month of July 2009. The company said it earned approximately $1 million on revenue of $20 million. Profitability arose primarily from improved gross margin on the 2010 Roadster, Tesla’s award-winning sports car. Tesla is known for its designs and "very sexy lines", some have been on the drawing boards for years but were impractical because of the internal combustion motor and all the mechanical junk required to support it. Tesla, which like all automakers records revenue when products are delivered, shipped a record 109 vehicles at the time and reported a surge in new Roadster purchases. Please take note of how insignificant these numbers really are, even to date the numbers remain small and are often guarded and hard to confirm.

The Tesla Motors CEO said his realization the electric-car maker could retire its US loan nine years early didn’t arise until Tesla shares unexpectedly surged early this month. Repayment funds were raised from a $1 billion share and debt sale, far more than the $300 million the company initially thought it could get. Fortunes recently changed for Tesla following reports that it made its first quarterly profit and it raised its production goal for the year. Its market value soared to more than $10 billion, the shares are up 65 percent from the May 8th close. Musk said, “I thought it would be quite difficult to raise the capital for Tesla.” A large part of the increase in the stock price occurred when people that had short positions in the stock were caught in a short squeeze and forced to buy back their stock.

Tesla stands as the first car company to have fully repaid the government, while Ford, Nissan, and Fisker have not. In fact, the loan to Fisker has turned into an embarrassment for Team Obama and verges on the border of being a scandal. With incredibly good looking cars and Musk pasting his name all over Tesla, no effort has been spared to spin this as a finished success, of course, the "proof will be in the pudding" when we look back years from now. Time will most likely determine whether Musk is viewed as an unabashed promoter or a serious visionary. Using government programs and loans as well as money from investors Musk has built a pulpit from which to position himself for praise. Regardless if it is a financial success or not, Tesla Motors has put front and center the electric car and moved forward the idea that not only has its time arrived but that you can be cool driving one.

As for the stock which is trading at incredibly high multiples, much of that can be contributed to the historically low-interest rates and the luck of being in the "QE moment" rather than the company's financial success. Bears and those that doubted if the company could hold together ironically have pushed up the stock, this adds to the image that Musk lives a charmed life. Remember the company had received a huge government low-interest loan to kick start its existence, also note that it has no legacy cost or issues that plagued so many of its competitors. Now thanks to the gobs of money looking for any kind of return, Tesla can borrow cheaply. Like several other high flyers lead by self-promoters and propelled forward by media hype, Tesla in in the news far more than such a small and rather insignificant company would merit. Musk is a master of  getting press coverage, most of it "free" and positive advertisement.

When all the hoopla ends, the question is whether larger competitors will simply overwhelm and crush Tesla, or will Tesla instead position itself to grow and maybe take over a competitor to help propel it forward. Remember this is a field where many have failed, one great example was the Delorean. I have become predisposed to discount, and have actually grown a massive aversion to "media hype", this is one reason you should color me skeptical. The city where I live, like other cities across the world, have a long list of  bold men herald and declared to be "gods gift to business,"  many in the end flew too close to the sun only to crash and burn. In any case, what is happening at Tesla Motors and to Elon Musk's other ventures might just be adding new meaning to the phrase, "I would rather be lucky than good!"

Footnote; Another company that saw its fortunes fall was Fisker Automotive, for more on this folly read the post below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged,

Footnote #2; Oct.27,2013 As of today the stock of Tesla Motors gives the company a market cap of slightly over 20 billion dollars. By comparison Ford has a market cap of around 69 billion. As of today I have never seen a Tesla car in the "flesh" this means in a display or on the street.

Footnote #3; Up-date as of Sept. 2014 the market cap has soared to around 35 billion dollar. my take on the company remains the same.


  1. If you think Musk is merely lucky rather than good, you haven't been paying very close attention. You mentions some of Elon's history, but omitted the success prior to PayPal that provided capital for it. Additionally, do you think reaching orbit is easy? Resupplying the space station? Do you think building a car from the ground up is easy? And one that was unanimously voted (first time in history) Motor Trend Car of the Year and won every other major accolade that year? Describing Musk as "lucky" is like describing Steve Jobs as "merely a marketer". It misses the essence of the man and the reason behind the success of their ventures.

  2. I was making the comment that a little luck never hurts. A story comes to me about a miner that dug, and dug, and dug. he toiled in the same hole for years then finally gave up. The next day a man came along and worked the very same hole for only a day before finding a fortune in gold! The Elon musk story is far from complete, I await the next chapter.

  3. You say you haven't seen a Tesla in the wild yet, but if you find yourself in Indy, you can visit a store there to see one:

    Where I live in Houston, I see one every few days. I live fairly close to the service center and periodically I will see a car carrier bringing more to town. So far there are around 450 cars in Houston and around 1100 in Texas overall. Not the biggest market perhaps, but with 5 SuperChargers, we are building a nice base.

    1. Stephen, thanks for your comment. I never doubted the car existed. I was merely pointing out it is a very rare bird. Tesla lacks critical mass and that is a big negative for the company.

    2. I would not say this is a big negative for the company. Tesla is only ten years old, and the first five years was mismanaged. So to me, it has done wonders in just a few years.

      > a long list of bold men herald and declared to be "gods gift to business," many in the end flew too close to the sun only to crash and burn.

      I said that all the times too, but Elon is different. When he wanted to build SpaceX, he borrowed tons of books to learn rocket technology. After his third rocket failed, he was the one who called his engineer the next day and said he knew what went wrong and how to fix it. He figured it out, not his people, and we're talking about rocket science here. You can try to talk to Richard Branson and Jeff Bezos to see whether they have that deep understanding of engineering, but my guess is no.

      Elon doesn't just have the ambition, he has the technical know-hows. If you think he's lucky, then he's lucky to have photographic memory, which allows him to learn fast and understand deep. The other part that impresses me is that Elon knows how to break a complicated problem down into small, achievable steps that he can ask his people to carry out, and he always starts with current technologies to make sure he stands on solid ground first before adventuring into the unknown. So whatever he says it can be done, he already knows how. His timeframe may be off here and there, which is understandable, since I'm off with my timeframe at work all the times. A week work often turns into a month. But the key is he knows how and he can get it done.

      So your question "whether larger competitors will simply overwhelm and crush Tesla." The answer is no. Elon is not just a CEO. He's the CTO of SpaceX and the Product architect of Tesla. other companies may be big but I doubt their CEO is capable of solving technical problems, and therefore, they won't be able to move as fast as Tesla, can't catch up, and so can't crush Tesla.

  4. After all - If everything fails only one person gets blamed and may spend a few years in a hghend jail and get away with billions of public money and will guide/educate/train a few more on how to do it all over and get away - live a happy retired life.

  5. You strike me as someone who drank deeply from the Chalice of Hateraid.

    I find it interesting that you start off speaking of how Elon Musk is essentially a 'paper billionaire', yet you don't mention at any point how he funded Tesla Motors to start. You also make no mention of SpaceX. Since then he has become chairman of SolarCity, which you also don't mention. You didn't mention his endeavors prior to and PayPal either.

    Maybe you didn't know. Or maybe you skipped those points because they wouldn't help your cause. You just want to demonstrate your clairvoyance, your clarity of thought, your inherent wisdom in trying times. You want to reserve the right to say, "I told you so!" No such luck, buddy.

    The fact of the matter is that with his proceeds from the sale of, a company he and his Brother built from the ground up, Elon Musk opened, which became PayPal, as you mentioned. With his monies from that sale, he opened both SpaceX (a Space Exploration company) and Tesla Motors (an electric car company). Two ventures that I'm sure wise individuals such as yourself would have advised him against doing. When each was on the brink of absolute failure, he went all-in on both of them, giving up his entire fortune to keep them alive. It worked. So much for sage advice.

    Sure, he was lucky after that. The government was impressed with his work at SpaceX. They were given a flat rate contract to make deliveries to the International Space Station. Let's see... Who has successfully done that...? The United States of America, Russia, China... and SpaceX. That's it.

    After hiring a pompous [ALPHA] named Fisker to design a car that looked like [CHARLIE], he was lucky again. He was able to hire Franz von Holzhausen as the product designer. His philosophy is what brought the Tesla Model S to market. That was a good thing, since Mr. Fisker went off to start his own, competing car company after learning all he could about Tesla's attempts at a new sedan.

    He got lucky once again, when someone pointed out that Tesla Motors would be eligible to receive funds for development and research to bring the Model S to market. They got the cash and made good use of it, as is shown by its being awarded Automobile Car of the Year, Motor Trend Car of the Year, Consumer Reports BEST CAR EVER, et al....

    Interesting how you don't note that Nissan got six times as much money and brought forth the LEAF, a modified electric Versa... Astounding that you don't mention that Ford got TWELVE times as much money and used it to unleash the Ford Focus Electric, also after gutting an existing platform... Both vehicles that pale before the majesty that is the Tesla Model S. Both companies that have not paid back a single, solitary, flat, DIME of what they borrowed from the same government program. Gee, I wonder what happened to all those BILLIONS...?

    Bruce Wilds wrote, "The Elon musk story is far from complete, I await the next chapter."

    No you don't. You have already pointed out that you effectively believe that Tesla Motors will die. You have stated your position that you feel it more likely that this company will go down in history the same way as Tucker and DeLorean. Man, you are full of [SIERRA].

    You obviously believe that Elon Musk is a showman, a huckster, a charlatan, a jive turkey...

    You don't once mention that he instead a programmer, an engineer, or a physicist -- while you doubt aloud that he is a visionary.

    Yeah. History will tell the tale all right. It will show that YOU were WRONG.

    1. Thanks for the comment. You state that I "obviously believe that Elon Musk is a showman, a huckster, a charlatan, a jive turkey" These are your words not mine. While you think I have been drinking from the Chalice of Hateraid I assure you I have not.

      We make much of our own luck and Musk has proven he possesses a bit of magic I merely contend that only time will tell how this all plays out. I gave some time to think about my response to your comment, and that's all I have to say about that.

    2. Hey Bruce Willis.... do you still need more time? it has been already 2 years since your answer so I want to know how much time do you need to answer!

  6. This is the reason I keep returning to this blog. I can't believe how many posts I missed since I was here last!

    TSLA Stocks News

  7. Bruce - Are you able to admit you are wrong about something? If so, under what circumstances would you say you were wrong about Tesla?

    1. I will admit I'm wrong when the company reaches a three percent market share and is solidly making money. If a company cannot do that it doesn't belong in the auto industry. I suspect the odds are very, very long on this ever happening.

  8. The fundamental question about the electric car is the battery. People talk about the cars' nice lines- great- however that is art not technology.
    There is no fundamental drive train patent owned by Tesla- anyone can assemble those components.
    Why don't the big guys do it? Because they would have to make money on the sale of the cars. The Gucci factor won't work for a GM or Ford electric.
    I totally salute Musk for making an undeniable success -but he's not an inventor, unlike the companies namesake- Nicola Tesla who invented AC power, without
    which our present civilization would not exist. (The Edison backed DC power plants could only send power a few 5 miles- DC can't be 'stepped up', transformed into high voltage for long- distance transmission)