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, X.com joined PayPal a company that operated an auction payment system similar in size to X.com. Musk was instrumental in organizing this deal due to his belief in emerging online transfer technology. The combined company at first adopted X.com 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,
               http://brucewilds.blogspot.com/2013/04/fisker-automotive-another-government.html

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.