By Spencer Kellogg | @TheNewTreasury
In Elon Musk’s marvelous 2017 tell-all for Neil Strauss of Rolling Stone magazine, the Tesla CEO was brief in his assessment: “If you’re going to make a product, make it beautiful,” Creator of four, billion-dollar companies and labeled by the New York Times as “arguably the most successful and important entrepreneur in the world,” Musk is a singular creator with audacious plans to test the limits of scientific inquiry. His creations are of an industrial scale and often pose deeper philosophical questions about our existence, most notably, “what’s next”? Whether he’s boring holes underneath an American metropolis or building batteries that could surpass the power and storage of any units we possess today, Musk has consistently shown a committed interest in pushing the limits of technology, travel, and communication on behalf of humankind.
When Elon Musk took Tesla public in 2009, shares of the tech company were originally valued at $17 dollars. A $1,000 investment in Tesla at the time would today be worth nearly $20,000 representing a 1,889% percent increase in value. Although Tesla has been dogged by claims of underperforming sales figures, missed production deadlines and scandalous social media outbursts from Musk himself, the stock price has continued its quick ascent up the charts in the past month with a miraculous +16% one-day gain after the release of strong quarter two earnings last week.
On Tuesday, Musk shocked financial and technology markets when he tweeted his desire to take Tesla private at a price of $420 a share, valuing the company at more than 70 billion dollars. In typical Musk style, the price of $420 appeared, to some, a playful nod at the annual marijuana holiday. A businessman who revels in play and has found fame behind a quixotic aura, Musk takes pride in bucking norms and saying whatever he likes, especially if it’s a joke.
Recent verbal attacks against a cave diver who helped rescue a group of stranded boys in Thailand and bitter squabbles with investors had landed Musk in hot water this Summer. But Musk’s suggestion that he would take Tesla private launched a late session buying frenzy that saw the share price soar more than 11% on the day before trading was halted on the floor. Some of Musk’s loudest critics cried foul and suggested that the tycoon’s tweet was possible manipulation or even worse, security fraud.
Although an uncommon strategy, privatization has been used by other high profile companies such as Dell, Hilton & Panera Bread. Private ownership can free up time and space for management to focus on product building without the weight of investor sentiment and the pressure of quarterly results. Private companies are also not subject to SOX regulations (Sarbanes-Oxley Act of 2002) and do not have to file reports with the Security and Exchanges Committee.
By the afternoon more big news was breaking from Tesla headquarters. According to media reports, Saudi crown prince Mohammed bin Salman has built up a 3-5% stake in Tesla since March of this year when he visited The United States and met Musk. Saudi Arabia’s Public Investment Fund (PIF) is currently in the process of investing nearly $100 billion in companies and projects that will modernize the Saudi empire and Mohammed bin Salman has placed energy-efficient vehicles and Musk’s visions at the top of the list.
Elon Musk has always done things a bit different. At the height of the tech boom, he dropped out of a Ph.D. program at Stanford and built Zip2, a company he would later sell to Compaq for 22 million dollars. From there, he acquired PayPal and turned the company into one of the most in-demand technology platforms used in the world today. In 2002, he received over $160 million for his 11.7% stake in PayPal for his share of the company. Musk had bigger plans.
By the early aughts, space exploration had gone completely out of vogue. What was once seen as a valiant pursuit for knowledge and truth had become an expensive, rudderless tax hole for the American public. While the federal budget for NASA has fallen sharply over the past two decades, Musk has invested heavily in his SpaceX project. SpaceX is a private company that is unaffiliated with Tesla and has seen great success in the past few years behind its production of reusable rocket technology.
With the goal of creating economically feasible space travel, Musk has spoken of his future interest in potentially colonizing the planet Mars. Still in its infancy, SpaceX has managed to secure massive contracts with NASA and this week announced that they will send several of their own astronauts on a cooperative mission with Boeing to dock with the International Space Station. In February, Musk, SpaceX & Tesla captured the imagination of the global community when they coordinated to launch a Tesla Roadster into space on a Falcon Heavy X rocket.
In many ways, Musk is reminiscent of those wide-eyed dreamers who revolutionized the personal computer space and early internet over the past half-century. Those machines, which at the time seemed far-fetched and devoid of meaning in the everyman’s life would come to transform the way we interact with technology and communicate with each other in the 21st century. Although questions remain regarding Tesla’s viability in the open market, Musk’s products hold the same promise of a revolutionary tool that will pass from being a desire to a global, societal need. And with an eye for the granite type minimalism that brought Apple and Uber success in the modern market, Tesla and Musk possess the will, style, and cultlike charismatic drivetrain that often propels great companies to unthinkable heights.
Nobody knows how well Tesla is really doing. While their fanboys circle the wagons, others keep a watchful eye on production metrics and Tesla’s car lots that appear to have idle vehicles sitting and waiting in purgatory to be bought. The company is also well-known for burning through cash at an incredible rate and are allegedly saddled with a large enough amount of debt that some analysts suggest Tesla could experience a credit downgrade. Are Musk’s plans unsustainable?
Hours after his tweet this morning, Musk sent a private message to employees at Tesla which confirmed that he really is considering taking Tesla private. The message was republished for the public to see by the afternoon. It read, in part:
First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best. As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.
I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve. – Elon Musk
Promising a vote by the shareholders before any decision is made, Musk pointed to his success with SpaceX which remains a private company. The Tesla CEO also assured investors that he would consider making Tesla public again in the future after the company had proved a “slower, more predictable growth.”
In many ways, Tesla and SpaceX only scratch the surface of what Musk is building. His brand new A.I. chips are alleged to be ‘more advanced than Nvidia’s.” His Boring Company has laid blueprints for a new type of travel that would use pods and possibly cars to shuttle passengers through underground tunnels underneath of large-scale urban sites. In the solar sector, Musk has found difficulty capturing a market. Although Tesla’s $2 billion purchase of Solar City in 2016 has been criticized, Musk now owns a viable product that provides high risk/reward if solar power shows higher adoption rates in the coming years.
Hounded by critics and doubted from Tesla’s first opening bell, it makes sense that Musk feels the walls caving in around him to some degree. Looking to the future, his companies are attempting to lay the groundwork for a new type of travel, energy, and communication that is capable of exploring the external worlds of our universe while revolutionizing all society on Earth. In the 21st century, the enigmatic Elon Musk represents the great lineage of Americans who have dreamed of the stars and changed our world forever.
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