Pioneering electric vehicle (EV) maker Tesla Inc’s CEO, Elon Musk, continues to be in the news one way or the other. About a week ago, his net worth crossed $100 billion after a rally in Tesla shares, making him one of the world’s 5 centi-billionaires. While 2020 has been a write-off year for most, Musk’s net worth swelled $73.6 billion this year.
Following the stock-split 5-for-one on 31 August, Tesla soared 12.6 per cent again, adding more than $50 billion to its market cap. Musk, using this surge, is planning to raise up to $5 billion issuing fresh shares, to finance his new Gigafactory (battery unit) under construction in Austin, Texas, and a Tesla-operated robotaxi network.
Two years ago, Elon Musk was in the doghouse. Following a bizarre episode of Musk smoking marijuana on a live podcast with comedian Joe Rogan, shares of Tesla fell more than 9 per cent . The incident capped perception that Musk and his maverick ways were driving the company to ruin.
Around that time in September 2018, the US Securities & Exchange Commission (SEC) had brought fraud charges against Musk and Tesla for false claims that they had a deal all wrapped up to take the company ‘private’.
Musk barely escaped following a settlement with the SEC where he agreed to step down as
chairman of the board, and paid out a hefty $40 million in fines. Some thought it was his swan song, but they have been proved wrong.
Future vision
Tesla’s market capitalization is currently around $440 billion, rising six-fold since the end of 2019; and 16 times its expected revenue this year. At this valuation, Tesla’s market cap is greater than that of Toyota, Volkswagen, General Motors, Ford, Fiat Chrysler, Nissan and Honda combined. These companies sold about 50 million cars and trucks worldwide last year, compared to Tesla’s 367,500. So what makes the electric car-maker tick?
Despite never having turned in a full year of profits, Elon Musk has been the darling of investors
because he represents the future, a vision with clean transportation and power. They are not really troubled by losses of a few quarters as long as there is a huge waiting list for Tesla’s products. Nor are they bothered by a stock that is currently over-valued.
Despite a few blips, Musk’s personal equity too has always been high because he’s primarily been an ‘ideas’ man. In 2002, he sold his successful payment company PayPal for $180 million. Some of this formed the seed capital of Tesla, and his aerospace company SpaceX. Tesla was not founded by Elon Musk. The company was initially promoted by two engineers, Martin Eberhard and Marc Tarpenning, who wanted to make cars that are, in the company’s words:
“Better, quicker and more fun to drive than gasoline cars." Musk came in as an investor in 2004 with Series A funding of $6.3 million.”
Its first model was the sports car ‘Roadster’ – commercially launched in 2008; but before that, Tesla, along with the Roadster prototype, published its “secret” plan: “Build a sports car. Use that money to build an affordable car. Use that money to build an even more affordable car. While doing the above, also provide zero-emission electric power generation options.”
The ‘Roadster’ was a success because it cracked what other EVs never did — a big and powerful battery that competed in acceleration with the traditional petrol engine and had enough charge for 400 kilometers.
Musk took over in 2008 after the 2 original engineer-promoters exited the company. A timely $465 million loan from the US department of energy changed the scale of operations, and Musk was able to launch the popular Model S.
Betting on big ideas
However, Tesla was beset by financial woes, and in 2013, after the Model S sales were slowing, Google almost bought out the company for $6 billion. However, car sales picked up and the company did a rapid turnaround even posting a first-ever quarterly profit of $11 million. Significantly, Tesla’s pitch as a company of the future has been bolstered by its success in spawning a slew of environmentally friendly electric power projects.
Through its clean energy products – Powerwall, PowerPack, and Solar Roof, it has created a market of homeowners who want to generate and store their own electricity.
Simultaneously, Musk wants to bring Sci-Fi to reality in quick time He wants to build rockets and colonize Mars, and has plans to reach the Moon by 2022 with a paying passenger. He has constructed models of ‘Hyperloops’ – tubes through which trains can travel at 700mph on a cushion of air (something the previous Government of Maharashtra bought into, but later abandoned); and has plans to build a web of tunnels under cities to relieve congestion.
No wonder investors find value in Musk and Tesla! On the back of its successful Model 3, the company has been in profit for 4 quarters in a row, and touched a new high of annual revenue of $24.6 billion for 2019. Mind you, Tesla still hasn’t turned in a full accounting year of profit — in fact, it lost $862 million in 2019. But then who cares!