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Elon Musk, the 21st Century Industrialist


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http://www.businessweek.com/articles/2012-09-13/elon-musk-the-21st-century-industrialist

 

Enjoy!

 

 

 

Has any considered investing in these 3 startups Musk founded or provided the funding for?  SpaceX, Tesla, and Solar City.  Tesla is the only company that is publicly traded with an IPO expected soon on SpaceX and  Solar City.

 

I must admit it is tempting to invest a small amount of money into a company that has a proven jockey on creating a company from scratch, has a significant portion of net worth in each, and possibly a chance to make a contribution to society with a different approach to use of space transportation or energy usage.   

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I've been considering buying a few shares of SpaceX when it IPOs just for the principle, not so much as an investment  :D

 

I think Tesla has a good chance of succeeding over the long term, but they don't fit my investment criteria on many levels. I'd rather buy one of their cars someday than buy shares  8)

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I don't own Tesla, but I just saw the Tesla four door sedan at their store in the Fashion Island Mall in Newport.  It's a beautiful car.  They're marketing it like Apple, but the reliability seems to have been on par with AMC so far.  Hopefully, he gets the execution right over time.  Cheers!

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  • 3 weeks later...

My parents were neighbors with a designer at Tesla and apparently the designer thought Musk ran the company in haphazard fashion - frustratingly so. I have the impression that he is a great visionary, but a poor CEO - at least when it comes to building a car company from scratch, which must be one of the harder things to do successfully.

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The article says you can charge the car with "100 kilowatts good for three hours" of running.  But kilowatts is a measurement of power, not the capacity to store energy.  Perhaps the author is confused and meant to say something like kilowatt hours ???

 

In any case, the idea of saving energy or emissions with exclusively battery powered cars flies in the face of the limits of battery technology.  It takes hundreds of pounds of the highest tech batteries to store the energy equivalent of one gallon of gasoline.  That's hundreds of pounds of batteries that the driver has to haul around to the next charging station.  It would take a reinforced hummer to haul around the equivalent weight in batteries of the energy in a half full tank of gas of a small car. 

 

A technological challenge like this can't be forced.  It awaits a breakthrough that may never come in a lifetime.

 

Plus, I suspect that an inventory of all the energy it takes to make a high tech, battery powered car would reveal a carbon footprint bigger than Al Gore's house.  :)

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The article says you can charge the car with "100 kilowatts good for three hours" of running.  But kilowatts is a measurement of power, not the capacity to store energy.  Perhaps the author is confused and meant to say something like kilowatt hours ???

 

In any case, the idea of saving energy or emissions with exclusively battery powered cars flies in the face of the limits of battery technology.  It takes hundreds of pounds of the highest tech batteries to store the energy equivalent of one gallon of gasoline.  That's hundreds of pounds of batteries that the driver has to haul around to the next charging station.  It would take a reinforced hummer to haul around the equivalent weight in batteries of the energy in a half full tank of gas of a small car. 

 

A technological challenge like this can't be forced.  It awaits a breakthrough that may never come in a lifetime.

 

Plus, I suspect that an inventory of all the energy it takes to make a high tech, battery powered car would reveal a carbon footprint bigger than Al Gore's house.  :)

 

As someone who has been following battery and EV technology closely for years, I disagree with everything you said. I'll leave it at that :)

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The article says you can charge the car with "100 kilowatts good for three hours" of running.  But kilowatts is a measurement of power, not the capacity to store energy.  Perhaps the author is confused and meant to say something like kilowatt hours ???

 

In any case, the idea of saving energy or emissions with exclusively battery powered cars flies in the face of the limits of battery technology.  It takes hundreds of pounds of the highest tech batteries to store the energy equivalent of one gallon of gasoline.  That's hundreds of pounds of batteries that the driver has to haul around to the next charging station.  It would take a reinforced hummer to haul around the equivalent weight in batteries of the energy in a half full tank of gas of a small car. 

 

A technological challenge like this can't be forced.  It awaits a breakthrough that may never come in a lifetime.

 

Plus, I suspect that an inventory of all the energy it takes to make a high tech, battery powered car would reveal a carbon footprint bigger than Al Gore's house.  :)

 

As someone who has been following battery and EV technology closely for years, I disagree with everything you said. I'll leave it at that :)

 

I disagree as well, twacowfca's statement about the weight of batteries is close to true for the lead-acid batteries used in most cars (even most hybrids), but the Model-S does not use lead-acid batteries.

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I disagree as well, twacowfca's statement about the weight of batteries is close to true for the lead-acid batteries used in most cars (even most hybrids), but the Model-S does not use lead-acid batteries.

 

There are lots of factors.. For example, you don't need as much energy as is contained in gasoline because ICEs are only 30-40% efficient in the best scenarios (top of that range for diesels, low for gasoline) while electric motors are much more efficient.. For everyday driving, you don't need as much total range in an EV because you always leave your driveway with a fully charged battery, while with liquid fuels you can't refuel at home and you don't want to go to the gas station everyday. Etc etc etc.

 

Right now EVs are in the same phase that cell phones were in the 1990s. Kind of expensive and clunky and don't do everything you need yet, and some people think they'll always be like that, but a few more years of incremental improvement and it'll be another story.

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Hmm I am shorting Tesla.  The short interest is massive and the borrow is crazy expensive (90%+ at one point) so this is not the greatest short in the world.  The stock is probably in big, big trouble.

 

thesis please  :D

 

Alright I'll bite.  I can't be sure why other people are shorting Tesla.  Here are some of the reasons to short it:

 

#1- They are losing a lot of money.  GAAP profits, free cash flow, cash flow from operations... all are negative.  Whichever way you cut it, the company is unprofitable.

#2- Even if it was profitable, the valuation is a little ridiculous.  The market cap is $3B versus less than $300M of equity.

#3- Some people like to short ridiculously overhyped IPOs.

#4- You could argue that the car industry isn't a great industry to be in (for mass market vehicles; Tesla is very niche so this may not apply).  Other countries like Japan massively subsidize their auto industries.

#5- Just keep going back to #1.  They are massively, massively unprofitable.  In YE2011 GAAP losses were $253,922M versus revenues of $204,242M.  This is disturbingly unprofitable.

 

I may lose money on this position even if Tesla goes to 0.  This could take a while because Tesla has been able to use its stock to raise capital.  There is cash flowing in from the capital raises (and a little bit from stock-based compensation) that keeps this company alive.  I don't think that Tesla being in danger of breaching its loan covenants on the DOE loan is that deadly because (A) the government is stupid for making the loan in the first place and isn't savvy enough to push this company into bankruptcy and become the bully that owns the whole company and (B) capital raises can keep Tesla afloat.

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Hmm I am shorting Tesla.  The short interest is massive and the borrow is crazy expensive (90%+ at one point) so this is not the greatest short in the world.  The stock is probably in big, big trouble.

 

thesis please  :D

 

Alright I'll bite.  I can't be sure why other people are shorting Tesla.  Here are some of the reasons to short it:

 

#1- They are losing a lot of money.  GAAP profits, free cash flow, cash flow from operations... all are negative.  Whichever way you cut it, the company is unprofitable.

#2- Even if it was profitable, the valuation is a little ridiculous.  The market cap is $3B versus less than $300M of equity.

#3- Some people like to short ridiculously overhyped IPOs.

#4- You could argue that the car industry isn't a great industry to be in (for mass market vehicles; Tesla is very niche so this may not apply).  Other countries like Japan massively subsidize their auto industries.

#5- Just keep going back to #1.  They are massively, massively unprofitable.  In YE2011 GAAP losses were $253,922M versus revenues of $204,242M.  This is disturbingly unprofitable.

 

I may lose money on this position even if Tesla goes to 0.  This could take a while because Tesla has been able to use its stock to raise capital.  There is cash flowing in from the capital raises (and a little bit from stock-based compensation) that keeps this company alive.  I don't think that Tesla being in danger of breaching its loan covenants on the DOE loan is that deadly because (A) the government is stupid for making the loan in the first place and isn't savvy enough to push this company into bankruptcy and become the bully that owns the whole company and (B) capital raises can keep Tesla afloat.

 

From the Tesla Q2 conference call:

 

As we’ve indicated in the shareholder letter, our expectation based on our plans is that we will achieve pretty close to free cash flow breakeven in Q4. In Q3, we will see burn I would say roughly along the same lines as Q2, may be slightly higher, but considering all of that and given our cash resources we feel pretty comfortable that we have sufficient liquidity to get to profitability next year.

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They recognize revenue when the customer actually gets the car delivered to them.  There are a lot of them ordered -- so no revenue yet, but soon it's going to come gushing in :

 

Elon Musk - Chairman, Product Architect and CEO: Absolutely. One thing I wanted to reemphasize, if you recall what are the things that I've been really emphatic about and those things are that in 2013 we will produce at least 20,000 units and that our gross margin will exceed 25%. I also say that we'll start deliveries at no later than July. Those are the three things that I said that I was highly confident that we would do. There are other things that are sort of nice to have and you'd like to do and maybe just will happen, but those are the important ones. It's worth noting that we start deliveries in June, so we're ahead of July. I think we are going to exceed 20,000 units next year and exceed 25% gross margin and those are things that I think you should really help me, me and Tesla too.

 

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I disagree as well, twacowfca's statement about the weight of batteries is close to true for the lead-acid batteries used in most cars (even most hybrids), but the Model-S does not use lead-acid batteries.

 

There are lots of factors.. For example, you don't need as much energy as is contained in gasoline because ICEs are only 30-40% efficient in the best scenarios (top of that range for diesels, low for gasoline) while electric motors are much more efficient.. For everyday driving, you don't need as much total range in an EV because you always leave your driveway with a fully charged battery, while with liquid fuels you can't refuel at home and you don't want to go to the gas station everyday. Etc etc etc.

 

Right now EVs are in the same phase that cell phones were in the 1990s. Kind of expensive and clunky and don't do everything you need yet, and some people think they'll always be like that, but a few more years of incremental improvement and it'll be another story.

 

 

I express my opinion about the economics of pure battery powered cars with sadness as the delighted owner of two hybrid cars.  The Chevy Volt is so popular that GM reportedly is offering a deal on a lease with a payment of less than $300/month to move them to meet California requirements for renewable energy.

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Hmm I am shorting Tesla.  The short interest is massive and the borrow is crazy expensive (90%+ at one point) so this is not the greatest short in the world.  The stock is probably in big, big trouble.

 

thesis please  :D

 

Alright I'll bite.  I can't be sure why other people are shorting Tesla.  Here are some of the reasons to short it:

 

#1- They are losing a lot of money.  GAAP profits, free cash flow, cash flow from operations... all are negative.  Whichever way you cut it, the company is unprofitable.

#2- Even if it was profitable, the valuation is a little ridiculous.  The market cap is $3B versus less than $300M of equity.

#3- Some people like to short ridiculously overhyped IPOs.

#4- You could argue that the car industry isn't a great industry to be in (for mass market vehicles; Tesla is very niche so this may not apply).  Other countries like Japan massively subsidize their auto industries.

#5- Just keep going back to #1.  They are massively, massively unprofitable.  In YE2011 GAAP losses were $253,922M versus revenues of $204,242M.  This is disturbingly unprofitable.

 

I may lose money on this position even if Tesla goes to 0.  This could take a while because Tesla has been able to use its stock to raise capital.  There is cash flowing in from the capital raises (and a little bit from stock-based compensation) that keeps this company alive.  I don't think that Tesla being in danger of breaching its loan covenants on the DOE loan is that deadly because (A) the government is stupid for making the loan in the first place and isn't savvy enough to push this company into bankruptcy and become the bully that owns the whole company and (B) capital raises can keep Tesla afloat.

 

Also:

- Tesla funds its operations with cash deposits from customers as decribed below:

http://dealbook.nytimes.com/2012/03/22/teslas-ambitions-fueled-by-customer-down-payments/

- negative FCF since inception. No FCF improvement in the last few quarters.

- Elon Musk is quite a risk taker (see his own description of a car crash he had in this video

(discussed in another thread)). 

 

 

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Just my opinion, but Tesla doesn't have the same product economics issue (that Volt has) any more than Ralph Lauren has with selling clothing, or BMW selling the 7 series.

 

I actually want to buy a Tesla S -- however we are a three car family and we already own a Roadtrek van (for the long excursions), or the Suburban (for shopping and ski trips), and a BMW X5.

 

The BMW X5 will be 10 years old when the Tesla Model X is shipping.  So we are waiting for that one (makes more sense with the two kids).

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He makes a good point about offering to lease the Model S in Europe where the fuel costs are so much higher.

 

So, why is that relevant to Tesla because the cost of operation of the Model S is much less than the cost of operation of any other premium sedan by far. It's going to feel like you have a car for free and particularly in places like Europe. I mean it's like $9, $10 a gallon in Europe. That's it, you could spend a couple of hundred dollars filling up your gas tank, or you can spend some negligible amount recharging your car. So, it really amounts to a huge effective discount on the cost of operation of the car (outage) on the premium finance. But the best way to make that apparent is through a lease. So we're going to be very big on leasing in the future. We just haven't needed to do that, because if there's enough demand for the car, where we just help you buy, you just got to buy the whole thing, but you just can't have leasing.

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The conference call is very fun to read.  Good luck to the shorts, i believe you are going to need it:

 

Jesse Pichel - Jefferies: If we take days inventory, days receivable and days payable and basically add them up how quickly can you turn into cash?

 

Deepak Ahuja - CFO: I think the way we look at it is that fundamentally we have zero receivables. We delivered a car within a few days of production and we get full payment, but our supplier payment terms are on average about 45 days. So we tend to deliver and receive money before we have to pay to our suppliers. So, I think from your point of view more focus is working capital usage and our working capital actually doesn't needs of working capital don't increase as we ramp our production, it actually helps us in fact, from a cash flow perspective.

 

 

Elon Musk - Chairman, Product Architect and CEO: I mean you asked question, I think, which is a good one because the capital needs of the business needs to raise equity or something toward capital as it grows. The effect of return for investors is much lower than if it's the other way round. In our case it is the other way round, but the faster we grow the business the more cash we had available.

 

Jesse Pichel - Jefferies: That's what I thought and why kind of question the Bloomberg article.

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