Superhero to Spacedust … Are we watching the implosion of Elon Musk, or will he indeed save the world?

May 29, 2019

Elon Musk has been called the Thomas Edison of our times. From his Paypal pay out he invested in daring dreams and radical technologies that were ahead of most other people’s imaginations.

From Tesla to SpaceX, Solar City and Neuralink, Boring Company and Hyperloop, he has driven a relentless, sometimes chaotic, largely uncertain, but ruthlessly determined vision to change our world.

His goals seem incredibly worthy – to save humanity. By creating on alternative civilisation on Mars, and before that, by finding solutions to global warming, take a more responsible attitude to AI before it gets out of hand, and to democratise access to innovation.

However the stories of 100 hour working weeks, a sleeping bed in his Tesla factory, as he focused his visionary mind on trying to solve the mundane challenges of mass production, portrayed him as an entrepreneur in the pains of scale up. Making ideas mainstream.

At the same time we loved his vision. The Hyperloop train connecting cities in minutes at 1250 km/hour. And we marvelled at his progress. The SpaceX’s Falcon Superheavy taking off and launching a Tesla roadster into space, and then returning to Earth, with precision landing.

We marvelled at the breadth of innovation. And we also questioned whether one mind, even an Elon Musk mind, has the capacity to cope with all this simultaneously. As targets were met, and the promises kept being extended, we wondered how many balls he could juggle, for how long.

But then came the thoughtless Tweets. The overconfident financial plans that fell foul of regulators, the podcast smoking that tarnished his shine, the courtroom battles that seemed to be a game of outspoken mavericks. It started to feel like he was losing his mind.

This week, The Times ran a fascinating article comparing Tesla to the Palm Pilot.

“Remember the Palm Pilot? Way back in 1996, the handheld “personal digital assistant” was a revelation. It was the first electronic organiser, complete with a touchscreen and handwriting recognition. It showed Palm’s rivals that customers would pay — and pay handsomely — for a handheld computer, paving the way for BlackBerry and, later, the iPhone.

Yet Palm, the company, met an ignominious end. It was lapped by rivals that took the idea and ran with it. Palm, valued at $50bn on the day it floated in 2000, was passed from one acquirer to another until TCL, a little-known Chinese manufacturer, bought it in 2015 for an undisclosed sum. A plan to revive the brand has gone nowhere.

It is a cautionary tale that Tesla chief executive Elon Musk would do well to heed. His company, which showed the world that drivers would pay — handsomely — for electric cars, is on the ropes. Again. Its stock is down nearly 40% since the start of the year, closing on Friday at $190.63, and it is burning through more than $200m (£157.3m) in cash every month. Sales of the California company’s high-end models have plunged.

Perhaps most importantly, Musk’s rivals have woken up. Nearly 20 electric car models — from BMW, Nissan, Kia, Jaguar and others — have hit the market or will do so in the next year. Musk, who has ploughed a lonely furrow for years, suddenly finds himself facing an all-out assault from Detroit and Frankfurt. The 47-year-old billionaire created the category; now he is at risk of being crowded out. It begs the question: could Tesla become the Palm of electric cars?

More and more investors are asking just that. Dan Ives has long been a Musk believer. Just six months ago he set Tesla’s price target at $440 a share and called it “one of the most dynamic technology innovators over the past 30 years”.

Ives, an analyst at the investment firm Wedbush, last week slashed his price target to $230, saying: “It feels like the walls are caving in.” Meanwhile, in a call with clients, Morgan Stanley’s Adam Jonas said the company had swung rapidly “from a growth story to a distressed credit and restructuring story”.

What’s changed? In a word, credibility.

It was only three weeks ago that Musk raised $2.7bn with shares and convertible loans — money he had spent most of the past year saying he didn’t need. In a call with investors, he said the cash was a “contingency fund”. He added: “We don’t expect to spend this capital.”

It was no secret that the company was losing money, but all seemed under control. At an “autonomy day” just days earlier, Musk — ever the showman — had set out how Tesla would become a $500bn giant thanks to a plan to turn its global fleet into autonomous robo-taxis.

Then everything appeared to change — and with extraordinary speed. In a leaked email Musk sent to employees on May 16, he laid down the law on a “hardcore” cost-cutting plan, writing: “All expenses of any kind anywhere in the world, including parts, salary, travel expenses, rent, literally every payment that leaves our bank account, must be reviewed, confirmed as critical and the top of every page of outgoing payments signed by our chief financial officer. I will personally review and sign every 10th page.”

The extreme measures were for good reason, the chief executive explained. The $2.7bn “contingency fund” had morphed into a lifeline — and a short one at that. Musk wrote that, based on Tesla’s high burn rate, the cash “actually only gives us approximately 10 months”.

He has form for saying one thing, then doing another. Every year since its 2010 float, except for last year, Tesla has tapped investors or banks for more money. Often, the fundraisings have followed Musk’s fervent proclamations of Tesla’s financial strength.

Yet, until recently, investors seemed to be giving him the benefit of the doubt. He was trying to pull off something revolutionary — starting an all-electric car company from a blank sheet of paper. After this month’s fundraising, patience appears to be thinning, principally because the well-publicised “master plan” that Musk laid out is not working as expected.

The key to Tesla’s hopes of turning a profit and breaking the cycle of bailouts is the Model 3 “electric car for the masses”.

In 2017, Tesla made 2,900. Last year, it churned out 180,000. The goal for 2019? At least 250,000, based on production rates from the first few months.

The numbers are impressive — even if the company has been through what Musk has called “production hell” to get there — but the ramp-up is occurring just as Tesla is squeezed by two forces: its own debts and a deluge of new competition.

The company owes about $10bn, with two big chunks falling due soon: a $1.1bn payment by the end of the year, and a further $819m in 2020. At the end of the first quarter, its cash pile sat at $2.8bn.

Factoring in the upcoming debt repayments, and a $200m-plus monthly cash burn, it is clear why Musk is checking his coffee receipts. Breaking into the black, and doing so very soon, is vital. “The debt is a noose around Tesla’s neck,” Ives said. “The math doesn’t lie.”

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