Is Musk Close to Over-Extending His Financial Abilities/Assets?

[TomH]

I wasn't sure if this was worth starting a new thread, but it seemed too OT to go in other existing threads. I started thinking about this in the Raptor thread, and then Coastal Ron made comments in the SLS forum that I really wanted to address.

Musk is doing just fine in case you haven't noticed.  He is worth more today than he ever has, and he is doing things with rockets that have never been done - and so far successfully.  If he perfects reusability there won't be much of a need for NASA to develop an exploration roadmap, because NASA will no longer be the sole way to leave LEO.  At that point NASA would be more useful if they returned to their NACA roots and helped our space industries with their own plans.

Sure, Musk is worth a lot. Some of that is coming from SpaceX, but a lot is coming from Tesla. Tesla's astounding ratings are sending its stock higher than his rockets go. Nevertheless, he is at a place of transition in both companies. In an attempt to build less expensive electric cars and increase market share by a couple of orders of magnitude, he is about to invest in a $5B Lithium-Ion battery factory with more capacity than all other factories combined. If anything causes Tesla stock to tank, Musk's own net value will follow.

With SpaceX, F9 and FH have healthy commercial profit potential. Now, however, he begins preliminary steps toward an UHLV that by my WAG is at minimum an order of magnitude more expensive than Falcon. I see no commercial customers at all who will want to purchase services from this program. (Sure some die hards will volunteer to spend out their lives on the red planet, but seriously, how many have the capital for it?) With Falcon, Musk has stayed with tried and true technology; now he must venture from what is safe into cutting edge research and the associated risks.

So far, Musk has demonstrated entrepreneurial genius with PayPal, Tesla, and SpaceX all. He is, however, on the tip of a fulcrum in attempting two great transitions. The first is Tesla into an electric car that dominates the world market for all cars. If he is successful, he can finance his own warp drive ship. If this battery investment goes south, followed by Tesla stock, he will be in trouble. If at the same time this BFR costs begin to spiral out of control, he will find himself in Captain Christopher Pike's seat telling Mr. Sulu Punch It, and the grand plan goes exactly nowhere.

So my questions are these. Is Musk getting close to over-leveraging himselfextending his capital assets? Is he taking too much risk in too many different fields all at one time? To what extent could problems in one industry domino or ripple into the other?

[Lars_J]

I guess I just don't see the point of this thread - how is the current situation any worse than it has been for SpaceX over the last decade? They seem to be doing better than ever. And Musk always appears to be over-extending himself.

[mdatb]

He is doing well, for now.

[RedLineTrain]

What do mean by "over-veraging?"  I haven't heard of SpaceX proposing to fund BFR with anything other than retained earnings.  Furthermore, it is safe to assume that big money won't be spent until the propulsion development risk is more or less retired.

[TomH]

What do mean by "over-leveraging?"  I haven't heard of SpaceX proposing to fund BFR with anything other than retained earnings.  Furthermore, it is safe to assume that big money won't be spent until the propulsion development risk is more or less retired.

Even if he is using earned funds, Tesla stock is in the ionosphere. If he spends his entire fortune on BFR, then anything begins suffering, he will have no reserves and wind up having to split stock, borrow, etc. Thus far he has pursued sound business strategy for the most part. ISTM that he is on the point of taking two immensely speculative steps simultaneously, steps far larger than he has before.

[TomH]

I guess I just don't see the point of this thread - how is the current situation any worse than it has been for SpaceX over the last decade? They seem to be doing better than ever. And Musk always appears to be over-extending himself.

As I said, I wasn't sure it deserved its own thread, yet every place I thought about putting it seemed too OT. In what other thread do you suggest I should have put it?

[R7]

Even if he is using earned funds, Tesla stock is in the ionosphere.

What would happen to hyper-inflated stock if CEO started to sell masses of it to fund completely unrelated dream? It'd need PICA-X to survive the plummet.

[Avron]

Even if he is using earned funds, Tesla stock is in the ionosphere.

What would happen to hyper-inflated stock if CEO started to sell masses of it to fund completely unrelated dream? It'd need PICA-X to survive the plummet.

He is on record saying he will be the last to sell

[docmordrid]

Tesla/Musk are not the only investors in the $5b battery factory. They have  partners in the form of Daimler & Toyota (both have a minority share in Tesla) and Panasonic at the least. Goldman Sachs Grou, Morgan Stanley, J.P. Morgan Chase, and Deutsche Bank are underwriting a $1.3b share.

[Coastal Ron]

I wasn't sure if this was worth starting a new thread, but it seemed too OT to go in other existing threads. I started thinking about this in the Raptor thread, and then Coastal Ron made comments in the SLS forum that I really wanted to address.

Wow.  I must say that I too thought my comments were verging off-topic, so I think you were right to move the conversation.  That said, I have no idea whether people care enough about the topic to sustain it.  I will provide a few comments though since you went to all this trouble...

Nevertheless, he is at a place of transition in both companies.

I'm sure you've heard the phrase "innovate or die", and Musk is just doing what many other companies must do to keep market momentum.  He is just better at getting noticed, since he tends to find "unique" ways to move his companies forward.

With SpaceX, F9 and FH have healthy commercial profit potential. Now, however, he begins preliminary steps toward an UHLV that by my WAG is at minimum an order of magnitude more expensive than Falcon. I see no commercial customers at all who will want to purchase services from this program.

Musk has stated that his goals for SpaceX do not mesh well with the expectations of stockholders of public companies, which is why he has resisted doing an IPO for SpaceX.  What he is good at though is managing his money, so while he is definitely working on the Raptor engine for a BFR, he has not yet shown that he is over-extending the financial abilities of SpaceX in order to pursue building the BFR.  We can revisit this when he starts building the actual rocket that the Raptor will go on, but for now I see no signs of putting SpaceX in danger of fiscal insolvency.

Regarding Tesla, battery production is what is limiting their growth, so building their own battery factory is quite smart - as long as their sustain their market growth.  But the batteries could have other uses too, like with Solar City (battery backups for home use - already announced), so the risk at this point is not unusual.

The first is Tesla into an electric car that dominates the world market for all cars.

I've never heard this claim, and I doubt he would make it.  He knows the limitations of battery technology today, and how slowly the market is changing over to battery-only cars.  His market is more like BMW than GM.

If at the same time this BFR costs begin to spiral out of control...

So far his hallmark has been good cost control, and understanding his product from a technical standpoint and a market standpoint.  Though there is always a chance he will bet big and fail, if you look closely he doesn't really make big bets, just strategic bets.  And those are easier to survive if they fail - which so far they haven't been.

So my questions are these. Is Musk getting close to over-leveraging himself? Is he taking too much risk in too many different fields all at one time? To what extent could problems in one industry domino or ripple into the other?

I don't think so.

[Kabloona]

It's definitely a relevant question. SpaceX is growing rapidly and will need to be a much larger company to pull off Falcon Heavy and get into the DoD payload business. For any other mere mortal, managing this alone would be more than a full-time job.

Add his job at Tesla, the solar power company, now the new battery factory, etc, I don't know how he does it.

I saw a recent TV show about con artists in which one con involved winning a food-eating contest by switching in twin brothers. Elon must have a secret identical twin...possibly two.

[Elmar Moelzer]

Batteries are and will be needed for many applications, not just electric cars. So a factory that builds them cheaper than the competition will always have customers. My only fear is that the factory produces enough yield to affect the prices, the Chinese will follow suit, bidding Musk out of business. The Chinese government did that with solar panels. They invested more than the US government into solar panels, allowing their factories to underbid the US government sponsored Solyundra, eventually underbidding them out of business. What works in Musks favor is that he would be his own biggest customer
I am less concerned about his efforts with SpaceX. I assume that the profits support the ongoing development of new rockets.

[Dave G]

I guess I just don't see the point of this thread - how is the current situation any worse than it has been for SpaceX over the last decade? They seem to be doing better than ever. And Musk always appears to be over-extending himself.

As I said, I wasn't sure it deserved its own thread, yet every place I thought about putting it seemed too OT. In what other thread do you suggest I should have put it?

I think it's a good topic.  Rockets are not just about engineering.  Without the capital, good ideas go nowhere.

[Oli]

Now, however, he begins preliminary steps toward an UHLV...

Its only preliminary steps.

Maybe he sees an opportunity for getting NASA to finance his rocket instead of SLS, in that case he must present something substantial soon. Unlikely to happen, but may be worth a try.

[butters]

The big idea ultimately triumphs over the big man.

Musk is attracting capital to 21st century manufacturing in the United States: batteries, electric motors, aluminum bodywork, widebody airframes, turbomachinery, impulse engines, etc. -- organized into vertical production lines, with extensive robotic automation, supported by on-site CAD/CAM engineers.

This is an idea that intuitively should work, and it appears to be working. And it is an idea that can and should work without the man -- especially since Musk is not a patent extremist. Anybody else who thinks this is a good idea and can build these kinds of manufacturing verticals so long as they can attract sufficient capital.

Right now, Musk is the hot hand and has investors chomping at the bit to fund his companies. If he falls from grace, this same moneyed set will move on to the next big thing in vertical manufacturing. They're sold on the idea.

[macpacheco]

I believe Tesla success alone guarantees SpaceX.
Having a company (Tesla) whose stock is close to four times the value of some analysts price targets alone speaks volumes about Elon's competence.
Plus Elon has turned away further offers to invest on SpaceX, because he absolutely wants to keep himself in full control of the company.
To be over leveraged, you need to be using leverage. To the best of my knowledge, neither Tesla, SpaceX or Solar City are leveraged in any significant level. All three companies have positive cash flow, and would be hugely profitable if they just reduced reinvestment of that cash flow by just a third.
I suggest before starting up such a thread, first do some financial research on Elon's investment and show that he's significantly leveraged at all.
Perhaps you need to understand of being leveraged means.
If Tesla stopped reinvesting on tooling to increase production, it would have a gross 30% margin including ZEV credits sold to other car manufacturers. There is no other car company with such picture perfect cash flow position out there.

[TomH]

Perhaps you need to understand of being leveraged means.

I do know what it means and I realize I am using the term very loosely. I will modify the question to ask whether he is putting himself into a situation where he could overextend his capital and thus have to leverage his non-liquid assets. Though I did not use leverage in its true technical sense, I did consciously use it because I believe Tesla stock value is part of his apparent Midas Touch aura. I think Tesla stock is overvalued and that a correction of this value could incur a domino damage effect throughout his entire corporate empire. Even if he is not over-leveraged through borrowing, he may place himself in a situation where a slowed cash flow in some areas may damage aggressive moves he is trying to make in other areas. I think my analogy of him being on the tip of a fulcrum applies. He appears poised to take multiple steps into territory that is larger and riskier than he has before.

I have changed the thread title vocabulary in a manner which I hope meets your lexical satisfaction.

[macpacheco]

Perhaps you need to understand of being leveraged means.

I do know what it means and I realize I am using the term very loosely. I will modify the question to ask whether he is putting himself into a situation where he could overextend his capital and thus have to leverage his non-liquid assets. Though I did not use leverage in its true technical sense, I did consciously use it because I believe Tesla stock value is part of his apparent Midas Touch aura. I think Tesla stock is overvalued and that a correction of this value could incur a domino damage effect throughout his entire corporate empire. I think my analogy of him being on the tip of a fulcrum applies. He appears poised to take multiple steps into territory that is larger and riskier than he has before.

Musk net worth was recently estimated at 11.7 billion. He can borrow three or four billion from those assets at very low interests, that would be a little bit of leveraging, very safe operation.
http://www.businessweek.com/articles/2014-02-26/as-tesla-shares-hit-250-ceo-elon-musk-makes-1-dot-1-billion

Tesla investment on the Giga Factory instead is being financed with a Tesla convertible bond offering, which is Tesla as a whole leveraging, not him putting more money into Tesla.
Are you aware of SpaceX borrowing money for its operations ?
I'm just trying to say, this subject makes no sense.
But speculate away.

[Coastal Ron]

Batteries are and will be needed for many applications, not just electric cars. So a factory that builds them cheaper than the competition will always have customers. My only fear is that the factory produces enough yield to affect the prices, the Chinese will follow suit, bidding Musk out of business.

China is no longer the place to go for inexpensive labor.  Shoes for the Chinese market are made in Vietnam, and it's actually cheaper to build products in Mexico now for the U.S. market.  Regardless, the Gigafactory will be highly automated, and those types of facilities are not affected by labor.

The Chinese government did that with solar panels. They invested more than the US government into solar panels, allowing their factories to underbid the US government sponsored Solyundra, eventually underbidding them out of business. What works in Musks favor is that he would be his own biggest customer

Let's keep in mind that China went bust in the solar panel business too, so no one won that price war... except for companies like SolarCity (Musk is Chairman), which didn't build their own panels.  Pretty smart, eh?

[su27k]

Tesla's factory plan is risky IMHO, but that's not related to SpaceX, SpaceX is not getting financial support from Tesla as far as we know.

BFR is only R&D for now, pretty harmless in term of cost. They already have a propulsion team in house, unless Musk wants to fire them they need something to do. The only extra cost is renting the test stand, which I assume is cheap.

If you're looking for signs of SpaceX over-extending, maybe you should look at launch pads, they already got 2 operational pads but 1 is idle (probably for the entire year), now they just rent a 3rd one and plan to build a 4th...