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

[llanitedave]

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.

I think he does this stuff mostly for fun, anyway.  He's fully aware of all the risks, yet he still takes them.  He doesn't seem particularly risk-averse. So who's to tell him how much risk is too much?

[RocketGoBoom]

With a net worth of over $11 billion right now, Elon Musk is not even remotely over-extended financially.

According to SEC filings from Tesla, he has a personal loan from Goldman Sachs for around $100 million. He took out that loan so he could buy stock when Tesla did an offering in May 2013. He also borrowed some money for a secondary offering for Solar City in late 2013.

We are talking about less than $200 million in debt with over $11 billion in assets. Most of his net worth has happened in the past 18 months with the dramatic growth in value for Solar City and Tesla. Neither of those companies has much debt. All of the Tesla debt is convertible debt at very low interest rates. There is a stock conversion element to the offerings that reduces risk.

The real value of SpaceX is likely not even included yet in his net worth. His recent two successful launches into GTO likely increased the value of his SpaceX stock dramatically. There is a private market where those shares trade. Prior to the recent two commercial launches, SpaceX was valued at $4 billion. I suspect with the recent successesful validating the commercial manifest, SpaceX is likely MUCH more valuable now. If Elon did a SpaceX IPO, it would likely have a market capitalization of over $10 billion. I think Elon owns approximately 2/3 of SpaceX stock right now.

Elon real net worth is likely closer to $13 billion or so. We will never know for sure without a SpaceX IPO.
He has maybe $200 million in debt with Goldman Sachs according to SEC filings.

That is like you having $1 million in stocks in your account and margin loan $20,000.
Would you feel over-extended?
Your brokerage would likely let you borrow $500,000 to $1 million if you had $1 million in stock in your account.

[RocketGoBoom]

He arguably has $10-15 billion.  His friends have even more (some of whom have publically mused about putting their capital at his disposal).   SpaceX has $5+ billion in sales on the books.  For them to suddenly disappear seems less and less likely through time IMO. 

Whether Solar City, Nest Labs, etc..   Well  let's just say betting against Elon generally historically isn't a winning strategy.  I think he's good for it, and I still plan to buy a 1-way ticket to Mars in 2050.

That is a good point in terms of his access to capital beyond his own net worth. Elon is good friends with some of the richest people on the planet. Larry Page and Sergey Brin of Google, The Paypal (sorry, need to stop here for a second and just say that I have to use stupid words to get my point across. I know that means I must have a weak argument, but that's why I use bad words). includes Peter Thiel, Reid Hoffman and a dozen other former Paypal guys that went on to found most of the top companies in the valley (Linkedin, Reddit, Yelp, etc.). Elon also has access to Founders Fund money or just about any VC on the planet.

If Elon wanted to start his own VC fund to finance his next few business ideas, does anyone doubt his ability to raise $2 billion within weeks? Peter Thiel, his far less famous friend from Paypal (sorry, need to stop here for a second and just say that I have to use stupid words to get my point across. I know that means I must have a weak argument, but that's why I use bad words).,  just raised $1 billion for their 5th fund at Founders Fund. They have a total of about $2 billion in VC money now.

With his history at Paypal, Tesla, Solar City, SpaceX, etc there are investors that will throw money at any wild ass crazy idea that Elon comes up with now. They will just accept that they don't understand what Elon is doing, but it will likely eventually disrupt a government or something else equally massive.

[Dave G]

In an attempt to build less expensive electric cars and increase market share by a couple of orders of magnitude, he [Musk] is about to invest in a $5B Lithium-Ion battery factory with more capacity than all other factories combined.

If we look past the headlines, the picture changes.

Of that $5 billion, the majority is coming from other companies (probably Panasonic and Apple). 

Specifically, they say:

http://www.teslamotors.com/sites/default/files/blog_attachments/gigafactory.pdf

Of that ≈$2 billion, nearly all will be raised by selling convertible bonds.

So it appears Musk himself is not investing any money in the Gigafactory.

Also, as another example of Musk's wordsmith ability, by the time the Gigafactory is fully operational, it will not have more capacity than all other factories combined, far from it.  This is fairly obvious from the graph in their PDF.  World Lithium Ion production is increasing rapidly.

[Dave G]

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.

Exactly.

In fact, without anything significant to do, most engineers are not happy, and are more inclined to seek work elsewhere.  Use it or lose it.

[Norm38]

Raptor R&D is paid for by the billions in sales on the SpaceX manifest.  No Tesla funds needed. They can afford an engine development program. 

For the BFR itself, they're not going to cut metal until (and if) Falcon 9 lands on legs back at the launch site. Reinvesting the cost savings of reuse is what pays for the BFR.

[Avron]

Is musk over-extended, yes. Thats just Elon Musk, his always seems to be all in and then some.. If the day had 30 hours, we would be seeing an electric supersonic jet with VTOL capabilities.

[Jim]

I believe Tesla success alone guarantees SpaceX.

They are unrelated and that claim is unsupported.  It is just hype.

[macpacheco]

I believe Tesla success alone guarantees SpaceX.

They are unrelated and that claim is unsupported.  It is just hype.

Let's clear that up. Of course if SpaceX screws up huge, they are toast. But give Elon's track record that is an extremely remote chance.
But what I meant is should Elon need a few billion to put into SpaceX without loosing control of SpaceX we can come up with billions just from his Tesla stock (Tesla success). The other important factor is if he's got 50.1% of shares, if he comes up with 1 billion, the other share holders would have to pony up just about another billion or see their shares diluted (Elon would get even more control stake).

[Dave G]

I believe Tesla success alone guarantees SpaceX.

They are unrelated and that claim is unsupported.  It is just hype.

Yes and no.  Tesla's success does not guarantee SpaceX, but they are certainly related. 

Tesla has made Elon Musk very rich, and he is known for investing large portions of his personal wealth in SpaceX when things go wrong.  While financing alone doesn't guarantee success, it's certainly relevant. 

[RocketGoBoom]

I believe Tesla success alone guarantees SpaceX.

They are unrelated and that claim is unsupported.  It is just hype.

The claim does not need to be supported. It was his opinion. See quote, "I believe ...."

They are related. SpaceX is approximately 60% to 65% owned by a single person, Elon Musk. So his net worth from his other investments does play a related role in the overall health of SpaceX. The fact that Elon Musk has a $11 billion + net worth from his Tesla and Solar City investments does play a role in the "guarantee" that SpaceX will have sufficient resources to achieve Elon's goals.

If SpaceX were Elon's only company and he had nothing else (no Tesla, no Solar City) then SpaceX would be a much higher risk company.

Would anyone be taking Blue Origin seriously if Jeff Bezos didn't have $30 billion in Amazon stock?
So of course Tesla has an overall positive effect on Elon Musk's ability to execute with SpaceX.

[Avron]

I believe Tesla success alone guarantees SpaceX.

They are unrelated and that claim is unsupported.  It is just hype.

Yes and no.  Tesla's success does not guarantee SpaceX, but they are certainly related. 

Tesla has made Elon Musk very rich, and he is known for investing large portions of his personal wealth in SpaceX when things go wrong.  While financing alone doesn't guarantee success, it's certainly relevant. 

Elon has made Elon very rich - add in a bit from solar city while you are at it..  In business its not always what you know but who you know... Mr Musk has some very wealthy friends who have stepped up before and will do so again I am sure.

[Jim]

They are related. SpaceX is approximately 60% to 65% owned by a single person, Elon Musk. So his net worth from his other investments does play a related role in the overall health of SpaceX.

Not true.  The funds are not transferable. They are isolated from each other.

[RocketGoBoom]

They are related. SpaceX is approximately 60% to 65% owned by a single person, Elon Musk. So his net worth from his other investments does play a related role in the overall health of SpaceX.

Not true.  The funds are not transferable. They are isolated from each other.

Are you just trolling us now with these silly statements?

That statement displays a lack of understand on money, stocks and just about everything financial.
Stock can be sold. Stock can be used to secure loans for cash. Elon has done it before when he borrowed $100 million from Goldman Sachs to make other investments. He pledged some of his Tesla stock to do it in May 2013.

If he needed $500 million to fund anything at SpaceX, he could easily pledge 5% of his stock to secure the loan and raise $500 million within days. Do you understand how something like that works? It is not complicated.

[Avron]

They are related. SpaceX is approximately 60% to 65% owned by a single person, Elon Musk. So his net worth from his other investments does play a related role in the overall health of SpaceX.

Not true.  The funds are not transferable. They are isolated from each other.

Are you just trolling us now with these silly statements?

That statement displays a lack of understand on money, stocks and just about everything financial.
Stock can be sold. Stock can be used to secure loans for cash. Elon has done it before when he borrowed $100 million from Goldman Sachs to make other investments. He pledged some of his Tesla stock to do it in May 2013.

If he needed $500 million to fund anything at SpaceX, he could easily pledge 5% of his stock to secure the loan and raise $500 million within days. Do you understand how something like that works? It is not complicated.

[runs for cover... ]

[Coastal Ron]

...If he needed $500 million to fund anything at SpaceX, he could easily pledge 5% of his stock to secure the loan and raise $500 million within days...

And we would likely never know if additional capital was injected into SpaceX, since SpaceX is not a public company.

Oooh, the mystery...   

[ncb1397]

Perhaps you need to understand of being leveraged means.

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.

Elon has been in much riskier territory in the past than he is in now. He almost went bankrupt starting a car company and a space launch company at the same time with about 1/10 the cash you would want to start either of those. He was paying Tesla payroll out of his personnal account which was almost gone until he got a secured loan from the U.S. government and he has said that SpaceX couldn't survive another Falcon 1 test launch failure. Compared to that, he is far from over-extending himself. They can build their BFR 1 piece at a time very slowly with spare cash and spare time. All they need is a  15 meter x 150 meter x 15 meter hanger to store it indefinately. If the company was only doing a BFR and all personnel were tasked on it full time with no related revenue stream, it would be risky. They have to maintain their propulsion/rocket team for potential Falcon 9 troubleshooting/engineering fixes and to keep their trade secrets somewhat contained anyways and so it makes sense for them to work on something if nothing is going wrong with their launches. They will have significant spare engineering resources in the coming years as commercial crew, F9H and F9R development winds down. They will also have significant spare manufacturing capability if re-usability ramps up.

[Jim]

Stock can be sold.

And if he sells any of his stock, it would have repercussions that would affect the rest of the stock

[QuantumG]

Stock can be sold.

And if he sells any of his stock, it would have repercussions that would affect the rest of the stock

Depends on the quantity, the proportion to other stocks and whether or not anyone believes his announced reasons for selling the stock. Hypothetically, "I need to raise money for my rocket company" would be a very believable reason.

[RocketGoBoom]

Stock can be sold.

And if he sells any of his stock, it would have repercussions that would affect the rest of the stock

Insiders and founders sell their company stock quite regularly. It often has no impact at all on the stock price.
If he sold a large chunk of his stock holdings in Tesla all at once, that would likely elicit news articles. But his stock in Tesla is currently worth over $7 billion. If he needs $150 million for something else, I doubt anyone would be surprised. That represents just 2% of his Tesla holdings. A simple statement saying, "I need $150 million for this new project...." and just about everyone would get it.

I doubt he would actually sell stock. He can easily raise money without selling his own personal stock. With the position he is in, he can basically give himself new stock options or restricted stockgrants every year, thus maintaining his overall percentage of ownership in the company. So even with outside new capital, quite often the CEO doesn't get diluted. It's good to be the king.