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

[go4mars]

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

There are many scenarios where it wouldn't.  For example if he says "I sold X billion $ worth to reputable purchasers like Toyota, Buffet, Founders Fund, etc. for the express use of proceeds reasons Y&Z."   Or "I sold the entire company to GM, except for the future projects division (new battery tech, submarine design, Mars car design, and other certain shared/retained intellectual property rights for which I paid fair market value)".   

Many company founders cash out more than him despite strong expectations.  Expensive yacht habits and so forth.     Others would rather build a vibrant Mars colony to retire to. 

[Dave G]

Stock can be sold.

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

He wouldn't have to sell it.  He can take a loan out against his stock.  Unless he defaults on the loan, his shares wouldn't be sold.

Please read the rest of the post from RocketGoBoom:

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.

[llanitedave]

Stock can be sold.

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

Your implication, Jim, is that his money isn't his to spend as he wishes.  That would be true with money that's assigned to a corporation or another use.  But we're talking about his money, that which he can turn into liquid assets at will.  He acquired it, it belongs to him.  He can spend it or invest it where he likes.

[aero]

Stock can be sold.

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

Your implication, Jim, is that his money isn't his to spend as he wishes.  That would be true with money that's assigned to a corporation or another use.  But we're talking about his money, that which he can turn into liquid assets at will.  He acquired it, it belongs to him.  He can spend it or invest it where he likes.

But as an insider Elon can not quietly sell his stock or any significant part of it. And mob rules say that if Elon sells he knows something so the mob sells, too, and there goes the value.

[docmordrid]

Stock can be sold.

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

Your implication, Jim, is that his money isn't his to spend as he wishes.  That would be true with money that's assigned to a corporation or another use.  But we're talking about his money, that which he can turn into liquid assets at will.  He acquired it, it belongs to him.  He can spend it or invest it where he likes.

But as an insider Elon can not quietly sell his stock or any significant part of it. And mob rules say that if Elon sells he knows something so the mob sells, too, and there goes the value.

Only when there is no stated reason for selling it, or when a stated reason makes no sense. Those cause uncertainty. Selling 2-4% to improve a product or process, or to create new ones, doesn't.

[Dave G]

But as an insider Elon can not quietly sell his stock or any significant part of it. And mob rules say that if Elon sells he knows something so the mob sells, too, and there goes the value.

Only when there is no stated reason for selling it, or when a stated reason makes no sense. Those cause uncertainty. Selling 2-4% to improve a product or process, or to create new ones, doesn't.

Again, he wouldn't have to sell it.  He can borrow against it.

As an analogy, if you have a lot of equity in your home, you can borrow against it to start your own business.  You may not be able borrow the entire amount of home equity, as the house may decrease in price, but you can borrow some portion of it.

Similarly, Elon can put up some number of Tesla shares as equity for a loan.  For the duration of the loan, no one can sell those shares.  If the shares he puts up as equity have a value of X, then he may be able to borrow .3X, or something like that, as stocks are more volatile than home prices.

The bottom line is that Musk's wealth from Tesla can be used to finance SpaceX without any impact on Tesla stock price.  This gives SpaceX a greater chance of success.  It doesn't guarantee success, but it improves the odds.

[Robotbeat]

Concern trolling. Very weird question, made sense earlier but not now.

[sugmullun]

Concern trolling. Very weird question, made sense earlier but not now.

  To those who love what SpaceX is attempting it seems a valid thing to have some interest in, but as there's no way to intelligently discuss the "issue" (without inside info to Musk's finances or mind), I don't see the discussion producing anything useful.

[R7]

Would it not send mixed signals to borrow money for SpaceX project against non-SpaceX stock and/or is non-public stock more difficult to use as collateral.

[ArbitraryConstant]

Similarly, Elon can put up some number of Tesla shares as equity for a loan.  For the duration of the loan, no one can sell those shares.  If the shares he puts up as equity have a value of X, then he may be able to borrow .3X, or something like that, as stocks are more volatile than home prices.

Yeah. The real danger was when both companies weren't shipping anything. They had a limited air supply, they required cash injections in the form of big stock events, loans, or cash injections from Musk to make payroll. That's extremely precarious. Tesla is out of that phase, SpaceX is there or nearly so.

Funding a capital project like the battery gigafactory while not trivial is not precarious in the same way.

Raptor development is probably even easier as I don't think it's that capital intensive yet. They didn't have to build a rocket company from scratch to start work on Raptor. It will become capital intensive when they start work on the near-to-launch-site rocket factory, but that'll be when the engine is largely complete, and potentially after a SpaceX IPO which will provide a lot of liquidity.

I don't know about SpaceX, but I'd say Tesla is probably overvalued, SpaceX will likely get some of the same treatment just because of Musk's aura. But being able to issue overvalued shares and turn them into real capital investment is a huge advantage for building the next thing.

Overall the risk to both companies seems at rather a low ebb.

[RocketGoBoom]

Would it not send mixed signals to borrow money for SpaceX project against non-SpaceX stock and/or is non-public stock more difficult to use as collateral.

This is all hypothetical. SpaceX has not done anything to hint that they even need an infusion of capital. With SpaceX now actually launching on their commercial manifest, they are likely more cash flow positive than ever. So for us to speculate about Elon Musk borrowing money for SpaceX (using Tesla stock as collateral) is sort of a waste of time.

If hypothetically SpaceX did need to do a fundraising round (Series D round or whatever) they would have every VC, hedge fund and angel investor filling up Elon's voicemail within 5 minutes of hearing about it.

This guy is not exactly struggling for investors to hop on the bandwagon.
They are drooling to get in on Elon's coattails.

[Elmar Moelzer]

It will become capital intensive when they start work on the near-to-launch-site rocket factory, but that'll be when the engine is largely complete, and potentially after a SpaceX IPO which will provide a lot of liquidity.

I don't think there will be a SpaceX IPO before MCT is complete.

[ArbitraryConstant]

I don't think there will be a SpaceX IPO before MCT is complete.

If that's true it's because they don't need one, they can get the liquidity without it. Even better.

[R7]

If hypothetically SpaceX did need to do a fundraising round (Series D round or whatever) they would have every VC, hedge fund and angel investor filling up Elon's voicemail within 5 minutes of hearing about it.

No doubt. How many of them are sold on Mars colonization is another story.

[yg1968]

I find the idea of this thread a bit silly. Regardless of his finances, Musk will not invest in any project unless he believes that it can make money. He is not going to Mars unless he has NASA as a client. Having one engineer work on a BFR doesn't mean that SpaceX will be funding this project on its own. His plans for a Mars BFR is business development. If SLS gets cancelled, SpaceX wants to be ready for an opportunity to bid for its replacement. 

[guckyfan]

I find the idea of this thread a bit silly. Regardless of his finances, Musk will not invest in any project unless he believes that it can make money. He is not going to Mars unless he has NASA as a client. Having one engineer work on a BFR doesn't mean that SpaceX will be funding this project on its own. His plans for a Mars BFR is business development. If SLS gets cancelled, SpaceX wants to be ready for an opportunity to bid for its replacement.

Gwynne Shotwell stated recently they don't have a business case for Mars but they do it anyway.

[RocketGoBoom]

I find the idea of this thread a bit silly. Regardless of his finances, Musk will not invest in any project unless he believes that it can make money. He is not going to Mars unless he has NASA as a client. Having one engineer work on a BFR doesn't mean that SpaceX will be funding this project on its own. His plans for a Mars BFR is business development. If SLS gets cancelled, SpaceX wants to be ready for an opportunity to bid for its replacement.

Gwynne Shotwell stated recently they don't have a business case for Mars but they do it anyway.

There wasn't really a business case for Elon attempting to buy an ICBM from Russia to put a greenhouse on Mars as the "money shot". But he tried to do it regardless.

[yg1968]

I find the idea of this thread a bit silly. Regardless of his finances, Musk will not invest in any project unless he believes that it can make money. He is not going to Mars unless he has NASA as a client. Having one engineer work on a BFR doesn't mean that SpaceX will be funding this project on its own. His plans for a Mars BFR is business development. If SLS gets cancelled, SpaceX wants to be ready for an opportunity to bid for its replacement.

Gwynne Shotwell stated recently they don't have a business case for Mars but they do it anyway.

There wasn't really a business case for Elon attempting to buy an ICBM from Russia to put a greenhouse on Mars as the "money shot". But he tried to do it regardless.

He gave up on that idea and decided to fund SpaceX instead. One time stunts aren't very useful.

[yg1968]

I find the idea of this thread a bit silly. Regardless of his finances, Musk will not invest in any project unless he believes that it can make money. He is not going to Mars unless he has NASA as a client. Having one engineer work on a BFR doesn't mean that SpaceX will be funding this project on its own. His plans for a Mars BFR is business development. If SLS gets cancelled, SpaceX wants to be ready for an opportunity to bid for its replacement.

Gwynne Shotwell stated recently they don't have a business case for Mars but they do it anyway.

I don't think that was her exact quote. In any event, striving for something over the long term and actually putting billions into it are two different things.

[macpacheco]

I find the idea of this thread a bit silly. Regardless of his finances, Musk will not invest in any project unless he believes that it can make money. He is not going to Mars unless he has NASA as a client. Having one engineer work on a BFR doesn't mean that SpaceX will be funding this project on its own. His plans for a Mars BFR is business development. If SLS gets cancelled, SpaceX wants to be ready for an opportunity to bid for its replacement.

Gwynne Shotwell stated recently they don't have a business case for Mars but they do it anyway.

They aren't quite doing Mars (in significant $$$) yet. Raptor makes sense even without Mars, if it delivers a fully reusable rocket with the same GTO, LEO and TMI payloads of expendable FH. Using a simple S1 with 6ish Raptors and S2 with a single raptor. FH performance for GTO and beyond incurs high losses due to lower Kerolox ISP.
If such a rocket would provide better performance than anything operational for commercial launches while delivering full reusability, that might be game over for the competition.
The entry level BFR can be both seen as SpaceX plan for Mars as well as the SLS, ULA and Ariane killer. The initial goal shouldn't be to deliver the actual Mars colonial transport, but instead a solution to put an entire ISS worth of stuff on the Mars surface as a research outpost to show the world it can be done. Then I think NASA and others money would follow in significant numbers.
In the end it's entirely possible SpaceX will superseed SLS and be a profitable enterprise for SpaceX even without the Mars colony (making the Mars colony a profitable enterprise if they can get NASA to pay halfway between the currently bloated SLS budget and the actual BFR costs, they could fund building dozens of BFRs with that extra money).
Time will tell. Of course, this is 100% wild conjecturing.