Elon Musk: Master of Illusion?
Elon Musk is a phenomenon. He is viewed by many as the CEO of the future: a visionary constantly pushing the boundaries of what’s possible both in engineering and business. But is the man who has convinced numerous investors to entrust him with their billions and negotiated the potentially single largest bonus in business history more marketing than merit?
Elon Musk first came to the attention of the business world as the Co-founder of internet payment giant PayPal. When Musk and Peter Thiel sold the company to EBay in 2002 for $1.5 billion, Musk began a pattern of innovation and investment in ostensibly declining markets. The man who had revolutionised the way consumers paid for products online was turning his hand to the potential pitfalls of electric cars and space rockets. During a period where NASA were shelving much of their space programme and several high profile electric car launces, most notably the Chevy Volt, had failed: Musk began to thrive in these supposedly waning industries at a time when established frontrunners were mis-firing.
This revolution of dealing in the future where others have either failed or demurred, and Musk’s success with invention through Tesla, Solar City and his very own Space Program seems to have paved the way for Musk to cement his reputation as the world’s innovator-in-chief. A currency which he seems to be able to still cash in on to this day, despite any negative press or poor quarterly results.
His ideas never fail to turn heads, be it from their sheer revolutionary value or the audacity of their execution—perhaps the most notorious and contentious of his ventures is Tesla Inc., formerly Tesla Motors, if only because of its value despite never making a profit. Tesla has become the benchmark for electric cars: a world-renowned company that has continually attracted massive investment, from $226 million at its IPO, followed by a further $3.02 billion between 2013 and 2014 and another $1.8 billion in 2017.
It leads one to wonder: just how is Tesla one of the most valuable car manufacturers in market capitalisation and would it be so if it weren’t spearheaded by its enigmatic CEO? The current leaders in the vehicle manufacturing industry include GM, Ford and Toyota, valued at $11, $38 and $62 respectively per share. Tesla Inc., in comparison, is worth a staggering $300 per share, despite a reported net loss of $2.24 billion in 2017. Add to that reports of inaccurate safety records and the stress that Founder and CEO Elon Musk is facing amid backlogged and halted production on the Tesla Model 3, and you could have a puzzle that doesn’t quite fit together.
Tesla’s popularity can be attributed to a number of factors: primary of these is the eco-friendly nature of the electric cars it manufactures, as well as the automatic nature of the technology it is developing. Tesla takes after its CEO; basing its product on the future, in this case the future of the environment and how technological advancements can benefit humanity. Turning a profit for Tesla relies on many factors, but crucially upping the problem plagued production of the Model 3 is key, and could in turn secure Musk an astronomical future pay rise—a pay rise that could equate to $50 billion over the next ten years. This figure would not only make Musk the richest man and CEO in the world, but would mean his annual salary would eclipse that of every other CEO in the S&P 500. While that pay rise is dependent on his leadership in raising Tesla’s market cap to $650 billion over the next 10 years, the fact remains that Musk has the power to convince the shareholders of Tesla to sign off on the deal by convincing them that in spite of enumerable production issues, profits are coming. But are they?
In truth, Tesla Inc.’s value is impossible to determine. This is in part Musk’s genius, by dealing so heavily in the future and inspiring others to follow him, the bulls and the bears of Wall Street simply cannot agree on Tesla’s worth. Predictions vary from $93 billion dollars a year in revenue to bankruptcy and there are as many high-profile detractors as there are disciples.
Whilst no one is suggesting it, is it possible that Tesla’s worth is based purely on projection? More likely, perhaps, the success behind Tesla’s market value and Musk’s various pursuits simply comes down to the man behind the brand. Love him or hate him, it’s impossible to deny that Musk has the charm and finesse of a true salesman at work; after all, a good salesman can convince you to buy anything. Many have claimed that Musk is the driving force behind stock sales, such as Kynikos Associates Founder and legendary short seller Jim Chanos who explains: “Obviously this is not being valued as a car company, it’s being valued on Musk … he’s the reason people own the stock.” Chanos has gone further asserting in the past that Tesla’s equity is actually worthless, as he states: “To me, where the stock is now is not the story. I don’t care that it came from $30 or $200 or $300. That’s just meaningless.” While Chanos seems to be part of the few who have vocally questioned Tesla and Musk himself, the share price is testament that the many still believe in the vision that Elon Musk is selling.
And this is Elon Musk’s strength, convincing the majority that anything is possible by virtue of the products he is creating. While critics of his business bottom lines do exist, even Musk’s biggest cynics can’t deny that he is a marketing genius. As the rest of the world’s marketers spend huge amounts bidding and haggling for airtime in the minds of consumers through every avenue possible, Musk has the power to blow them all out of the water by sending a rocket into space and delivering a Tesla Roadster into the galaxy while David Bowie’s ‘Life on Mars’ plays on the radio in the background. As Musk live-tweeted the event, he racked up millions of likes, shares and comments. No other marketing or PR stunt came close to that audacity, brilliance and crucially, results. Musk made it all look cool and effortless, simply the whimsy of an eccentric billionaire playing with his toys. But there is a lingering notion that behind the scenes, there was detailed strategic co-ordination and planning. Was it by accident or design that this awe-inspiring event resulted in the same-day reports of Tesla’s worst ever quarterly losses evaporating during a 43-minute webcast of a rocket launch? If Tesla’s competitors had enjoyed some momentary cheer in the morning, by the evening it was likely that all other car manufacturers were tearing up their marketing plans. In fact, Musk even used the opportunity to allay any fears surrounding the widely reported production issues, stating: “If we can send a Roadster to the asteroid belt, we can probably solve Model 3 production.” Musk has contended in the past that the success to business should be through ‘engineering and design’, but his ability to promote his business remains the envy of all marketeers. Indeed, Elon Musk is a multi-faceted and very modern CEO. Innovation, design, engineering, marketing—seemingly, he can do it all.
All things considered, Musk takes a lot under his belt, famously claiming to keep a sleeping bag in the Tesla factory so he could better keep an eye on the cars coming off the production line. But where his genius lies is that in almost every industry he dips his toes into, his primary focus seems to be the overall benefit and longevity of humanity, giving the impression of a businessman/saviour hybrid: the environment? He’ll make electric cars for cleaner travel. Living on Mars to save humanity from homelessness? He’s building rockets to take us there. Clean energy? His solar panels will power the world. Musk’s marketing brilliance and philanthropy merge seamlessly to inspire investors and public alike. Even his playful side project, The Boring Company, has used the sale of Flamethrowers to generate buzz and revenue to solve more of the world’s transport issues by concentrating on the Hyperloop. Musk first spoke of the Hyperloop 6 years ago as ‘the fifth mode’ of travel. It was another bold vision and one that Musk seems intent on fulfilling, and what may have seemed like a frivolous stunt worked, proving that his creative and often peculiar methods of funding his projects can bear fruit.
Still, not one to back away from promising the moon, Musk still insists that this is the year Tesla turns a profit. His unrelenting ambition and aim for the stars, both literally and figuratively, is admirable; but reality can dampen even the wildest dreams and this could be Musk’s biggest adversary: for example, Tesla produced only 260 Model 3 sedan vehicles in 2017 despite the target of 1,500. Will that make future promises by the eccentric CEO difficult for some to believe? Working in his favour are both the belief he instils and the promises and targets that have hit, which are at present most often in SpaceX’s court. In order to keep the world believing, Musk will have to ensure that realised promises become the norm.
SpaceX appears to be the jewel in Musk’s crown. While Tesla continues to be a loss-making company, SpaceX soars with productivity. SpaceX has seen a total of 59 launches from sites in Cape Canaveral, KSC, Vandenberg and Kwajalein. He is also holding himself to the challenge of having a person on Mars by 2020 or, a bit more forgivably, 2025—a timescale that, in keeping with Musk’s character, stemmed from a bet between himself and Michael S. Malone from 2009. His effort to colonise Mars and reduce the risk of human extinction itself is one of Musk’s more elaborate endeavours—a testament to both his ingenuity and his ability to procure finance for his ventures. Thanks to Elon Musk, SpaceX is now worth $21.5 billion and counts Silicon Valley behemoth Google as an investor.
So why do investors flock to Elon Musk? Looking forward, the general consensus is that electric cars and autonomous vehicles will be such a dominant trait as time marches on that profitability is inevitable for those that take advantage of it, though patience is required to see it through. However, while SpaceX has a few current competitors, the car market is a different story and multiple other companies exist—such as Uber, Audi and Toyota that are developing autonomous cars and almost all manufacturers including BMW, Nissan and Chevrolet that are experimenting with electric cars—yet Musk remains at the forefront of these concepts. The man himself has demonstrated his fearlessness when it comes to what the future holds and seems willing to take the risks necessary to make it happen and isn’t afraid to literally shoot for the stars. Even in moments of weakness, he demonstrates an air of confidence to convince otherwise. His integrity and ruthlessness aids in his conquest to dominate the industry and appears to be succeeding.
Perhaps the future of Tesla is as ambiguous and elusive as the man himself. As delays in production of the Model 3 sedan become ever more troublesome, even halting in recent weeks, it appears as though Musk’s assertion that they can solve the issue may be more marketing speak than truth. The passage of time also promises the prospect of bigger, harsher competition in the industry—and so the future and worth of Tesla remains just as unpredictable as Musk. But what is certain is that investors continue to show the value of their faith through the millions of dollars they bestow on his ventures. In some quarters Musk may be seen as a master of illusion, however he appears to possess the skills and the backing to make us believe his illusions could become our reality. Elon Musk is a CEO selling the world a future we want to see, and in a time of naysayers and negativity, it’s no wonder he’s driving investment and his businesses forward. As the man himself says, “If you get up in the morning and think the future is going to be better, it is a bright day. Otherwise, it’s not.”