Tesla’s Elon Musk May Have Boldest Pay Plan in Corporate History
nytimes.com
nytimes.com
Tesla has a market cap of 56 billion dollars - compared to Ford at 45 billion, and GM at 61 billion.
Tesla I believe sold around 100,000 cars in 2017, and 76,000 in 2016, in the US alone Ford and GM sold 2.5 and 3 million respectively in 2016 - to give you scale GM sold 10 million worldwide (again, in 2016).
Scaling manufacturing operations is one of the hardest things to do - so I dont see it to be possible for Tesla to chase after the mass market, or do anywhere near the sales of the other manufacturers.
Thus I’m not surprised when i hear about Elon being sad or annoyed with “shareholders” and the board, because he holds a vision for our future that Wall Street just cant comprehend, and thats depressing.
When there is chatter that PE ratios don’t matter, it’s time to run for the hills as irrationality has set in. Also, Tesla doesn’t have a PE ratio because they don’t generate profit. The stuff that gets companies trough difficult economic times.
Also, on the batteries and solar endeavors - sure it’s a growth opportunity but does Tesla really have that much of a competitive advantage beyond their brand name?
One final thing. Don’t forget that Musk does not have shareholders’ best interests in mind. He bailed out solar city, which was heading for bankruptcy, using Tesla as his piggy bank. And then got shareholders to drink the kool aid that it was a smart move when in reality he could have simply bought it out of bankruptcy - but that would have cost him personally, so he didn’t. https://www.fool.com/investing/2017/11/01/teslas-solarcity-b...
EDIT: Levering, not leveling
GM does ~$166B in revenue per year and they are worth $61B. GM's P/S is 0.37.
Tesla does ~$12B in revenue per year and they are worth $56B. Tesla's P/S is 4.67
I'd argue that Wall Street has an extremely optimistic view of Tesla's future since they are worth 12-15x more than Ford and GM on a revenue basis. I can't really compare on a profit basis since Ford and GM are profitable and Tesla has never made a profit and their production/delivery numbers have been basically flat (~25k units) per quarter for a year and a half.
Tesla, the energy company, might.
Tesla needs to get production capacity on track fast, or they will get left in the dust as other major players hop on board the EV wagon.
Maybe some of the major car manufacturers will build their own battery plants or some new supplier will fill the market demand, but that takes time. Until then, the incumbent manufacturers will continue to sell mostly gas cars because they have no alternative.
When I initially read your comment I was inclined to disagree with another automaker incumbent-smashing opinion but upon researching, I have to say, 2,000 units a month in the nascent mainstream market for EV's is definitely impressive. Kudos to GM there
But the thing is, I'm just as confused understanding how IBM is worth anything any more, now that it has no core central logic except "do stuff, for money, for big clients"
Or why any of this matters, when Chinese state enterprises are worth more than all of this put together. CNOOC, the state oil company, is 1.17 trillion in 2014 CNY terms. thats $180b US for a shipping company alone. That, I can relate to.
I can't conceive of enough uses for things in space, to justify Tesla rockets being so valuable but then I can't conceive of that many creme eggs, bought with that much money either.
Tesla is distinct from SpaceX.
And I'm certain Casio sold millions more watches than Rolex last year. The fact is that consumers are rational in their choices with respect to not just actual utility, but perceived social value. High end brands have an undeniable, albeit intangible, value.
They aren't content to stay in luxury segment. If they were models S and X would have been enough.
The market got bigger. Nokia did not.
Now it is returning, but it’s not anymore core focus of the business and the numbers are small.
There are fundamental changes in car design. No need for a huge tunnel and axle in RWD cars, and no huge, loud, hot and vibrating engine in the front. In addition the battery pack shifts down the centre of gravity (thus making the car way better in handling curves), and the now free space in the front (what Tesla calls "frunk") is a huge crumple zone.
Also, with the engine there goes a huge complex part with many different highly specialized suppliers - granted, it's replaced by another set of parts, but fundamentally it's orders of magnitude less parts, and easier to install.
I replace one set of complimented parts from specialized suppliers, with another set, we've had flat panned cars before, both rear engined, and front wheel drive, both the Corvair and the Beetle had a frunk, and the Prius has a big heavy battery under the floor, changing the center or gravity.
I'm not downplaying the significance of the technology, but its a evolutionary development, of early electric cars, rather than a sea change.
You may think the company's future isn't worth a $56 billion present value, but comparing Tesla's historical production against Ford and GM is completely missing the point.
That would be like comparing Google's revenue in 2004 against its competitors in the advertising industry.
Investors who bought Google's IPO were valuing the company's potential in 2014 and 2024, not its minuscule market share in 2004.
Google's 2004 IPO valued the company at $23 billion, twice as much as WPP Group even though WPP had much higher revenue than Google.
Today Google is worth 35 WPPs, and Tesla investors think it could be worth multiple GMs and Fords ten years hence.
The automotive market is stable, something on the order of 80 million cars a year, and I don't see Tesla vanquishing one of the incumbents either.
I guess my argument is that an Electric Car is not a whole new category of vehicle (like a flying autonomous car might), anymore than diesel cars are looked as a separate market than gasoline ones. Whereas Google created an entirely new category of advertising, that didn't even really exist before they arrived and the market grew by two or three orders of magnitude.
People didn't see that RIM and Nokia would be destroyed either.
Just because you are buying new tech does not automatically mean you will succeed.
Building good cars, is a game of logistics and supply chain, something Tesla is largely still learning - the thing about building a good electric car is, it only changes one aspect of an otherwise concept, and you can buy the technology you need for that.
RIM, Nortel and Nokia, are not good example cases, because they didnt loose on their ability to manufacture shit - and Tesla likely will.
If you are sure what the future holds perhaps you should short Tesla.
Even if we ignore different sector we need to look at the financials. Google dint have much debt. Tesla on the other hand has lots of debt. Their financial leverage is 5.97 which is high.
Then there is also about the interest rate climate. We have seen years of unprecedented low interest rates. Feds now have started to increase it slowly. If it rises too high Tesla's interest obligation will balloon as well. If they are not building cars fast and selling them even faster, they might be a deep hole and hence overvalued.
1. Tesla can always enter into the ICE market with ease, not that they will do it, but they can and probably will succeed. The big 3 have had a lot of difficulty in getting into the EV market. Sure, they have competing vehicles, but lack the marketing power of Tesla. 2. Tesla is the new cool factor. Undeniably. People get mocked for driving a Prius. Owning a Tesla evokes a more positive response. 3. Tesla has it's supercharging network, which I think is a very smart move. That's a pretty big moat. 4. Tesla's marketing machine is immense and enormously efficient. I remember Elon writing a blog article about a journalists negative review of their car and the discussion about Tesla dominated social media for a few weeks. No one even bothers about the management at the big 3, but Elon is a celebrity who is given geek god like status.
Yeah but the "parent generation" is the one which has the cash to buy a Tesla. My generation, unless made rich by bitcoin trading or stocks? Lol used VW junker it is.
For my generation, I'd bet that access to (autonomous?) car sharing will be the cool thing - and, guess what, Tesla has the upper hand there. Every vehicle transmits data back to homebase... and that data is why Tesla is so hyped and highly valuated, not the cars or the patents, probably not even Elon Musk himself.
They may sell the car at a hardware loss, but gain so much data for which they'd have to pay test drivers instead and still get a dime of the percentage they now get. Hell Tesla could close down shop today and I bet there would be waaaaay more than enough cash from companies willing to buy that data.
The only exception I can think of is Google with its Maps/Streetview cars as these have enormous, probably even better, sensors by design and in theory Google could get by just fine - but the amount of data is a blip compared to the miles already driven by all the Teslas out there.
Further adding to the value of Tesla is that they are trying (and often have succeeded) in breaking down the "dealership" structures... while the "old" car makers are more or less stuck to that structure (they don't want to piss off existing dealers), Tesla can react way quicker to demand.
edit: oh, and "modern" infotainment? App connections? Nothing the big car makers have to show comes even remotely close to what Tesla can do - their entire model is different. Digital services are at the core of any Tesla, so deep in fact that Tesla can dynamically "unlock" more capacity in the batteries, with frequent software updates - while even a top-notch VW has to visit a dealer to get a de-stinker firmware update. And don't get me started about the quality of the software in any non-Tesla car. No one comes remotely close to that level, and no one comes close in development speed/agility.
2. Tesla is the new cool factor. Undeniably. Tesla had the cool factor. Now they're 2 years away from being just another electric car.
4. Tesla's marketing machine is immense and enormously efficient.
99% of car buyers don't pay attention to social media when buying a car. Tesla has one of the smallest marketing machines in the industry; it's heavily reliant on social media to bring in buyers, which limits its customer base. Moreover, the reliance on social media is also its weakness, as it is subject to the whims of the online mob.
I remember Elon writing a blog article about a journalists negative review of their car and the discussion about Tesla dominated social media for a few weeks. No one even bothers about the management at the big 3, but Elon is a celebrity who is given geek god like status.
I remember that coverage as well. It was uniformly negative about Elon's blustering response to the review, and raised significant concerns in the market. If a single negative review is enough to tank Tesla, it's got no chance of surviving Model 3 mass production.
Once Tesla has enough capacity to manufacture, more than what social media presence can consume, that is when traditional marketing mechanisms will make sense.
But I know without a second factory, they're unlikely to make more than 500,000 a year.
"Mr. Musk does not take a salary, although under California State law, Tesla is required to pay him at least minimum wage."
"To afford to live, Mr. Musk has borrowed against his shares, a practice that some corporate executives have questioned"
All seems rather odd to me.
It’s the same as Zuckerberg diluting with nonvoting shares. It allows him to sell profit shares without selling voting rights.
One of the life lessons I've learned from wealthy people is that they know how to use debt as a tool to keep their investments in the market and avoid taxes.
This shows why a simple model for capital gains tax leads to inefficient capital allocation.
Instead, the CGT rules should be cumulative like this: Let's say you buy at $1 million and then sell at $10 million after 10 years: That is an annual return of 25.9%. If the annual capital gains tax rate is 20%, that would leave you with a return of 20.7% per annum. So after 10 years your $1 million investment is worth $6.56 million after tax. That is, you must pay $3.44 million in capital gains tax.
If you're fairly liquid and decently bullish on your company, then holding off and taking your income later as capital gains makes a lot of sense. And as seen in the article, he can borrow against the shares to achieve as much liquidity as he wants/needs for his lifestyle without having to pay ordinary income taxes.
I guess I'm impressed by Elon that he can get such puff from the NYT for some basic tax structuring.
* Energy storage. See the giant battery in Australia.
* Residential solar and solar roof tiles. See Gigafactory 2 in Buffalo New York.
* Electric vehicle charging. See the supercharger network.
* Battery cell production. See Gigafactory 1 in Nevada.
They have also said they are exploring:
* Launching a ride sharing service using autonomous cars.
* Capitalzing on the supercharger network with retail and food.
* Moving into trucking and logistics with the semi project.
This is why people invest in Tesla.
I am a Musk believer, and when he started Tesla he stated his goal wasn't to be a major car manufacturer but to be a proof of concept to push the major players into the space. He demonstrated this by the open sourcing of EV patents.
Tying compensation to cap value of Tesla means that he no longer believes the major players will adapt (although there is strong evidence that his original plan has worked and the other manufacturers are making much larger investments in EV), or that the auto's segment will grow as a whole so significantly, that Telsa, as a minority player, will still be able to reach a 10x size over the next decade.
Except that as the article says, he already owns 20% of Tesla, so his current shares would rise in value by $110B. He could fail to meet any of performance targets and still be pulling in a billion dollars a year in capital gains.
Jobs wanted to make the very best computers.
Musk is trying to open Mars to humanity.
It is neat and getting good press, but bold?