Faster, further, fearless: would you bet against Elon Musk?
Elon Musk (also known as “Iron Man”) certainly likes things shaken and not stirred (more about that later). Musk has been in the news again this week on a number of fronts: price cuts for the new Tesla model X, his rocket spectacularly blowing up soon after launch and re-storing the free blue tick (whatever that is) on Twitter. He was probably best known for his Tesla electric car venture before hitting the headlines with a vow to buy and clean- up/out Twitter but who is Musk really and how did he amass and what is the background to his considerable wealth?
Musk is a South African, born in 1971 to an electromechanical engineer father and a fashion model mother. He taught himself to programme computers at the ripe old age of 12 years. After graduating high school in SA, he moved to the United States for college. He’s obviously highly intelligent as he received degrees in physics and economics from the University of Pennsylvania, and then enrolled in a Ph.D. program at Stanford University. He dropped out two days later to establish his first company: Zip2 which he co-founded with his brother. It was a software company providing online business directories and maps to newspapers. The Musk brothers sold it way back in 1999 for approximately US$300 million. Musk then went on to co-found X.com, an online payment company. X.com later became PayPal which eBay acquired in 2002 for US$1.5 billion. Notice the trends…?
Now we get to the shaken part.
In 2002 Musk turned his attention to space exploration, taking on the aerospace industry. In founding SpaceX, his goal was to reduce the cost of space exploration and ultimately enable human colonisation of other planets.
In 2004 Musk became involved with Tesla and he is now that company’s CEO. He has clearly been instrumental in the development of the company’s electric vehicles – cars for now but trucks and more coming soon. The US market for new cars is over 17 million new vehicles each year and the industry is dominated by a handful of well-funded local manufacturers of some scale Ford, GM, Chrysler as well as the global players like BMW, VW, Toyota and Hyundai to name a few. To say that Musk gave the incumbents a giant kick up the chassis would be an understatement – every car company in the world is now on an electric vehicle journey that was arguably dormant until Musk and Tesla ‘shook’ it up.
Shaken not Stirred
Not without controversy, Musk has sailed close to the US’s Securities and Exchange Commission in terms of speaking openly with his famous brush with the regulator coming from his public comment “I am going to take Tesla out “funding is secured”.
Perhaps his most genius move was to set his unique pay structure with Tesla: in 2018 he cut a deal with the board that if he could get the value of the company up to US$650 billion within a decade he would receive a US$55.8 billion pay-out. The company had a market capitalisation of just US$6 billion at the time and I guess the board members thought it exceedingly unlikely that Musk would be able to cash-in. He hit the target in January 2020 (today Tesla has a market capitalisation of US$500 billion).
Shaken not Stirred
More recently, Musk acquired Twitter for US$44 billion in cash. He then proceeded to fire 80% of the staff (not a typo) in short shrift and the business today has even more users.
Here’s Musk’s interests as they stand today: Twitter: record users, close to profitability, 80% fewer staff, way less censorship and likely a return to the market by way of IPO at some stage. Tesla: record car sales expected to be 1.8m this year with demand outstripping supply, margins double those of competitors and the world’s largest data set of vehicle autonomous data. SpaceX: with its rocket, the Falcon, has had 224 missions (of which 222 were successful and included 160 self-landings).
If that wasn’t enough, SpaceX recently conducted its inaugural launch of “Starship”, a 40-storey rocket capable of carrying a payload of 100 tonnes – this is the vehicle that goes to Mars by the way. Although it exploded four minutes after take-off it was deemed a huge success, collected thousands of data sets and reached something called “Max q” where the rocket takes maximum stress. The next launch is a few months away. If successful, this rocket will have enormous logistic consequences: it’s something like 50-times more efficient in payload delivery than the Falcon. One can foresee that there might not be any more trans-Pacific or trans-Atlantic flights in 10 years or so: on Starship one can fly from New York to Tokyo in two hours.
Shaken not stirred – would you bet against Musk?