01 February 2018
Any Colour You Like
Mr Musk’s bet
by J.R. Thomas
Well, any colour you like, so long as it’s black. So Henry Ford is rumoured to have said about his mass produced cars. Henry was a man of quotable sayings; another that might appeal is “I’ve been rich and I’ve been poor. Being rich is best”. Alas, Henry probably did not say that – it is also blamed on Mae West, Joe Lewis, Sophie Tucke, and perhaps almost anybody who has experienced both conditions. Next to pick up the theme, though paraphrasing it, is Elon Musk, owner of Tesla Motors.
Tesla is the second largest US car manufacturer, information which may cause you some surprise, given that a Tesla car passing is rare enough (beautiful enough too) to make any car geek turn and watch it. Tesla leads the world in electric car technology with a large plant near San Francisco devoted to producing its designs. The best seller at the moment (around 200,000 sales) is the Model S, a large luxury car of great grace, followed by the Model X, which uses many of the S components to create SUVs, the urban tractor. But if the company is to succeed it will not be with these expensive vehicles – around £80,000 in the UK – but with its Model 3, now in production. That is to be its everyman car, its Model T in Henry Ford terms (Ford denied Tesla rights to call it T, Mr Musk’s original intention). But Tesla has struggled to get the Model 3 off the production line. The factory should be producing 20,000 monthly by now – and indeed has 400,000 orders with deposits paid – but has so far failed to get even ten percent of that driving out of the factory gates.
In spite of that, Tesla is valued at US$59bn on Nasdaq, making Mr Musk’s 22% shareholding worth about $13bn. Not bad for a car company with innovative products and yet to make a profit; investors are banking on Mr Musk’s abilities to solve the production problems and get those cars on the road. It is almost sacrilege to suggest he might not do that or to suggest that his product is not quite as efficient as it is beautiful. There have indeed been mutterings that the range (the distance the cars will go between battery charges) is in practice much lower than the theoretical prediction. That will change. Mr Musk is working frantically on improving the batteries which his cars use. This is even more important for the much smaller Model 3, simply because it is much easier to cram a lot more batteries onto a big powerful car than a small one. And he is also creating more and better charging points, and dealing with quality issues that have plagued the S’s on the road.
So is a he a genius or a fool? Dear old Henry Ford did not have to work under such a glare of publicity in the early twentieth century as his twenty first century spiritual descendant does now. Plenty of people thought that putting a chassis on a motorised track rolling past the workforce, each armed with a part and a tool, was lunacy. But within 10 years everything was on production lines and the era of cheap standard consumer goods was upon us.
Visionaries are generally mad until they are right; Mr Musk has taken on the most extraordinary project, to change the very nature of the motorcar. He has the advantage of very deep pockets – not just his own, but (mostly) other peoples, and an extraordinary personal drive to make this work. Last week he put his mouth where his money might turn out to be, and agreed with the board of Tesla (the shareholders have yet to approve it) an extraordinary incentive plan. If the company performs to current targets – which are to become a very large, very profitable car producer, very quickly – he will get nothing other than his current stake. He will have worked for nothing. But if Tesla turns out in 2028 to be worth what Mr Musk thinks it should be worth – £650bn, making it by far the largest company in the world, his stake will rise by 1% for every $50bn of growth. At that target level he will own 34% and be worth $221bn. (Which reminds us of an old joke – see below*).
It may yet all go wrong; no car company is worth anything if it cannot produce cars, however beautiful the designs or remarkable the technology. It seems unlikely that Tesla will run out of money in the foreseeable future, and the company management is almost as enthused as its bouncing dreaming driving leader (nobody else could be quite that driven). But it just may turn out to be technology a bit too advanced for our age, especially putting it all together and powering it to run between one charge station and another. The best guess remains that Mr Musk will bring it all together and make it all work. With that incentive plan he will spare nothing to make that happen – though he would probably do it for nothing anyway.
The threats to his dreams may turn out to be a bit further in the future – Ford, Nissan, and General Motors, and now Volkswagen, are pouring money into alternative propulsion systems; given the speed of technological change, they may leapfrog Tesla to something more efficient and cheaper when they get their versions on the road. And, what may really keep Mr Musk awake some nights – that the future may not be electric, but the scientist’s increasingly favourite future mobile energy source of choice, hydrogen; but that’s for another night.
*A man invests his $10,000 savings at compound interest and has himself frozen for a hundred years. After a century he is woken up and immediately enquires as to his wealth. “$100million” he is told. “Fantastic” he says, “Bring me a Cuban cigar”. They do – along with the bill for it – $2million.
