“Natural human nature is wishful thinking…I think my drive to get it done is somewhat disconnected from hope, enthusiasm or anything else. I just give it everything I’ve got, irrespective of what the circumstances might be.”
I’ve long wondered about the pace of technology, and how come we are not much further along than was predicted by earlier generations. The answer might not lie in the technology itself, but in both the drivers of funding, the age-old most powerful motivators of either cash or conscience or funding that either gravitate either towards the most profitable endeavours or the more altruistic causes.
Then comes along Elon Musk, whom I believe has an uncanny ability to combine Physics, Engineering and Entrepreneurship in a way few have been able to before him.
Elon was born in South Africa in 1971. At the age of 18, he moved to Canada, working odd jobs until he was able to move to the United States in 1992. He won a scholarship from the University of Pennsylvania, where he then earned his Bachelor’s Degree in Physics, and then a BSc in Economics at Wharton.
His entrepreneurial drive became obvious quite early when he took an interest in Programming and at the age of 12 created and sold a video game named Blastor for $500.
Yet this was only the beginning, as Elon is arguably one of the most successful to rise out of Silicon Valley specifically if this success is measured in terms of achievements rather than strict dollar value. However, he is no slouch in that area either having been the second entrepreneur out of Silicon Valley to create companies with market capitalization of over $1 Billion.
In the summer of 1995, he created his first IT company called Zip2 which provided a city guide for newspapers. This company was later sold to Compaq in 1999 for $307 Million; Elon’s share was $22 Million. Elon then moved on to his next project of Paypal using half his earnings from the sale and teaming up with another startup. In 2002, Paypal was sold to eBay, and Elon was able to earn $180 Million from the sale.
The Boring Company
As a side project, Musk is developing an underground tunnel network in order to alleviate congestion on the roads, aptly named using a pun – The Boring company.
These are being constructed to work together with and easily mesh with the existing network traffic, and because they are underground, the potential for building more tunnels is limitless. Travel would be achieved underground at a speed of $200 miles per hour.
Currently, though, this initiative is very costly and is estimated to cost roughly $1 Billion per mile. Elon, however, is already formulating ways to make the engineering design cheaper and more efficient. Cutting the diameter by a factor of a minimum of two will yield still yield good results. These tunnels will be deep enough for the construction to not be felt above the surface.
This company is pretty far away from becoming profitable, but for now, is more of an interesting side project for Musk.
Space X was formed to take humanity to the next level of becoming a multi-planet species. Notwithstanding Musk’s well-known sustainable energy efforts, he feels that humanity needs to take this next vital step to ensure its survival given the alternative of living out the rest of our lives on this one planet and avoiding the possibility of an unforeseen intervening event which might eradicate the human population.
So far, advances in the field of space travel have been deteriorating. In 1969, we sent someone to the moon, but since then we have only been able to reach the international space station in lower earth orbit and since this was retired, now there’s no space travel at all.
The first step to achieving this goal is the development of reusable rockets which will allow a safe landing on other planets and make the process much more affordable. His ultimate goal is to populate Mars.
Sounds like a lofty dream, doesn’t it? In reality, his process is much more complex and achievable than it first appears.
Space X’s current operations involve transporting cargo to and from the international space station and launching satellites into space. This market was previously dominated by a small number of participants such as Arianespace and United Launch Alliance (merger of Boeing and Lockheed Martin). However, Space X deliberately prices its launches competitively and concentrates on Research and Development (R&D) to make these flights cheaper and more efficient so they can be achieved more frequently; this number was able to grow from 6 in 2014 to 18 in 2017 allowing Space X to now become the leading player in the satellite launching market.
Space X also has the advantage of cost savings from building 80% of its own components and although the plants are located in the United States, which has one of the highest labour market prices; the factories are heavily automated and can quickly be modified for the latest technological advances.
The company faces a monopsony market though, as it’s only clients would be limited to governments.
The goal then shifted to the creation of a network of satellites to provide cheaper and more widespread internet access. The target is to obtain 50 million clients out of a market of 7 Billion, which will enable the company to earn approximately $30 Billion per year.
The medium-term goal is also to make rockets available for human travel from one point of the globe to the other, allowing anyone to reach halfway across the world within a matter of hours.
Granted that the company was able to reach where it is right now with a large amount of government funding, its valuation now outpaces revenue growth and is expected to reach $32 Billion within the next year.
The company’s success, though, is not only attributed to the acumen of Elon but has a lot to do with his vision. The testimony of this is seen in his ability to obtain funding from deep-pocketed clients like NASA.
A large part of the company’s success is also attributable to Elon’s unconventional publicity schemes. A prime example of which was the February launch of a Tesla Roadster into orbit. This video was the second most popular live stream viewed on Youtube and received 2.3 million views.
Tesla Model 3 Roadster
One journalist describes his experience testing a Tesla:
‘As you approach the car, it recognizes the key fob, turns on the headlamps and opens the driver door. As you approach, the door opens wider, allowing you into the driver’s seat. A tap on the brake pedal closes the door. Your favourite music is already playing and the HVAC is setting the atmosphere to your preferred temperature. There’s no button to push. You just get in and go and when leaving, set it to park and walk away. The inside is as spacious as a giant theatre, spacious and open, there’s a giant 17” display screen on the centre console. The windscreen is huge and carries well into the roof creating a panoramic view. The floor mounted battery pack creates a low centre of gravity which is perfect for handling corners. The urge to push this car is strong. It can go from 0-60 mph in 2.6 seconds. Entering Ludicrous Mode prompts a message that it can lead to more wear and tear on the Powertrain and asks if you want to cancel by choosing a message that reads “No, I want my Mommy” or you can accept with a message titled “Yes, bring it on”.’
Amid heavy criticism from his peers who said that it couldn’t be done, Elon went on to develop the electric car by simply changing the design. To solve the engineering issues, the car was made from aluminium to make them lighter and the battery pack was installed at the bottom of the car, allowing for better handling and a low drag coefficient.
After 14 years of operations, and going public 8 years ago, Tesla is expected to turn a profit for the first time this year. Its latest model was the Model 3 which was launched for mid-range customers. It was designed to be fully self-driving and is the main factor behind the expected profitability this year; especially given that this will be the last year that buyers will be able to use the $7,500 tax rebate for purchasing an electric vehicle.
Unlike Space X, Tesla is often blamed for ‘burning money’ and realized losses of $2.2 billion in 2017. It also struggles to meet output to match current orders having sold 100,000 cars in 2017 and now facing 600,000 pre-orders in 2018.
The electric vehicle market accounts for only 1% of the world vehicle market, and its market is still considered niche. Tesla will also soon face competition from several giants like BMW, Mercedes, Porsche and Audi, but Musk remains undaunted.
In spite of its losses and extremely high outside debt position where it holds debts of $10.4 Billion in comparison to its $11.8 Billion in revenues, Tesla has a Moody’s credit rating of B2 Class B3 and has no problem obtaining investors.
The company is pretty young at 14 years old and competing in its market, however, Tesla is now worth over $50 Billion and has sold a very small number of cars. An investment in its IPO in 2008 of $1,000 would have yielded $18,000 today.
Its stock is considered highly overpriced, having recently surpassed Ford and General Motors to achieve a market capitalization of $56 Billion.
This disparity between profitability, output, share prices and valuation is attributed to Elon, having started the company and becoming a pioneer in the field. Elon made significant progress in advancing electric vehicles when everyone else doubted that it could be done. Not to mention that the vehicles are very classy and stylish with just a hint of sass.
Tesla also prides itself on spending no money on advertising. The only promotion appears to be from the publicity that follows Elon as he deals with shareholder lawsuits, email fights and libel lawsuits. Elon also faces heavy criticism for his Twitter account and its impact on shareholder expectations.
Pressures aside, though, it’s worth noting that the overall impact on share prices has been positive as the share prices continue its mostly positive trend.
All in all, though, Elon has an almost cult-like following. His intelligence and charm have also played a huge role in the success of his companies. His entrepreneurial skills are also on par with his engineering skills, which allows him a distinct advantage.
He also possesses an ability to break down problems to their most basic level and reconstruct from the ground up instead of simply building on the ideas of others. Musk also appreciates that innovation will not always yield immediate returns, but in the long run, it has the potential for monumental gains.
Yet Elon doesn’t appear to be motivated by money, even though he has a lot of it as the 83rd richest man in the world. He refuses to take a salary from any of his companies until they attain their financial goals, and doesn’t patent his work.
A large part of his charm though, also stems from his altruistic side, in his plans to change the world. Although he tends to deflect that motive and clearly states that ‘I’m not trying to be anyone’s saviour, I’m just trying to think of the future and not be sad’. In other words, for him, the future needs to have a clear path toward sustainability and the survival of the human species.
Check out my blog at Progress & Process.
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