Saturday, June 9, 2018

Is Elon Musk Digging Secret Tunnels For The Government? (TSLA)

That's crazy talk.
The result of juxtaposing a couple headlines in an addled brain:
"Tesla’s sale of parts to Elon Musk’s The Boring Company may be a clue to its strategy"—Quartz
"Is The Government Building Secret Tunnels Under America To Prepare For WW3?"—ZeroHedge
On the other hand, via FT Alphaville:

Eight-dimensional chess with Elon Musk
It has been difficult to understand the reasoning behind Elon Musk's strategy at Tesla this year.
The consensus seems to be that his bluster is an attempt to distract would-be critics from the company's woes. But that narrative does not add up -- not least because he just made nice with one news outlet that has been outspoken in its criticism of his management.

An alternative theory was provided to us recently by a credit markets specialist. While it is highly speculative, it does provide an explanation for one big issue: if Musk is actually trying to distract investors from Tesla's financial woes, why is he doing such a bad job at it?

It is not unusual for a CEO to start acting strangely when faced with extreme pressure, of course. What's bizarre is that Musk's mistakes leave us with a distinct impression of carelessness (despite plenty of historical evidence to the contrary), and echo especially loudly through the “filter bubbles” occupied by institutional investors, traders and financial journalists.

But according to this theory, Musk's goal is not distraction. Instead, the endgame is to fulfill a wish he described in a Rolling Stone profile last year:
“I wish we could be private with Tesla,” Musk murmurs as they exit. “It actually makes us less efficient to be a public company.”
The main obstacle to going private is that no one needs to buy Tesla, as Alphaville colleague Dan has pointed out -- at least, not at its current enterprise value of $64bn, $55bn of that from equity. Hm.
In fact, sometimes it sure seems like Tesla's sky-high valuation is actually the biggest source of its troubles. The company is certainly burning lots of cash as it tries to scale up production of its mass-market Model 3. But if its market cap weren't nearly five times larger than its 2017 revenues, perhaps there wouldn't be such a pressing need for scale in the first place.

This blog has argued many times over that Musk's star power is the primary reason Tesla's shares have reached their current heights. So there is a nice symmetry to the theory that getting its valuation to a more reasonable level requires him to act like a terror.

If it were less pricey, Tesla could pursue any number of potential deals. But our unnamed five-dimensional chess master highlighted one acquirer in particular: SpaceX, Musk's private rocket company. Such a transaction would leave Tesla as a private company, and mirror its own purchase of SolarCity back in 2016.

Again, we should emphasise that the person who told us this theory has no special knowledge about whether Musk is playing a long game, or simply cracking under self-imposed pressure to reinvent travel via land, air, tunnel and rocketship.

But still, let's imagine for a moment that this idea turned out to be right. Musk's choice to launch a Tesla into orbit with a SpaceX rocket suddenly starts to seem a bit heavy-handed, doesn't it?

And in retrospect, all sorts of odd choices he has made this year would make more sense, including....MUCH MORE
Two things to remember as we go down the rabbit hole with Alexandra:

1) SpaceX is the only one of the companies (don't forget NeuraLink) that is profitable, a fact that was exploited when SolarCity could find no one else to buy its debt.
2) SpaceX is Elon's ultimate escape vehicle,* something he obviously treasures and thinks about:
Well, escape and 2001: A Space Odyssey.

Mr. Musk's Twitter feed seems to reveal a decrease in his stress level, maybe it was just nerves as he does the create-a-corp thing on the fly.
Mr. Betteridge meet Mr. Occam.

* "As The Good Ship Tesla Sells Some Equity, A Reminder That Elon Musk Has Exit Options Not Available To The Rest Of Us (TSLA)"