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What Do the Financial Problems of Tesla’s CEO Mean For the Company?

Gina-Marie Cheeseman
| Tuesday June 1st, 2010 | 7 Comments

“About four months ago, I ran out of cash,” wrote Tesla Motors CEO Elon Musk in a court filing dated February 23, reports VentureBeat. According to documents filed in his divorce case, from ex-wife Justine Musk, he reportedly made $9,551,753 in 2008 and an average of $17.2 million a year from 2005 to 2008. His ex-wife is “seeking a sizable chunk of Musk’s holdings” and is asking the court to nullify her post-nuptial agreement with Musk, which she signed in March 2000.

Tesla is paying Musk to use his private airplane for company trips, according to an IPO filing with the Securities & Exchange Commission (SEC) dated January 29, 2010. An amended IPO filing on March 29 includes justification for paying for Musk to use his own jet. The filing justifies reimbursing Musk by stating that he needs to travel frequently, and commercial flights are not always available. The filing also states that Musk  is reimbursed for less than half the operating costs of the jet, and only takes a $1 salary. The company paid $250,000 in 2009 and $110,000 in this year’s first quarter for Musk to use his “private airplane.”

The March 29 filing states that during the first five years of Tesla’s existence, Musk “fully paid for these expenses himself at a cumulative cost in excess of $1 million and has not sought reimbursement.” Tesla’s board members approved paying part of the operating expenses for Musk’s plane “staring in mid-2009” after the Blackstar investment. The reason given is that “Daimler required that he commit considerable additional time to Tesla for an extended period.”

In an amended May 27 IPO filing, Tesla again defends paying for Musk to fly his own jet:

By paying only the variable expenses of Mr. Musk’s private airplane, consistent with the reimbursement policy in place, we will recognize a cost saving as compared to the customary practice for an initial public offering road show, in which an issuer charters a private airplane and pays a much higher rate that implicitly includes the fixed costs as well.

The problem for Tesla is that Musk “ is the lead investor and chief product architect, as well as CEO,” as VentureBeat puts it. Musk still owns about a third of the company, some 81 million shares out of approximately 250 million. Based on Tesla’s filing on January 29, the company “incurred a net loss of approximately $55.7 million for the year ended December 31, 2009 and have incurred net losses of approximately $260.7 million from our inception through December 31, 2009.” The company believes, according to the filing, that it will “continue to incur operating and net losses each quarter until at least the time we begin significant deliveries of the Model S, which is not expected to occur until 2012, or possibly later.” However, Tesla admits that even if it is able to “successfully develop the Model S, there can be no assurance that it will be commercially successful.”

VentureBeat reports that the company “burned through $37 million in cash in the last three months of 2009,” based on Tesla’s May 27 filing. Venture Beat also reports that “Tesla slowed this burn rate in the first quarter of 2010 to $8.4 million, but only by drawing down part of a $465 million loan from the DOE, while reporting a net loss of $29.5 million.” However, VentureBeat points out that Toyota agreed to buy $50 million worth of shares “at the time of Tesla’s initial public offering,” but the company does not yet  “have access to that promised cash, and must pay $42 million to buy the NUMMI plant in Fremont, California, from a Toyota-General Motors joint venture.”

Will Musk’s financial problems affect Tesla? What do you think?


▼▼▼      7 Comments     ▼▼▼

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  • Frank Bompensiero

    The financial problems in and of themselves aren't necessarily the problem. The problem lies in the fact that Elon Musk (EM) is an Ego Maniac (EM). The kid got lucky on PayPal and concluded he was smart. He should have buried the money in the backyard and gone on a permanent vacation.

    His reckless spending (everything from his capital intensive 24-year old girlfriend (resulting in his capital intensive divorce) to his SpaceX folly) indicates that he isn't cut out to run a public company. He has neither the judgment nor the experience to act as CEO. Wall Street will punish the company and its investors ruthlessly if EM isn't pushed out of his private jet at 10,000 feet ASAP.

    • james

      Can we cut the flame fest? Telsa is right now a darling of the auto industry because of what Elon has done (love him or hate him). SpaceX? Not necessarily a “folly” now that Obama wants private industries to lead the space program. You scream about ego, but I much rather prefer an executive with a passion for alternative sustainable technologies who happens to have an ego, than an executive with a polished public persona who's company ravages the environment and ignores the costs to society for personal profit. Does it really matter if you wouldn't date the guy? What matters is the company, the product, and the impact it has on our society, and there are few companies moving us in a more positive direction right now.

  • Traci Guynup

    I can't say it much better than Frank. If we are closely examining BP, America should definitely take a long look at Tesla. Why do we need to develop race cars? If we are all partially responsible for the Gulf Oil Disaster, then why are we not pursuing better options for mass transit? We need to take a look at alternatives to trucking, bussing, and shipping. The Earth does not need more Indianapolis 500s, Monster trucks, Hummers and ATVs.

    • james

      What are you talking about? The government money was for the development of the Model S ($50K range) and the Model T ($30K range), both sedans that run on 100% electricity.

      I also want to know what alternative to trucking, bussing, and shipping you're referring to. Do you have a teleportation device? We need to focus on realistic alternatives to oil, and electric vehicles are just that alternative. The government needs to be doing everything it can to get EVs out in huge numbers, and Obama needs to fund his mandate for 1 million EVs by 2015.

  • Peter Rabbit

    Ran out of cash right in the middle of divorce proceedings…how convenient! I believe strongly in Tesla's vision and in the push for a shift to electric cars. However I have a sense that Elon will try to “win” the divorce (and any lawsuits filed against him) at all costs, regardless of the risks.

  • Peter Rabbit

    Ran out of cash right in the middle of divorce proceedings…how convenient! I believe strongly in Tesla's vision and in the push for a shift to electric cars. However I have a sense that Elon will try to “win” the divorce (and any lawsuits filed against him) at all costs, regardless of the risks.

  • RussellL

    On 12/3/12 Elon tweeted:

    “…Tesla was narrowly cas flow positive last week. Continued improvement expected through year end.”

    And then on 12/6/12 SpaceX won 2 contracts from the US Air Force to launch two satellites, one in late 2014 and one in mid 2015.

    The awards are part of an effort by the military to stimulate competition in the Evolved Expendable Launch Vehicle (EELV) program by supporting new entrants like SpaceX with awards for lower-priority missions.