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Tesla’s Elon Musk: “I Ran Out of Cash” - 0bama's Space Savior on Financial Ropes
Venture Beat ^ | May 27, 2010 | Owen Thomas

Posted on 06/09/2010 10:35:26 PM PDT by anymouse

Tesla Motors CEO Elon Musk seems to have it all. The electric-car entrepreneur is the toast of Silicon Valley, Sacramento, and Tokyo after unveiling a plan to revive Toyota’s shuttered NUMMI plant last week. And deal-hungry Wall Street bankers are angling to take his company public. He’s even a Hollywood star, with a cameo in the hit Iron Man 2 movie, said to be based on his life story.

The one thing he doesn’t have, by his own admission, is money.

“About four months ago, I ran out of cash,” he wrote in a court filing dated Feb. 23, reviewed by VentureBeat. That’s a problem not just for him but for Tesla, where he is the lead investor and chief product architect, as well as CEO. Musk’s willingness to funnel his own cash into Tesla has for years sustained the faith of fellow investors and reassured would-be car buyers in 2008 when the company’s finances were in perilous shape.

According to the filing — part of his pending divorce case from sci-fi novelist Justine Musk — Elon Musk has been living off personal loans from friends since October 2009 and spending $200,000 a month while making far less. Musk confirmed this in an interview with VentureBeat.

Tesla, likewise, is dealing with its cash flow problems by borrowing money from a friendly source — the United States government, which has eagerly backed cleantech startups through a Department of Energy loan program. Tesla burned through $37 million in cash in the last three months of 2009, according to amended S-1 documents, filed with the Securities & Exchange Commission in preparation for its IPO. 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. Tesla’s sales were flat year-over-year in the first quarter, but declined precipitously in the U.S., according to a former Tesla executive.

Now, Toyota has agreed to buy $50 million in shares at the time of Tesla’s initial public offering — if it manages to go public before Dec. 31. But for now, the company doesn’t have access to that promised cash, and must pay $42 million to buy the NUMMI plant in Fremont, Calif., from a Toyota-General Motors joint venture.

Only one thing is certain: Tesla’s not getting more money from Musk.

Divorced from his fortune

Musk was Tesla’s first investor, and he kept the company afloat until recently through round after round of funding. After a Tesla employee leaked word in October 2008 to a reporter that the company was down to its last $9 million in cash, Musk promised to personally refund car buyers’ deposits if Tesla couldn’t deliver the vehicles — a promise he made in the pages of Car & Driver. At that time, those deposits — which Tesla calls “reservation payments” — were an important source of cash for the company.

And throughout Tesla’s history, Musk has used his entrepreneurial legend — Zip2, sold for $305 million to Compaq; PayPal, sold to eBay for $1.5 billion — to bolster his credibility as a technology executive. Musk’s personal take from Zip2 was a reported $22 million, much of which he invested in his next startup, PayPal, netting $160 million when eBay bought the online-payments startup. According to filings in his divorce trial, he had roughly $48 million in income from his investments between 2005 and 2008. But he sunk much of that money back into Tesla, as well as his other enterprises, the space-exploration concern SpaceX and solar panel finance startup SolarCity.

His finances were not always so strained. In other documents filed in the divorce case, Musk reportedly made $9,551,753 in 2008 and an average of $17.2 million a year from 2005 to 2008. As of Dec. 31, 2008, he also had extensive holdings in venture capital and private equity partnerships, ranging from Softbank Technology Ventures to Charles River Ventures to Clarium Capital. These partnerships, however, tend to be highly illiquid investments: It can take months to get out of them because you have to find a sophisticated buyer willing to bear the risks of a private sale.

As he ran low on cash, a contentious divorce — in which his ex-wife, Justine Musk, is seeking a sizable chunk of Musk’s holdings — caused him more financial problems. Justine Musk is asking a court to rip up a post-nuptial agreement she and Elon Musk signed in March 2000, which could in theory lead to much of his holdings being deemed community property. While there’s no telling how the case will turn out — it has already gone to appeal — more important is the protective order the court has slapped on Musk’s holdings in Tesla and his other illiquid assets. These include his stakes in private equity funds. He won’t be able to sell significant holdings without first getting permission from his ex-wife. And he has also been ordered by a court to continue paying her legal fees for the duration of the lengthy appeal process.

Refueling Tesla’s cash

Musk still owns roughly a third of Tesla — some 81 million shares out of approximately 250 million outstanding, according to the company’s filings. But keeping his ownership stake that high has come at a cost. In November 2007, in order to wield enough voting power to oust Tesla co-founder Martin Eberhard as CEO, he converted 8 million of his preferred shares into common shares. Two months later, Musk participated in a bridge loan to rebuff a separate effort by VantagePoint Venture Partners, a significant investor, to lead a deal that would have seriously diluted Musk’s control. VantagePoint partner Jim Marver left Tesla’s board as a result. From the perspective of Musk’s board allies, the move steadied the company at a time of significant employee turnover and potential loss of morale. (A VantagePoint spokesman declined to comment on Tesla board matters.)

The moves kept Musk in control of Tesla, but it also meant that his stake kept getting diluted in subsequent financing rounds. (Preferred shares often hold anti-dilution rights, but common shares typically do not.) And there were many subsequent rounds, including a highly dilutive convertible debt round in 2008. The first sign of trouble came last fall, when Musk, for the first time, did not participate in a financing round for Tesla.

The company has not disclosed Musk’s lack of financial liquidity or the potential implications of his divorce case in its filings — only that it is highly dependent on Musk’s services. Tesla has also begun reimbursing Musk for his private-jet flights, an expense he previously paid out of pocket. And while Tesla pays Musk only a minimal salary, its board awarded him 6.7 million stock options in December 2009 — the first time he has taken this kind of equity as compensation. It seems that Musk’s compensation from Tesla has increased since his personal finances became an issue.

A matter of disclosure

Should Tesla have mentioned all these facts in its S-1 filings? Eric Talley, a professor of law at Berkeley and co-director of the Berkeley Center for Law, Business, and the Economy, notes that Section 11 of the 1933 Securities Act requires that companies registering to go public not make materially misleading statements or omissions. But it’s far from clear what’s material in these cases, he said: “It’s not a black and white rule.”

A longtime observer of the company thinks the state of Musk’s finances is worth disclosing. “It’s up to the courts to decide, but this feels like material information,” said Dallas Kachan, managing partner of Kachan & Co., a cleantech research and analysis consultancy which follows Tesla.

The easiest way for Musk to get out of debt to his friends and settle accounts with his ex-wife would be for Tesla to go public and for Musk to unload much of his stake. After an IPO, his shares of Tesla would become a readily sold asset — except for the protective orders in his divorce case and a requirement of the DOE loan that Musk hold onto a certain percentage of his shareholdings until some time after units of Tesla’s forthcoming Model S start rolling off the NUMMI assembly line.

Asked to comment on whether Tesla’s disclosures so far have been adequate, John Heine, deputy director of the Security & Exchange Commission’s Office of Public Affairs, said his agency does not comment on companies with pending registrations to the press. Ricardo Reyes, a spokesman for Tesla Motors, has previously said the company had no plans to revise its filings with the SEC to reflect the possible impact of Musk’s divorce as a risk factor.

Should the company have said more? Perhaps, argues one observer.

“Transparency is thought to be a good thing for the operation of capital markets,” said Talley, the Berkeley law professor. “Bare compliance with SEC rules isn’t enough.”

Here are the documents detailing Musk’s finances:


TOPICS: Business/Economy; Technical; US: California
KEYWORDS: divorce; electric; musk; obama; space; spacex; tesla; toyota
And 0bama wants to pin the hopes of America's manned spaceflight on a guy who may be broke? Makes you wonder what other risky business that 0bama has got us into?
1 posted on 06/09/2010 10:35:27 PM PDT by anymouse
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To: KevinDavis

Space ping.


2 posted on 06/09/2010 10:36:50 PM PDT by anymouse (God didn't write this sitcom we call life, he's just the critic.)
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To: Willie Green; Red Badger

Electric car ping.


3 posted on 06/09/2010 10:37:32 PM PDT by anymouse (God didn't write this sitcom we call life, he's just the critic.)
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To: anymouse
Actually when they develop a viable electric car they have the potential of really kicking ass accelerating
4 posted on 06/09/2010 10:44:45 PM PDT by montanajoe
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To: anymouse

“Now, Toyota has agreed to buy $50 million in shares at the time of Tesla’s initial public offering — if it manages to go public before Dec. 31.”

Ahhh... now we see the cost of peace for the Obama Admin to get off Toyota’s back. This is called a bribe or really extortion.


5 posted on 06/09/2010 10:46:23 PM PDT by Frantzie (Democrats = Party of I*lam)
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To: anymouse
Can't build cars, can't run a business and wilt under pressure but yesireeee you can be absolutely sure they can run your healthcare.


6 posted on 06/09/2010 10:46:52 PM PDT by VeniVidiVici (What's black and white and red all over? - OBAMA)
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To: Nachum

Of possible interest.

Ping.


7 posted on 06/09/2010 10:48:26 PM PDT by Jet Jaguar (*)
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To: anymouse

didn’t this company get something like $300 million from the Stimulus Bill??


8 posted on 06/09/2010 10:51:24 PM PDT by GeronL (Political Correctness Kills)
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To: anymouse

Just think you can lease one of these cars for a mere $1,658.00 a month for 3 year contract! God I hope they sell a lot.. In this economic climate?


9 posted on 06/09/2010 11:03:32 PM PDT by tallyhoe
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I dunno, Tesla has always seemed to me to be the automotive equivalent of VaporWare.


10 posted on 06/09/2010 11:19:57 PM PDT by D-fendr (Deus non alligatur sacramentis sed nos alligamur.)
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To: anymouse

In other news the Falcon 9 rocket performed flawlessly. But I know that’s not material to your post. /s/


11 posted on 06/09/2010 11:26:20 PM PDT by saganite (What happens to taglines? Is there a termination date?)
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To: anymouse

One sure way to a small fortune is to start with a large fortune and invest in space enterprises.


12 posted on 06/09/2010 11:29:49 PM PDT by donmeaker (Invicto)
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To: anymouse
Why do I think Delorean when I hear Tesla?

I can't believe so called intelligent people are actually discussing Tesla as an viable business proposition.

It sounds like Mrs. Musk, like Tipper Gore, finally got tired of living a lie.

13 posted on 06/10/2010 12:54:44 AM PDT by lewislynn (What does the global warming movement and the Fairtax movement have in common? Disinformation)
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To: lewislynn

I feel bad that Tesla’s name is on this mess. These guys are third graders compared to Nicoli Tesla.

Tesla was a very great scientist. He put his money where his mouth was, and on occasion attempted to put J.P. Morgans money where Tesla’s mouth was. But you have to recognize him for who he was.

These Tesla motor people are jokes.


14 posted on 06/10/2010 1:40:28 AM PDT by pennyfarmer (Your Socialist Beat our Liberal)
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To: anymouse

What he means to say is that in a world of paper money, he can not find enough private suckers to willingly ‘invest’. So, like some Willie Green boondoggle, he flees to gooberment were they hand out money borrowed from the Chinese to be paid upon the backs of children.


15 posted on 06/10/2010 2:11:15 AM PDT by Leisler ("Over time they create a legal system that plunders and a moral code that glorifies it." F. Bastiat)
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To: anymouse; sully777; vigl; Cagey; Abathar; A. Patriot; B Knotts; getsoutalive; muleskinner; ...

Rest In Peace, old friend, your work is finished.....

If you want ON or OFF the DIESEL ”KnOcK” LIST just FReepmail me.....

This is a fairly HIGH VOLUME ping list on some days.....

16 posted on 06/10/2010 5:16:52 AM PDT by Red Badger (No, Obama's not the Antichrist. He's just some guy in the neighborhood.............)
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To: anymouse

The business viability of this outfit is clearly a matter of federal connections to the taxpayer teat, as well as to illusory cash-laden idealogues...rather than sound fundamentals.


17 posted on 06/10/2010 5:19:41 AM PDT by mo
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To: Leisler

Obama Justice is served....


18 posted on 06/10/2010 5:20:04 AM PDT by stephenjohnbanker (Support our troops....and vote out the RINOS!)
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To: montanajoe

“Actually when they develop a viable electric car they have the potential of really kicking ass accelerating”

The problem is there are no viable electric cars. There may be viable niches, but there is no mass market for this product that can stand alone without massive subsidy.


19 posted on 06/10/2010 5:21:12 AM PDT by RFEngineer
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To: anymouse
Meanwhile, in other news, I read yesterday in the July 2010 issue of Road and Track that Aptera has finalized the production version of their new 3 wheeled, 400 mpg, hybrid.
20 posted on 06/10/2010 5:22:32 AM PDT by Thermalseeker (Stop the insanity - Flush Congress!)
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To: Frantzie

“Ahhh... now we see the cost of peace for the Obama Admin to get off Toyota’s back.”

brilliant observation. Any doubt will be removed when they are forced to rehire UAW workers laid off by the NUMMI venture.


21 posted on 06/10/2010 5:23:43 AM PDT by RFEngineer
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To: anymouse

SpaceX is a good company producing results and products. Tesla appears to be a huge scam. The electric car is barely more realistic now than it was in the 80’s, especially high end ones for millionaires. Now that the economy’s finished for awhile, they should shut down Tesla, sell anything they can from it, and put everything into SpaceX.


22 posted on 06/10/2010 5:25:39 AM PDT by Tolsti2
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To: pennyfarmer
Tesla was a very great scientist.

Yep and Tesla understood how and why his various devices worked. Tesla was way, way ahead of his time and rarely ever gets the credit he deserves. I watched Empire of the Air a few nights ago, the Ken Burns movie about radio pioneers. I was stunned to see them give Lee De Forest ANY credit for inventing radio. Tesla won a patent dispute in the 1940's showing clearly it was him, not De Forest, who had discovered electromagnetic wave propagation, but Tesla's name was never mentioned once in Burns' film. De Forest was a con man, not an engineer. Lee De Forest, in one of his many patent suits, was put on the witness stand to testify about his supposed invention of the vacuum tube. In three and one half hours he could not explain how it worked. I can explain how a vacuum tube works to a five year old in less than one minute......

23 posted on 06/10/2010 5:31:56 AM PDT by Thermalseeker (Stop the insanity - Flush Congress!)
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To: Leisler
So, like some Willie Green boondoggle....

He-He! Old Willie is getting quite a reputation around here, isn't he?

24 posted on 06/10/2010 5:33:32 AM PDT by Thermalseeker (Stop the insanity - Flush Congress!)
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To: anymouse

Just to help this guy out, I forwarded him some emails I got from Nigeria.


25 posted on 06/10/2010 5:35:32 AM PDT by N. Theknow (Kennedys: Can't fly, can't ski, can't drive, can't skipper a boat, but they know what's best.)
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To: RFEngineer
You are right there are no viable electrics at this time or in the near term horizon but I would not go so far as to say there will never be viable electrics.... with kick ass acceleration...
26 posted on 06/10/2010 5:37:59 AM PDT by montanajoe
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To: saganite

Musk should divorce his wife, sell his stock in Tesla, and then focus solely on SpaceX.


27 posted on 06/10/2010 6:08:23 AM PDT by Jack Hydrazine (It's the end of the world as we know it and I feel fine!)
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To: pennyfarmer
"These Tesla motor people are jokes."

That's an unfair statement. I know a few good jokes.

28 posted on 06/10/2010 6:20:59 AM PDT by norwaypinesavage (Galileo: In science, the authority of a thousand is not worth the humble reasoning of one individual)
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To: montanajoe

“I would not go so far as to say there will never be viable electrics”

There are....in their niche. I’m not trying to be cute, but a golf cart is an example. Never very far from a charging station, a defined, understood transport requirement that doesn’t vary much, and never so far away that you can’t walk back to where you started.

Mass market electric cars will fail because they do not meet the “golf cart” test - so there will be a risk of exceeding the operational capabilities at all times.


29 posted on 06/10/2010 6:53:26 AM PDT by RFEngineer
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To: Thermalseeker; Leisler; Willie Green
He-He! Old Willie is getting quite a reputation around here, isn't he?
Back stabbing cowards alert.
30 posted on 06/10/2010 9:45:29 AM PDT by lewislynn (What does the global warming movement and the Fairtax movement have in common? Disinformation)
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To: lewislynn; Thermalseeker; Willie Green

Life is short and cheap on the Internet range. Few survive.


31 posted on 06/10/2010 10:34:45 AM PDT by Leisler ("Over time they create a legal system that plunders and a moral code that glorifies it." F. Bastiat)
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To: lewislynn
Back stabbing cowards alert.

Thank-you for the heads-up, lewis.

32 posted on 06/10/2010 10:56:35 AM PDT by Willie Green
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To: Leisler; Admin Moderator
Please refrain from ad hominem personal attacks, especially on threads on which I am not a participant.
33 posted on 06/10/2010 10:58:01 AM PDT by Willie Green
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To: lewislynn
Back stabbing cowards alert.

Excuse me, but where is the "backstabbing", cowboy?

I've confronted Willie on numerous occasions over his ridiculous mass transit schemes he posts here with cold hard FACTS to which he can only reply with his own even more ridiculous opinions. If there's a coward here, partner, it's you!
Creep.

34 posted on 06/10/2010 11:05:39 AM PDT by Thermalseeker (Stop the insanity - Flush Congress!)
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To: Thermalseeker
Excuse me, but where is the "backstabbing", cowboy?

"backstabbing" may not be the correct terminology,
but talking about me on a thread on which I am not a participant is a breach of forum etiquette.

35 posted on 06/10/2010 11:28:17 AM PDT by Willie Green
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To: RFEngineer
I'm thinking many of the densely populated Asian cities would work for the electrics. The Asians don't have the love affair with cars that Americans (including me) have. Don't expect them to be viable in places like Montana for a long time...
36 posted on 06/10/2010 11:23:33 PM PDT by montanajoe
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To: montanajoe

“I’m thinking many of the densely populated Asian cities would work for the electrics. “

And in fact in China they use electric powered bicycles quite a bit. It passes the “golfcart” criteria....you can pedal home if you need to.


37 posted on 06/11/2010 4:59:43 AM PDT by RFEngineer
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To: Willie Green
Funny how I was singled out by your creepo buddy when there were a half dozen people on that thread who commented about you, Willie. You bring the razzing comments on yourself with your ridiculous posts about the mass transit utopia you want when we have no money to build it and train travel is a proven failure in this country everywhere it's been tried. It's a bridge to the 19th century. Every one of the articles that I've seen that you've posted the comments run better than 90% against you. Therefore, I will stick to my original comment about you and I'll say it directly to your face. You are, without a doubt, developing quite a reputation here on Free Republic. You are becoming a laughing stock, a joke that is brought up every time a thread is posted about mass transit. The vast majority of responses to the articles you post are so diametrically opposed to your apparent beliefs in mass transit, and you do it so frequently, it makes me wonder if you really support the ideas in the articles you post or if you are just playing Devil's Advocate and secretly realize the folly.

As far as talking about you, that's a bit of a stretch, don't you think? I commented on another persons comment about you. Remember that "reputation" I said you were developing? I was not the originator and my comments were not derogatory in any way. I merely said you were developing quite a reputation here. I've had far worse comments with totally false accusations made about me on threads where I was not a participant and I could not care less because I know exactly who and what I am. Perhaps the reason you are so sensitive to it is insecurity on your part? If you're trolling for an apology, forget it. You ain't gonna get one.....

38 posted on 06/11/2010 6:35:18 AM PDT by Thermalseeker (Stop the insanity - Flush Congress!)
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