The Space Reviewin association with SpaceNews

Kevin Stanley (seated) about to take Sam Dinkin on a Tesla test drive in Austin, Texas. (credit: L. A. Baker)

Elon’s elan

Bookmark and Share

Back on September 13, 2013, Elon Musk was tracked by Forbes as having his wealth triple from an estimated net worth of $2.4 billion when The Space Review checked in on him last year (see “Can Elon Musk retire on Mars in 2023?”, The Space Review, February 11, 2013) to $6.7 billion in the 2013 Forbes 400 list of the wealthiest Americans. Since that time, Tesla stock (TSLA on NASDAQ) has risen from $167 to $210 per share, growing the value of his reported 32% stake in Tesla as founder from $6.5 billion to $8.2 billion. It’s a bit surprising that Forbes implicitly values SpaceX, Solar City, and Musk’s other holdings at so little.

Bloomberg puts Musk’s wealth at $9.1 billion as of January 29, 2014, when his reported 32% stake at $175/share would have a value of $6.9 billion. Using Bloomberg’s implicit estimate of Musk’s other assets, his total net worth is about $10.4 billion as of publication.

SpaceX’s distruptive innovation has led it to a price point that is difficult for others to match, and has also achieved advances in quality; the same is true for Tesla.

This week there were rumors of Tesla being acquired by Apple. This analysis may be persuasive: a joint venture for battery manufacturing is more likely than a merger. Taking construction of parts in house and building them better than former suppliers is a touchstone of SpaceX that it is not surprising to see in Tesla (see “Interview: a tour of SpaceX (part 3)”, The Space Review, March 13, 2006).

Jeff Bezos is worth $27 billion but Blue Origin is nowhere near as open as SpaceX in its plans for solar-system domination. Eyes remain on Elon Musk to become the man who sold Mars.

Disrupting industry after industry

SpaceX’s distruptive innovation has led it to a price point that is difficult for others to match. SpaceX has also achieved advances in quality. Some of those same price and quality innovations are present at Tesla.

Another touchstone of SpaceX is 3D printing by subtractive manufacture that the Space Review witnessed in its tour of SpaceX in 2006, but 3D printing is still relevant to the company as this recent job listing attests.

This touchstone is also present at Tesla. Compare this picture of a Prius door with this picture of a Tesla S door. The Tesla S has fewer metal seams, with the structural strength in the car frame rather than the door frame. Having fewer seams and welds requires more advanced manufacturing techniques such as subtractive manufacturing. This door detail element was insisted on by Musk himself, according to Kevin Stanley of Tesla.

Tesla repositioned the battery from using cargo space to being part of the frame itself. With the battery performing an important structural chore, the Tesla is able to get unprecedented space inside its vehicle. There is 1.8 cubic meters of cargo space in a Tesla S compared to 0.6 cubic meters of cargo space in a Prius.

The Model S and Prius are in separate categories with one a luxury sedan and the other a compact car. That the Model S is in a different category speaks to the genius of Tesla S product positioning: an electric car that is roomy, powerful, and cool not just because it’s green.

Tesla is not content to simply disrupt the product market, but is also disrupting the sales model. Tesla sales are direct from Tesla without a dealer network. This innovation in the computer market led Dell to peak at a $100 billion market capitalization in 2005. Needing to wait for an “event” in Austin to take a test drive is annoying, but if it avoids a dealer markup, then it might be worth the annoyance. Also like Dell, Tesla is building to order rather than stocking standard cars.

In addition to the launch and car industries, Musk also revolutionized online payment transactions; one can put down a down payment for a Tesla via (Elon-Musk founded) PayPal. The shift from gasoline to electric energy for ground transportation could also disrupt both the generation and distribution of electric power and the petroleum industry. Hopefully the rocket industry will start to consume more rocket fuel to make up the difference in demand for kerosene.

Too cheap to meter

In economics, when an input becomes cheaper, more of it should be used. In this case, engine power and interior space has become cheaper in an electric car so Model S vastly expands both while still sipping (more) cheaper energy. The Department of Energy reports the energy equivalent of gasoline vs. electric energy has a price ratio of gasoline to electric of 2.75.

The electric energy is being given away to Tesla owners at its network of “supercharging” stations. This evokes an innovation like downloading music on demand for free that leverages the value of an iPhone for Apple customers. Tesla owners get a nice decrease in cost of ownership.

As Tesla’s stock price rises, the number of SpaceX flights that Musk can personally pay for at retail prices has gone up 330% since last year.

The US consumption of gasoline in 2012 was about 500 billion liters. At an average US price of $0.88/liter, that’s $440 billion spent on gasoline per year, or about $1,400 per person per year. If the energy prices hold as electric vehicles are adopted (which is not that heroic an assumption if adoption does not accelerate too quickly), then consumption can be cut to about $500/year. That level of savings is equivalent to about a 2% increase in GDP per capita. At the rate of about $1.50/day per person, electricity to run cars may become too cheap to meter. Advertiser supported free electric energy may be in the future of more electric-car customers than just Tesla owners.

Stock price escape velocity

Given the $900/year reduction in operating costs ($1,400/year if you live near a supercharging station) and the $7,500/car federal subsidy, there is a strong economic incentive for adoption of electric cars. If Musk innovates in design, manufacturing, and business models, he may be able to do so at a profit margin not seen in decades in the automobile industry.

The profitability inherent in a subsidized product ($7,500 federal subsidy and many state subsidies) that is less expensive to operate, manufactured in a low-cost manner, and positioned with a slate of features superior to comparable gasoline cars may lead to a revolutionary shift from gasoline-powered vehicles to electric-powered vehicles.

New car sales are tracked (ironically) by the National Automobile Dealers Association. There were $676 billion in new car sales in the US in 2013. Globally, the industry is now approximately $2 trillion per year. If Tesla leads the way and becomes the next Toyota ($215 billion in fiscal year 2013 annual sales), capturing about 10% of the market with a profit margin like Apple’s of 22.7%, then Tesla can rise from $25 billion market cap to become higher than Apple’s $469 billion market cap, given that Apple’s revenues are only $170 billion per year. The expected growth in the global car ownership will likely increase the total number of cars from 1 to 2 billion in due course. If the stars align, Tesla may be the first company with a $1 trillion market capitalization.

Of course, Musk himself will be the first to tell everyone that he must execute flawlessly for a long time to justify even the current $25 billion market capitalization based on $1.7 billion in annual sales. Sales will have to double 7 times to get from $1.7 billion to $215 billion. But Apple was founded only 38 years ago.

Implications for the space settlement narrative

As Tesla’s stock price rises, the number of SpaceX flights that Musk can personally pay for at retail prices has gone up 330% since last year. With that kind of increasing war chest, Musk is more and more likely to be able to make the Falcon Heavy reusable and possibly introduce his “Mars Colonial Transporter” system that would be even bigger than the Falcon Heavy. Musk continues to beat the drum for Mars settlement, including recently hawking his rocket on CBS News. Musk’s SpaceX could play a big role in Mars settlement as has been repeatedly reported in The Space Review.

If Musk can get the price down by 90% for a Falcon Heavy payload of 13,200 kilograms to Mars, say to $750/kilograms, and Tesla stock crosses $500 per share, then he can spend his fortune throwing 35 million kilograms of payload at Mars, or the equivalent of the battleship Yamato like in the anime series Star Blazers first aired when Elon Musk turned three years old in 1974, two years before Apple was founded.

As the amount of throw weight to Mars that Musk’s personal wealth can pay for increases, the odds of his successfully being able to settle Mars in time for his retirement may increase. Tesla was founded in 2003. In 2041, 38 years after Tesla’s founding, Musk will turn 70 years old.