How Elon Musk Used A Broken Marketplace To Play Us All

Tyler Durden's picture

Submitted by Soren K via MarketSlant.com,

Government subsidized technology is developed and Musk cashed in. Then cashed out. Then left stock holders holding the bag. It's like the Simpsons monorail episode...

In light of Tesla's earnings miss and Musk's admission of the firm's cash crunch just a month after Tesla announced it would bail out its weaker cousin, Solar City,  We ask you: how can a visionary such as he not see 30 days down the road? 

Here is a repost from our observations just 3 weeks ago on the likelihood of fraud at Tesla and Musk's other companies. 

Summary

Businesses cannot stand on their own feet without some form of Government aid. Whether that be in QE form or direct subisidies, the marketplace is no longer a "Free Market". Tesla and its dependents are an example of what is wrong with our capital market system.

Elon Musk is using the Government as a backstop for his businesses. He is depending on easy money to support companies that would otherwise fail from  debt. In short, the business structure of Tesla, SolarCity and SpaceX is a microcosm of the problem with our current capital markets.

- By Soren K. with contributions by Doug and Dinsdale Piranha and the CFO of a prominent hedge fund that has no position in the stock.

The Business of Crony Capitalism

Overview

Elon Musk has controlling stakes in 3 companies: Tesla, SolarCity, and SpaceX. Tesla and SolarCity are publicly traded. SpaceX is not publicly traded. This document's focus will be soley on the financial interdependencies of the companies. There are also incestuous business practices, and nepotism within the leadership of each company Musk controls.

We hope to illustrate simply and clearly the immense risk the  US government has taken with your money by giving it to a man who is essentially telling them what they want to hear while picking their pockets doing it.

Background

Tesla borrowed Venture Capital (VC) money from Elon Musk at VC rates. It borrowed VC money from taxpayers at non-VC rates

Tesla needed $500MM to get started in 2008. The US Government lent $465MM to Tesla at 3% interest under its push for Green Energy. Elon Musk lent the company $38MM at10% interest plus stock options. Here are the profits on those loans:

  • Elon Musk’s $38MM generates profit of $1.4BB, or 3,600% ROR- a VC payout
  • Taxpayers’ $465MM- generates profits of $12MM or 2.6%ROR- not a VC Payout

Taxpayers took VC risk without VC returns. The table is set for Elon to arbitrage the Government’s largesse much more. All in, the US Government committed about $4.9BB to finance Tesla’s operations

 

Musk Gets More Government Money

Using Government loans, Elon Musk creates 2 more companies; SolarCity and SpaceX. He now controls three government sponsored clean energy companies financed by taxpayer money.

The Companies

Tesla- makes electrical cars, develops technology for same. Loses money hoping for future profits

  • Loans money to SolarCity via its own stock
  • Borrowed  $465MM from Gov’t  at 3% and $38MM from Elon Musk at 10% plus stock options
  • Does not make money

SolarCity- makes and leases solar panels to homeowners. Loses money hoping for a back-end profit

  • Borrows money from Tesla
  • Borrows Money from SpaceX
  • Does not make money

SpaceX- will provide future service related to satellite launches. It makes money via prepaying customers

  • Loans money to SolarCity at approx. 10%
  • Borrows Money from  Government at approx. 4%
  • Makes money

Elon Musk now has 2 companies that do not make money. He has 1 that makes money from prepayments for services yet to be given.  All are financed by the US taxpayer at ridiculously below market rates. The table is now set for financing using inflated currency (sound familiar?) in the form of Tesla stock to get real cash in Mr. Musk's pockets.

 

The SolarCity Problem

Despite gov’t subsidies SolarCity still needs money to operate. SpaceX, while not profitable, has cash on hand form prepayments and Gov’t subsidies. Tesla, also not profitable, has no cash, but has highly (over)valued stock it can use as currency or loans for cash. Elon Musk owns major stakes in all 3 companies.

  1. SolarCity borrows  $165MM from SpaceX at market rates of about 4.4%
  2. SpaceX uses govt loans (2.0%?) to lend $165MM SolarCity
  3. SolarCity borrows another $90MM from SpaceX to avoid defaulting on first SpaceX loan

Yet SolarCity is still in trouble. It needs cash. Government subsidies are on hold. Its stock price is sinking and  it is in danger of defaulting on existing loans. Enter Tesla and Elon Musk

 

Tesla and Musk Bail Out SolarCity

Elon Musk and Tesla loan stock to SolarCity. SolarCity margins that stock for cash so they can make their loan payments to SpaceX.

  • Elon Musk used money loaned to him at 2.6% to generate 3,600% from Tesla stock sales
  • SolarCity was failing. If It failed, it likely would take SpaceX with it.
  • Elon Musk and Tesla used his govt sponsored inflated currency (Tesla stock) to prop up a failing SolarCity.

 

Not Enough

But that was not enough money. Tesla then makes a bid outright to buy all of SolarCity at above market valuations using Tesla stock. This essentially ensures a payout to himself and his partners at SolarCity while eliminating the SpaceX debt. Now it all depends on the price of Tesla stock. And Tesla has been punished by the market since the announcement.

Finally there is the loaned stock by Elon Musk to SolarCity. If Tesla drops enough for amargin call, it is all over in our opinion. what we have not covered includes the valuation offerred to buy SolarCity. Public shareholders of Tesla should be incensed atthe price being paid for SolarCity. Meanwhile, much of SolarCity's stock is still in the hands of Musk and family members.

If Tesla stock drops enough, it could take out potentially all 3 companies. Essentialy Musk is at the center of an American Keiretsu.

 

Conclusion

The interdependent relationships between the 3 government subsidized companies Elon Musk owns or has a controlling stake in are an abuse ofgovernment largesse towards Green Energy. Taxpayer money is being used at market risk without market returns to prop up 3 unprofitable companies. While we do not debate the technology Tesla has developed, we question the leverage with which these companies are able to operate under. If something were to go wrong, we feel an eventual Solyndra Greenmail situation would occur. Tesla would be TBTF to the Government and have to pay. We feel Elon Musk knows this and is will play that card if need be.

Not Discussed: Business practices, Neoptism, valuations used for buyouts and other in depth proofs of what we are merely glossing over for now.

In a Graph

Here is a simple flowchart of the cash-flow situation between the 3 companies and the Goverment. None of these companies make money. Only SpaceX has positive cash flow from prepaid "orders". The "currency" that supports it all is the Tesla's stock Price

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Hohum's picture

Young Elon has learned the ways of the American crony capitalist very well.  Wax on, wax off.

Jim Sampson's picture

Didn't play me, I always knew he was a piece of shit.

Luck Dragon's picture

"While we do not debate the technology Tesla has developed"

 

Which is exactly what??

 

Some shitty computer algorithms? For a cost of what, 5 billion USD? Let's look at what he's ACTUALLY created and what that cost. Would a free market ever support that? 

 

A friend defending government and NASA - "We need government, NASA gave us plastic". . . Okay, at billions of dollars for some shitty endocrine disrupting plastic, that's GOOD? Food dishes used to be made from GLASS, completely inert. Tools were made out of METAL, lasted a lifetime. Now it's all SHITTY PLASTIC. THANKS NASA.

The Merovingian's picture

Musk: a greasy secretion with a powerful odor.

Yep, that's him

WordSmith2013's picture

Musk ventures have been heavily subsidized by the US Gov't forever!
He's either CIA, DARPA, DIA or all 3.

 

http://stateofthenation2012.com/?p=47934

 

There is something very wrong with the massive taxpayer funding of Elon Musk’s various enterprises
DontGive's picture

Don't forget they also blessed everyone with a moon landing!

Anopheles's picture

Tesla uses as many generic components as possible.  Their battery packs?  Not high tech at all.  They use 7000 of the most common 18650 lithium cells. 

Exactly the same type found in every cordless power tool (18 volt uses 5 cells or 10 cells for high capactiy packs).  That battery is manufactured by dozens of different companies.  It's like making a battery pack with 7000 AA batteries (an 18650 cell is a bit bigger, but not much.  It's 18mm diameter by 65mm long)

Sokhmate's picture

Which is exactly what??

 

A dynamo with cogs, something I think I might have invented in the 80's

espirit's picture

2 + 2 = Hitlarys claim for a solar panel on every home.

 

Not lookin' that great there Elon.

Slurm's picture

His fall will be as spectacular as his many SpaceX "Overpressure events".

DownWithYogaPants's picture

Just a gas bubble.  A little GasX for his SpaceX should do the trick.

KnuckleDragger-X's picture

He has the ear of the 'right' people. Nothing in the world is better than having a free pass to the whorehouse......

yovatti's picture
yovatti (not verified) Hohum Sep 6, 2016 3:09 PM

The Russian propaganda machine hates Musk, because he's going to destroy theis Soyux launch business.

Silky Johnson's picture

Destroy? You mean physically from the shrapnel of the dog shit he is launching into orbit?

Cursive's picture

Learned?  His masters gave him the playbook.

buzzsaw99's picture

Isn't this an indictment of our entire American society? Well, you can do what you want to us, but we're not going to sit here and listen to you bad mouth the United States of America! Gentlemen!

https://www.youtube.com/watch?v=38ETQ1RYa_Q

ATM's picture

Reminds me of Conseco years ago. 

omniversling's picture

Pretty convincing analysis on what is totally wrong with HyperLoop, and why it can't possible work (other than as a mirage to raise $$s):

The Hyperloop: BUSTED!
https://www.youtube.com/watch?v=RNFesa01llk

Another Musk fraud like SpacSex landing a 'rocket' backwards on a barge, complete with what looks like cement dust on the platform to simulate...I don't know, an 'action reality effect' or something? How exactly does all the HyperLoop 'propulsion force (air? vacuum? cant be both) get THROUGH the capsule? You know from the front to the back. And what about the NOISE of that thing? The motors even, inside a steel tube? The cylonic speed of rushing air...

The whole thing is fantasy, to distract us from the monumental fraud that is taking place around us in economics, politics, and even science. Still pedaling the myth that humans can build and operate ultra complex systems that don't fail and take down the entire biosphere with them. Like Fukushima, Deepwater Horizon, and GeoEngineering. Even simple human processes like making plastic has resulted in the comprehensive contamination of the oceans. Atmospheric and weather modification is destroying the hydrological cycle.

Human ego, greed, arrogance, fraud and hubris have triumphed over long-term sustainable viability. Bring on the transhumanists and robots...long live robots...

Nature (what ever remnants are left of it when humanity finally capitulates to the the self-destruction that is now locked in), bats last...too bad we failed the Intelligence test. Again.

SpaceSex reverse landing Hoax (Thunderbirds are GO!):

https://www.youtube.com/watch?v=WLE-ocDoXrs
kuwa mzuri's picture

You're so right about the hoaxes and Muskmelon, but we have to hope you're wrong about how the arrogance of some and unwitting duplicity of many others have condemned us all.  

I believe there to be coordinated evil on a grand scale in service to the few, but await the day the arrogant abusers either wake up in horror at their atrocities and scramble to undo as much damage to their victims and our planet as is possible, or fall out of the sky in their disintegrating bling jets, sucking in barium particulates from their custom toxic contrails on their way down.

We can hope and then we can help hope along.

DeeZ_nutZ's picture

elon is the shiznit, the rest of us are sheep...  *a round of applause*

ZippyBananaPants's picture

Who is Musk voting for?  Hills or Trumpster

Buckaroo Banzai's picture

You even have to ask? Hillary, obviously; the candidate of graft and corruption will do anything and everything to keep the game rigged.

HenryKissingerChurchill's picture

Trump would fire him a second after checking his forever red numbers

Sofa King's picture

I celebrate his ability to screw Each and Every Taxpayer that contiue to support the Vipers in goverment.

pound the vix's picture

I guess Obama was correct.  He didn't build that!

brada1013567's picture

There is hope, Morgan Freeman owns Tesla!

cognitive dissident's picture

what'd I say?

MONORAIL!

what's it called?

https://www.youtube.com/watch?v=ZDOI0cq6GZM

what a shame that hucksters like Elon still walk the earth while real genius like Phil Hartman continue to push up daisies

 

Blackfox's picture

(((Elon Musk)))

booboo's picture

That last fuckup at the Cape cost the taxpayers a chunk and the Israeli Sat company a buyout as it was predicated on a successful launch. You can get away with a lot but don't fuck up the tribes plan.

hooligan2009's picture

according to this elon musk engages in the criminal activity either racketeering, pyrmaid selling or fraud - he has been aided and abetted by Obama government officials that are also guilty of the same and no doubt have been paid (tax payer) money

 

if elon musk is a criminal,m why aren't the goverment officials backing his schemes being charged with crimes against the american people? typical of socialists - nepotism runs very deep

 

which means that paypal is based on ... you decide

researchfix's picture

"if elon musk is a criminal,m why aren't the goverment officials backing his schemes being charged with crimes against the american people? typical of socialists - nepotism runs very deep"

Easy question. Because he is "our criminal"

 

de3de8's picture

Thank you for asking what I was thinking. Knew someone in this thread eventually would. Please someone get this out in the public eye. Even the Sheeple, at least some should be outraged.

HenryKissingerChurchill's picture

the sheeple believe Obama is creating jobs business and growth by giving billions to Musk

because otherwise the nazi Germans and Japanese will own the car technology AGAIN, instead of our national Tesla geniuses

Cursive's picture

Businesses cannot stand on their own feet without some form of Government aid. Whether that be in QE form or direct subisidies, the marketplace is no longer a "Free Market". Tesla and its dependents are an example of what is wrong with our capital market system.

 

MarketSlant.com, if it is possible to have a crush on a website, then, yes, I have it.

youngman's picture

Wait until that huge battery plant opens....then watch the cash drain out...and the cost of lithium goes to the moon...the battery in those cars will cost $100,000 a piece soon

GeoffreyT's picture

You don't realise just how abundant Lithium is (or that if prices for lithium rose, it would be economical to recover lithium from discarded batteries - very little of the Li in a battery is consumed when the battery is discarded).

 

Don't mistake a short-run, supply-constrained oligopoly market (like the current global market for battery-grade lithium) with a genuine shortage or rarity of the metal.

Yes, there is some spec froth in Lithium stocks, but that's the result of people diving into illiquid capital markets based on a half-understood idea that Lithium is important in batteries. And once the half-wits from Bloomberg and Reuters were encouraged to get excited about it, all bets are even more off-er. (Journalists know fuck-all about anything, and simply respond like chooks when someone with a vested interest chucks some chook-pellets near them.)

 

Let's do some sums.

27k tonnes of battery-grade Li will make the batteries for 500,000 cars - Tesla's (over-amped) target production. Total value of the Li at current, artificially-high prices: $540m.

That's 16% of global battery-grade output.

In other words, the entire global battery-grade Li market is under $3.5bn a year. It's fuck-all - GM was spending that much on retiree health benefits in 2003.

 

And as I mentioned, the current situation is an artificially supply-constrained market: the 4 main producers are running at less than 60% capacity; Li is not remotely rare; and the tech to refine it to battery standard is not expensive... so the threat of new entrants will keep prices down. Such a situation cannot persist in the long run.

Do the global supply/demand sums with plausible levels of electric vehicle growth, and the result is always falling Li prices.

youngman's picture

Solandra donated huge amounts to the Democrats...wonder how much Elon donates

Neochrome's picture

Why the author didn't list subsidies for SolarCity?

http://www.latimes.com/business/la-fi-hy-musk-subsidies-20150531-story.html

New York state is spending $750 million to build a solar panel factory in Buffalo for SolarCity. The San Mateo, Calif.-based company will lease the plant for $1 a year. It will not pay property taxes for a decade, which would otherwise total an estimated $260 million.

The federal government also provides grants or tax credits to cover 30% of the cost of solar installations. SolarCity reported receiving $497.5 million in direct grants from the Treasury Department.

That figure, however, doesn't capture the full value of the government's support.

Since 2006, SolarCity has installed systems for 217,595 customers, according to a corporate filing. If each paid the current average price for a residential system — about $23,000, according to the Union of Concerned Scientists — the cost to the government would total about $1.5 billion, which would include the Treasury grants paid to SolarCity

Robert Trip's picture

Elon is smarter than us.

Learn from it and stop crying and making excuses and pointing fingers like a bunch of panty-waist liberals.

Itchy and Scratchy's picture

Yeah sure...because he's burning your money and not his! 

Consuelo's picture

 

 

'$$$Gracias' indeed...

 

 

HopefulCynic's picture

What can I say I like the guy, he has vision, much more so than most people out there, sadly not that realisitc, if he plays his cards the way he does, that is his decision, he has to survive and until recently a lot of people and big fat cats have been against him succeeding. 

Itchy and Scratchy's picture

He has 20/20 for the tax payers money! 

cognitive dissident's picture

What can I say? You're a fuckin jackass and moron...

Berspankme's picture

He's a con man with an idea that fits the current agenda

Baron von Bud's picture

The government has turned the economy into a series of rackets. Musk is on the inside racket track. It's an easy way to get rich. What I'd really like to see is the options activity of members of congress on these government subsidy dependent companies. I mean, if you know who the favorite son is to receive the cash then ride the scam with inside information. That's what they're all doing in DC. Cleaning up on taxpayer losses.

 

Father ¢hristmas's picture

This guy got with some PR firms, pretended to be Tony Stark, told libtard boomers about green energy and libtard millennials how he was gonna take their useless ass to Mars, and abracadabra lol.

Also: "The Treasury department’s Bureau of Investments oversees investment of more than $60 billion in the State of Michigan Retirement Systems. That includes four systems: the Michigan Public School Employees’ Retirement System, Michigan State Employees’ Retirement System, Michigan State Police Retirement System and Michigan Judges Retirement System.

The retirement funds owned 104,821 shares of Tesla as of March 30. By the end of June they had 339,623 shares worth $72 million, according to U.S. Securities and Exchange Commission filings. That means that as of June 30, Michigan retirees owned more Tesla stock than even the Swiss National Bank, which according to its latest 13-F owned "only" $59 million in shares of the car maker."

So who in the Michigan Treasury Dept.'s Bureau of Investments got envelopes and vacations to Palm Springs and Boca from Elon to approve this fuxation? *chuckle*