â€œHubris, arrogance, is just one step ahead of loss of integrity.â€ â€“ Charles Koch
Earlier this week, Tesla CEO Elon Musk called his proposed takeover of SolarCity a â€œno-brainerâ€ that could ultimately create a combined solar, battery and electric car powerhouse with a record $1 trillion market valuation.
Musk added that he does not expect the deal to create â€œadditional financial risk for Teslaâ€ nor impact the Model 3â€™s aggressive production ramp. He also said that it was not motivated by the solar companyâ€™s financial troubles, and that he expects SolarCity to turn cash-flow positive in three to six months.
Of course, another possibility is that Musk is simply doing what heâ€™s done countless times before: selling investors a bill of goods. To be more specific, presenting some wild, overblown vision of the future so a little bad news in the near-term seems small by comparison. Even his detractors will admit that he excels at that like nobody else.
By that theory (this is entirely conjecture on my part, mind you), the idea probably started as a bailout of the flailing solar company where Musk is chairman and 22% owner and its cofounders, Peter and Lyndon Rive, are his first cousins. Then the lightbulb went off, the wild vision materialized and all that was left to do was sell it.
A cynic might wonder if Musk just makes it up as he goes or actually drinks his own Kool-Aid, but I would argue thatâ€™s neither here nor there. I wouldnâ€™t be the least bit surprised if some part of him actually believes that what heâ€™s selling is plausible. In any case, I firmly believe thereâ€™s a pretty good chance that heâ€™s either lying, delusional or both.
Not that thatâ€™s unusual for a man in Muskâ€™s position. As Iâ€™ve said many times before, the only difference between a visionary and a lunatic is that, in hindsight, the visionary turned out to be right. Besides, everybody lies, and as you surely know by now, business and political leaders are certainly no exception to that rule.
Just look at the facts; theyâ€™re remarkably straightforward:
SolarCity is desperately trying to stay afloat in shark-infested competitive waters. Itâ€™s practically drowning in $2.6 billion of debt and will need to burn through at least another $400 million to fund operations next year. Its stock is sinking fast, and so will the company if somebody with deep pockets doesnâ€™t throw it a great big life preserver.
Meanwhile, Muskâ€™s other company â€“ you know, the boutique electric car-maker for rich people thatâ€™s intent on world domination â€“ isnâ€™t in much better shape. Tesla is already straddled with $2.5 billion of its own debt and sold $1.7 billion of shares in May to fuel its planned expansion. But thatâ€™s not going to be nearly enough to fund its battery Gigafactory and ramp from 50,000 cars in 2015 to 500,000 by 2018.
Now the Silicon Valley miracle maker is supposed to take on more debt, cash burn and management distraction from this crazy acquisition. Not to mention that investors are going to have to pony up another $2.8 billion for the all-stock deal. No wonder Teslaâ€™s shareholders responded with a resounding â€œHell no,â€ sending the stock down nearly 10.5% yesterday.
Youâ€™ve got to wonder whatâ€™s next? When this crazy scheme begins to unravel, what does Musk have left up his sleeve to dazzle his faithful fanatical followers? Wait, I know. SpaceX will buy Tesla and offshore manufacturing to Mars, where the gravity is so low that everything is lighter and labor costs are rock bottom. That will solve everything.
Look, donâ€™t get me wrong. I know that Musk has done some pretty cool stuff that wows a lot of people, especially the Silicon Valley elites who can actually afford six-figure luxury cars and, of course, the good folks at NASA. But mark my words, this is starting to look suspiciously like a Bernie Ebbers WorldCom house of cards in the making.
Even if you are drinking the Kool-Aid, try to remember one thing: the odds that a SolarCity acquisition drags Tesla down from $29 billion to zero are way higher than the odds that it helps to create the worldâ€™s first $1 trillion mega-company.