Why Tesla Agreed to Pay Elon Musk So Much

Tesla agreed to give Elon Musk what is potentially the richest executive compensation package ever.  I will give my (*gasp*) cynical reason why I think they did this.  I can show you in one chart (Tesla Model 3 production, from Bloomberg):

I would argue that Elon Musk is the only one in the world who can run a company with so many spectacular failures to meet commitments and still have investors and customers coming back and begging for more.  A relatively large percentage of Teslas get delivered with manufacturing defects and their customers sing their praises (even while circulating delivery defect checklists).  Tesla keeps publishing Model 3 production hockey sticks (apparently with a straight face) and consistently miss (each quarter pushing back the forecast one quarter) and investors line up to buy more stock.  Tesla runs one of the least transparent major public companies in this country (so much so that people like Bloomberg have to spend enormous efforts just to estimate what is going on there) and no one is fazed.  Competitors like Volvo and Volkswagon and Toyota and even GM have started to push their EV technology past Tesla and actually sell more EV's than does Tesla (with the gap widening) and investors still treat Tesla like it has a 10-year unassailable lead on competition.

All because Elon Musk can stand up at a venue like SXSW, wave his hands, spin big visions, and the stock goes up $3 billion the next day.   Exxon-Mobil has a long history of meeting promises, reveals its capital spending plans in great detail, but misses on earnings by a few cents and loses $40 billion in market cap.  GE lost over half its market value when investors got uncomfortable with their lack of transparency and their failures to meet commitments.   Not so at Tesla, in large part because Elon Musk is PT Barnum reincarnated, or given the SpaceX business, he is Delos D. Harriman made real.

Disclosure:  I don't currently have any position in TSLA but over the last 2 years I have sold short when it reaches around $350 (e.g. after Elon Musk speaks) and buy to cover around $305 (e.g. when actual operational or financial data is released).  Sort of the mirror image of BTFD.


  1. The_Big_W:

    The strange opposite of this (Tesla production of vehicles being abysmal for their industry) is that Space X is far in the lead of its competitors for successful rocket launches.

    In one realm Elon is far outperforming the industry, and in another he's pathetically bad. Its very strange.

    About 4-5 years ago Tesla missed the boat to partner with one of the big auto manufacturers and get his cars built on a proper assembly line. I don't think theres a way out outside of a Tesla stock crash.

    I just hope that doesn't harm Space X's very successful commercialization of rocketry.

  2. ErikTheRed:

    It makes perfect sense for them. People bitch about the "1%" CEO compensation (even though it's more like .001%), but my retort is that it's the "1% of the problem." Equity P/E ratios are so absurd now that the most profitable thing that many public companies can do is boost their stock, which means having a CEO that can woo the media and Wall Street and they'll pay what would in almost any other circumstance be absurd money for this.

  3. formyle of ceres:

    still make a loss on every car they make
    not a business its a cult
    going to ZERO

  4. deepishthinker:

    Elon Musk = unholy love child Thomas Edison and P.T. Barnum

    (Kudos for the Delos D. Harriman reference, got to love the classics)

  5. SamWah:

    And they DON'T make it up on volume!

  6. gr8econ:

    Rocket launches are one shots. Get a few in a row to go well and you are golden. Cars are mass production. Hundreds a day must be perfect. It's a very different business.

  7. John Moore:

    If it pays for his truly excellent rocket engineering, I can forgive a lot. His rent seeking with Tesla and Solar City definitely require forgiving - they have been eggregious.

  8. BGThree:

    I know it's physically impossible, but it almost seems like financial markets are allocating capital inefficiently.

  9. Daniel Barger:

    Elon Musk is the premiere con artist of our age. He puts PT Barnum to shame.

  10. Georg Thomas:

    He has a captured audience — a religious crowd, an irrational lot who do not look too carefully at the facts, not even cross-comparisonwise. Nothing out of the ordinary. Here in Germany, the entire population is into the Energiewende, a project whereby energy output has been increased from 120% of needed capacity to over 250% (with renewables needing permanent backup by "unclean" energy) just to give the religious crowd the illusion that the country is run on "clean" energy. The Tesla crowd does not understand that the car is running on coal, just like the Germans do not realise their grid is running on fossile fuels, it could not operate for a day without that backup.

  11. cc:

    I agree with performance on Space X but would like to see their costs.

  12. cc:

    Germany gets a lot of its wind power from Denmark. When there is a shortfall, it not only uses coal, but buys electricity from nuclear in France. There is no self-contained low fossil fuel energy market. Their electicity prices are 3X the US. By the way, with fracking my gas heating bill is 1/3 what it was 26 years ago.

  13. cc:

    PT barnum did in fact deliver good entertainment, even if some of his sales pitches were over the top. Customers were happy. Investors are going to lose their shirts at some point with Tesla. I give a 50/50 odds of it folding withing 12 months. What happens in a zombie business is that at some point you fall short on cash, even if temporarily, and then markets panic, no one will lend you any more, and boom you are gone.

  14. Peabody:

    I'm not sure if I'd rather invest with Elon Musk or Bernie Madoff.

  15. Joseph Hertzlinger:

    Did he inherit the Steve Jobs Reality Distortion Field?

  16. J.l. Melcher:

    Honestly, I read about Musk and hear, in memory, the conversation between Marcellius Washington and Professor Harold Hill, (a.k.a. "The Music Man")

    MW: What are you doing? Last I heard, you was selling steam-powered automobiles
    HH: Well I was!
    MW: So what happened?
    HH: Somebody actually invented one.

    It's a lot easier to sell the beautiful and impossible dream before anyone (Toyota, GM, or Ford) start selling an imperfect, deliverable, alternative.

  17. Dan Wendlick:

    When you're building less than 50 F9 cores a year, and each sells for tens of millions of dollars, you can afford to have each be essentially hand-built and then reworked to spec. You can't do that when your goal is 30,000 cars each selling for less than $80k.

  18. Dan Wendlick:

    It is fully possible to create a short-term disequilibrium as no market is perfectly efficient. However, the longer you stretch that rubber band, the harder it snaps back. Eventually.

  19. Earl Wertheimer:

    Don't forget the over 300K in deposits... That's over $300 million. When they go bankrupt, I wonder how many deposits will be refunded?

  20. Michael Stack:

    Genuinely curious what others think - markets like the stock market tend to be pretty efficient. Yes, there are short-term misallocations, but I think Coyote believes this particular stock needs a very large correction.

    While it may be the case that Tesla's customers and fans are easily bamboozled, it's harder for me to believe they're the ones driving the stock price.

    So - what gives? Looking not for a theory about why the stock is mispriced, but why so many people believe the current price is correct, and not just why they hold that theory, but how they're mistaken.

  21. Tukabel Kožmeker:

    well, Elon - the usual suspect, carrying the usual "reality distortion field" like Steve Jobs (but he did not ask government billions for iphones), and managed to create similar fanbase of sheeple who will buy everything he produces (they should think about starting to produce incompatible connectors for new teslas)

  22. LoneSnark:

    I hope tesla is selling shares. I'd hate for them to run out of cash while reworking the factory for the tenth time

  23. GhostRider2001:

    If I owned Telsa stock, I would sell immediately after seeing this deal. Tesla is one of the more over-hyped companies around that seems to have a number of production problems and issues that the Wall Street analyst try to ignore.

  24. cliffyk:

    The company's namesake was a S̶h̶o̶w̶m̶a̶n̶ charlatan too...