There’s often an awkward moment in the life of a start-up company – the moment when it’s time to give the company founder the boot!
Entrepreneurs don’t always make great leaders, that’s why they’re usually shunted to one side well before a company goes for a public listing, to be replaced by a ‘professional’ management team.
However, while this new team may look the part, they’re often not who we want to represent us as shareholders.
Not only do they lack the fundamental understanding of the original entrepreneur’s market, they’re rarely motivated by the same things either. In short, they don’t have the vision.
But what about a business where the entrepreneur is strong enough to stay at the top of the pile? A visionary who also has the skills needed to grow a complex business? For me, that’s the ideal situation.
Well, one of my favourite companies has got just that.
That’s today’s story – this company, the great visionary at the helm, and how he could make us rich.
The man who wants to change the world
I’m talking about Elon Musk, CEO of both Tesla Motors and SpaceX.
His vision is clear: with Tesla, get the world into electric cars; with SpaceX, create a system of economic space flight that ultimately allows human settlement on Mars.
Now, I’m not particularly bothered about space flight, but that’s just me. What really interests me is Musk’s vision for electric transport.
And this is no pipedream. Musk has form, he has vision, and most of all, he has the cash to make dreams reality.
You see, back in 2002, Musk sold his first start-up, PayPal, to eBay for $1.5bn. This gave him the capital to go on to do things that other investors would never achieve.
I mean, if you turned up at a bank looking for capital to achieve your dream of electrifying the world’s fleet of cars for the good of humanity, would they want a slice of it? Not likely.
Financiers don’t care about a vision for the common good. But with the right vision, a business develops anyway.
And in Tesla’s case, as it did, the profits came flooding in. Let’s take a look.
How Tesla went from pauper to prince
Where Tesla once made a loss on each car sold, they now make industry-beating margins.
Get this – the company doesn’t do any advertising, and yet it sells so many cars it can’t keep up with demand!
Nobody in the traditional car market has Musk’s vision. That’s why they all compete in the same, barely profitable segment of the market.
You want to see the chart for a company run by a visionary? Well here’s four years’ worth of Tesla:
So, what do I suggest we do about it?
How do we profit?
Well, I’m not going to suggest you rush out and buy Tesla.
You may have your own reservations anyway, when you see that it’s trading on a price/earnings (p/e) ratio of 3000 plus! That said, if analysts’ estimates are right, then by the time we get to 2016, you’re ‘only’ looking at 67 times earnings.
No, I don’t think buying Tesla is the answer. As regular readers will know, the way I’m looking to profit is through the key resource required for Tesla’s car – lithium.
Why? In order to satisfy future demand, Musk has to confront a severe global supply constraint on lithium-ion battery production.
Frankly, Musk has to near double global production over the next couple of years, just to satisfy demand for Tesla’s cars – let alone anybody else.
That’s why I believe there’s such a compelling case for investing in lithium right now.
Taking the car world by storm
The key point is this, though: Tesla will be creating several so-called ‘gigafactories’ to produce thundering volumes of lithium-ion batteries.
And if you’re ever in doubt as to just how serious Musk is about making this vision a reality, consider this – Musk is even giving away many of Tesla’s most important patents on its vehicles.
“Let every competitor come and take us on… we’re happy just to see the future go electric. After all, we’ll still make the best value electric cars on the planet, and we’ll sell competitors our batteries regardless!”
Can you imagine anyone in the traditional car industry coming up with a similar plan? I don’t think so. The motorcar and its internal combustion engine has barely changed in well over a hundred years.
Mark my words… Tesla is going to take the car market by storm. The next few years are going to be very interesting.