How Elon Musk’s crazy dream could make you rich

Elon Musk © Getty Images
Elon Musk: a visionary worth following

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.


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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:

Tesla Motors four-year share price chart

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

I keep coming back to this story because it is so exciting. If you’ve missed it, you can catch up here, here, and here.

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.

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5 Responses

  1. 04/07/2014, Sage of Aldershot wrote

    For a straight account of the environmental impacts of lithium extraction, see http://www.meridian-int-res.com/Projects/Lithium_Microscope.pdf They are potentially serious, at least in South America.

    Add in the stuff emitted by power stations to charge the batteries of all the electric cars and you have to wonder whether electric actually will be better than oil for moving us all around. Sorry to be a party pooper.

    • 07/07/2014, Bengt Saelensminde wrote

      Sage,

      I skim-read the report you posted… and spent a bit more time on the conclusion. All of which suggests that the lithium project that I’m talking about (in Mexico – i.e. outside the so-called lithium triangle) is in a league of its own.

      In terms of environmental issues, I agree, there are many factors involved for electric vehicles (EV). Not least of which are in which country EV’s are operating. But, it’s generally considered that EV’s are beneficial for the environment (later comments on this thread support the argument).

      Lower cost extraction (lithium in this case) normally means lower overall emissions – therefore higher profits.

      In this case, the higher profit scenario also leads to a better environmental impact.

      Bengt

  2. 07/07/2014, Simple investor wrote

    Hydrogenics, PEM, solar & wind and EON will deal with the fossil fuel problem relating to charging batteries to a large degree I imagine. There’s a new world shaping up out there and Elon Musk is helping to form it.

  3. 07/07/2014, GFL wrote

    Power plant energy generation is at least twice, if not 3 times, more efficient than an internal combustion engine in a car where a lot of the energy is dissipated as heat. While at a power plant there is secondary and 3rd line generation.

    All things factored in electric cars are a much cleaner and more energy-efficient way to travel.

    But there are other advantages of wide spread adoption of electric cars:

    1) Inevitable improvements in battery technology
    2) If battery technology improves renewable technology becomes more feasible, which will increase funding.
    3) Governments will find it much harder to tax electricity in the same way they do petrol
    4) Cleaner air – CO2 is easier to capture at plant level than at car level
    5) Less dependence on oil/unstable parts of the world
    6) Competition among the fuels will help keep prices down

    If the price of a Tesla ever gets down to my price range (about 35k), I would definitely buy one.

  4. 07/07/2014, GFL wrote

    I think Tesla should develop an electric van or lorry next, this will target businesses, who are quick to adopt money saving schemes. This will put enough Teslas on the road to help develop infrastructure and advance the technology in general. Also businesses don’t care about how sexy the vehicle is, they just want practicality, this will allow Tesla to focus purely on the technology and economics.

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