They See Me Rollin
Welcome to Not Priced In, a newsletter about interesting stories in business and finance. Consider subscribing if you like what you see!
My four-year son is currently going through his Hot Wheels phase. He leaves his cars lying around, every surface is a track and the “Vroom! Vroom!” soundtrack is always going.
I know from experience that he’ll get older, move onto toy guns, puberty will kick in and cars will recede into the background somewhat. Until he learns to drive. Instantly, he’ll be transformed back into his four-year-old self.
That new-found freedom of mobility is a rush unlike any other. You don’t need a fancy ride either. Even a hand-me-down hatchback on its 4th owner and wheezing engine is a Ferrari in the eyes of its teenage owner.
Elon Musk was 34 when he invested in Tesla Motors in 2004 – it had been founded in 2003 by Martin Eberhard and Marc Tarpenning. By 2008, he had taken over as CEO. A legal settlement in 2009 allowed Eberhard, Tarpenning, Musk and two early employees to call themselves “Co-Founders”. Appearances and titles matter, after all. And what’s some light historical revisionism among friends.
Musk is currently in the middle of a temper tantrum with the shareholders of Tesla.
A large part of public company CEO compensation is in the form of stock options. The intention is to align incentives – you do well, the company does well, the stock price appreciates, you benefit directly. In 2018 Tesla’s board granted Musk stock options that would award him based on Tesla’s future stock price. At the top of the chart, if Musk increased the company’s value 10x by 2028, he would be awarded options worth about $56B. I don’t think anyone saw this as a realistic possibility back then – they were just covering all bases, no matter how improbable.
The unprecedented share price spike in the post-COVID rally led to the stock ballooning to those very levels, driving the options’ value to $55B. Incredibly, they spiked even further, reaching $100B in value at one point. Musk, of course, used this unexpected windfall to acquire Twitter and take it public. After all, it was his favorite plaything and he wasn’t interested in sharing anymore.
A Tesla shareholder was unhappy with the absurd compensation. He sued, and recently won. The courts ordered Musk to return his windfall- they reasoned that his double-digit stake in Tesla was sufficient incentive. He didn’t need any additional carrots.
Musk has said he will walk away from Tesla if he isn’t given back what he thinks is rightfully his.
Why does a high stakes corporate/legal tussle feel like I’m back to playing gully cricket and the kid who owns the bat is threatening to leave unless he gets to play first?
Tesla’s model names spell out S3XY. My 14-year-old self would’ve loved that. Like when we found out how to write 80085 on a calculator.
In a classic early episode of The Simpsons, Homer designs a car for his brother’s company. It is an abomination, like any car a kid draws on the back of his notebook:
Tesla’s Cybertruck has the same vibes. The feature list sounds perfect in the voice of an 8-year-old: “It will look like James Bond’s submarine car. It’ll be super powerful. And have a great suspension. And corner like a sports car. Oh, and it will bulletproof.”
The amazing thing is that there is a parallel in history. Once before, too, an auto boss gave his engineering team a crazy list – 1001 hp, 400kmph top speed, Turbo-W16 engine, $1m pricetag. Ferdinand Piech literally willed an engineering marvel into existence - The Bugatti Veyron.
The hypercar genre was born.
Maybe that’s what it takes to move the needle in a stodgy, highly regulated industry. And in fairness, Tesla has stolen the march from the world’s largest automakers. They were stuck in their ways, happy with incremental improvements and some emissions hanky-panky. Tesla forced rivals to up their game. And this is great for consumers.
Besides, how can you hate on a company which calls their most powerful trim “Plaid” in honor of this scene from Spaceballs (1987)?
I can’t wait to teach my son how to drive. Just hope cars still need drivers then!
This post is for information purposes only, and should not be interpreted as investing advice. The author may hold positions in the securities discussed.