A Portrait of Elon Musk: The Richest Man in the World
To anyone I have offended, I just want to say, I reinvented cars, and I’m sending people to Mars in a rocket ship. Did you think I was also going to be a chill, normal dude? I’m actually making history tonight as the first person with Asperger’s to host SNL ‒ or at least the first to admit it.
Elon Musk, hosting Saturday Night Live, May 2021
Six years ago, we wrote an investment commentary on Elon Musk. So why a second look at the man? A great deal has changed in the world since 2017, and Elon Musk’s world has changed dramatically too. Tesla’s stock has appreciated more than tenfold since we wrote about Musk, and he is now the richest man in the world, with a net worth of more than $200 billion. He is currently the Chief Executive Officer of five companies including Twitter (now called X), which he bought last year for$44 billion. And, finally, Walter Isaacson, who has written some of the best biographies in the last several decades, just published a new biography entitled Elon Musk. This biography is a treasure trove of new information about Musk, upon which this commentary is based. Like all of Isaacson’s books, it is a great read. This investment commentary is meant for those who do not have the time or inclination to read all 600 pages but would like to know more about the man who has, indeed, changed the world, and who is not yet finished.
In 2021, Musk reached out to Isaacson to inquire whether he might like to write a book about him. They talked on the telephone for an hour. Musk was presumably aware that Isaacson had already written biographies of other people who had changed the world: Franklin, Einstein, da Vinci, and Jobs. Elon Musk is the result of Isaacson’s shadowing Musk for two years, sitting in on meetings with him, being provided with Musk’s emails and texts, and meeting with Musk’s friends, family members, adversaries, and ex-wives. In the acknowledgements section of the book, Isaacson writes that “he [Musk] did not ask to, nor did he, read the book before it was published, and he exercised no control over it.”
So, the book is a remarkably frank, unvarnished account of the life and character of Elon Musk. It recounts the good, the bad, and the ugly. It paints the portrait of a genius, a man with an incredibly strong will and the ability to multi-task. A visionary, a leader, and a hands-on, detail-oriented engineer. But also, a complicated man with a lot of baggage. Musk has an obsessive-compulsive disorder (OCD) and a self-confessed Asperger’s syndrome. Moreover, empathy is not in his DNA, and he does not even attempt to acquire it. He also has an even darker side ‒ what is labeled in the biography as “demon mode” ‒ the mood that Musk occasionally descends into that those around him dread. It is important to note that Isaacson lays out the facts about Musk but does not judge him ‒ neither about his politics, free speech and Twitter, Ukraine, his bizarre personality, nor his unconventional family life. Rather than opining on these things, Isaacson lets the reader decide.
In early adulthood, Elon Musk cast a vision for his life in which he would seek to “move the needle.” By this, he meant accomplishing things that would truly affect all humanity. In what became almost a mantra, he came up with three things: “the internet, sustainable energy, and space travel.” He has been remarkably successful in turning his vision into reality through the various companies that he has created and led. Isaacson’s book does a superb job of chronicling this journey.
South Africa and North America (1971-1994)
In the first chapter of the book, Isaacson recounts Musk’s childhood. It was one filled with great pain and adversity. At the age of twelve, Musk was sent by his father, Errol, to a wilderness survival camp, which was akin to a paramilitary Lord of the Flies experience. At the time, Musk was small and emotionally awkward, and he got badly beaten up twice by older boys. The camp was so savage that, according to Musk, every few years, one of the kids at the camp would die. Things weren’t any better for him at school. For a long time, he was the youngest and smallest student in his class. A self-described nerd, Musk had poor interpersonal skills and little emotional intelligence. Consequently, he was regularly picked on by bullies. One time a group of boys hunted Musk down at recess and beat him so badly (including kicking him repeatedly in the head) that his brother, Kimbal, couldn’t even recognize his face, it was so swollen. He was taken to the hospital and was out of school for a week. To complicate matters, he lived with his father, who had divorced his mother, Maye, a Miss South Africa beauty contest finalist. His father was neither a kind nor compassionate man; he was mean and sadistic. He frequently piled verbal abuse on Elon and Kimbal, causing lasting emotional damage to the boys. During this formative period, Musk says, “adversity shaped me. My pain threshold became very high.”
As Musk grew up, he read compulsively. He became a night owl, sometimes reading books for nine hours straight. He plowed through two sets of encyclopedias. His favorite book, The Hitchhiker’s Guide to the Galaxy, had a profound effect on his developing worldview. At just twelve years old, he created a science fiction-inspired video game called Blastar which was bought for $500 by a trade magazine. Thus began a lifelong addiction to video games. At the age of 17, Musk realized that he needed to escape his family situation, and he decided to move to America. Not able to get U.S. citizenship, he applied for a Canadian passport which he received because of his mother’s Canadian citizenship.
Musk arrived in Canada with $4,000, half from his mother and the other half from his father, who nonetheless gave him a characteristically nasty sendoff: “You’ll be back in a few months. You’ll never succeed.” Perhaps one of the worst predictions ever! In 1989, he enrolled in Queens University and in 1992, transferred on a scholarship to the University of Pennsylvania in his junior year. He was a double major, pursuing economics and physics degrees. He and his best friend used to throw monthly parties at their rented apartment, which drew big crowds. They charged a $5 entrance fee, and often the proceeds from the party would cover the monthly rent. During this period, his only unusual behavior was the video game binges that would last for days. In 1994, his senior paper was titled “The Importance of Being Solar,” showing his interest in alternative energy even as an undergraduate. Having spent two summers interning at start-up firms in Silicon Valley and feeling that his calling lay there rather than in finance, Musk headed to California after completing his courses in 1994.
Cashing in on Zip2 and PayPal (1995-2001)
Within seven years after his arrival in Silicon Valley, Musk had amassed roughly $200 million from the two companies that he founded ‒ Zip2 and X.com (which ultimately became part of PayPal). Elon and his brother, Kimbal, created a business which was essentially the Yellow Pages on the internet, and called it Zip2. They started the business out of a studio apartment in Palo Alto. From the very beginning of his career, Musk was contemptuous of the concept of work-life balance. He drove himself relentlessly. Employees would often find Elon asleep on a cot in the office when they arrived in the morning. He expected others to do the same. In 1996, a venture capital firm invested $3 million in Zip2, and as it went national, the venture capitalists hired Rich Sorkin as CEO and pushed Musk into the role of chief technology officer. Zip2 ended up being acquired by Compaq Computers in 1998 during the internet bubble for $307 million in cash. Elon and Kimball came away with $22 million and $15 million, respectively.
Never one to rest on his laurels, Musk searched for another industry where he could invest the chips he had won in the Zip2 deal. He decided to start an internet bank. He called his new startup X.com. Musk has always had a love affair with the name X, as has become clear with his changing the name of Twitter to X. But, having never been captain of a school team or head of an organization, Musk had not yet developed good leadership skills. His colleagues rebelled over his managerial approach, and most of them quit. Although Musk was left with a shell of a company, he persuaded a key venture capitalist to invest in it and rebuilt the staff. By the end of 1999, over 200,000 people had become clients of the bank. Soon, X.com had a major competitor, Confinity, which had designed a payment system called PayPal. Confinity was started by Peter Thiel (also an early investor in Facebook) and Max Levchin. X.com and Confinity decided to merge, and a backroom coup occurred once again. Musk was forced out as CEO and replaced by Peter Thiel. With his poor social skills, Musk continued to be his own worst enemy. In July 2002, eBay paid $1.5 billion for PayPal. As the largest investor, Musk netted $180 million after taxes.
SpaceX: Helping Ensure the Survival of Human Civilization
Why was Musk so interested in space travel that at the age of 30, he was prepared to bet much of his fortune from PayPal on it? In Isaacson’s book, Musk lays out three reasons. The first was that after America had gone to the moon, progress by NASA in space travel had largely ceased, which he thought was tragic. Secondly, Musk believed strongly that it was important to colonize other planets so that, if something like an asteroid or nuclear war happened to our fragile planet, humanity could survive. Finally, he thought that the U.S. was the “distillation of the human spirit of exploration” from its earliest days, and it was important to him that this spirit be rekindled in America. A space colony on Mars, while impossibly difficult to achieve, would be inspiring. Thus, he was willing to risk his money ‒ all of it if necessary ‒ to pursue this great dream.
As his first step, Musk decided to travel to Russia in 2002 with several knowledgeable engineers to attempt to buy several ICBM rockets. The negotiations with the Russians proved fruitless, and on the flight home, Musk put together a spreadsheet on his laptop that detailed the cost of materials needed to build, assemble, and launch a rocket. According to his calculations, he could produce, for a lesser cost than existing launch companies, medium-sized rockets that could carry smaller satellites and research payloads to space. His colleagues were astonished by the amazing amount of study and research that Musk had done leading up to their journey to Russia. SpaceX was launched on that trip.
Musk’s Early Rules for Building Rockets
Musk’s approach in business from his earliest days has been to choose a mission ‒ often seemingly impossible ‒ and then, as Reid Hoffman, cofounder of LinkedIn, described in the book, “he later finds a way to backfill, in order to make it work financially. That’s what makes him a force of nature.” He established basic rules for his rocket building when he first started SpaceX in 2002: design, engineering, and manufacturing teams were to be clustered together so they could work seamlessly; have a maniacal sense of urgency about the mission; learn by failing; and improvise. Another key rule that he developed and used in all his manufacturing efforts was to pay attention to the “idiot index.” The idiot index calculated how much more costly a finished product would be than the cost of its basic materials. If a product had a high idiot index, its cost could be reduced dramatically by developing more efficient manufacturing techniques. He discovered that rockets had an extremely high “idiot index,” and would focus on ways to produce them more efficiently.
There is not time nor space in this commentary to describe the amazing trajectory of SpaceX over the past two decades. Musk had originally set a goal of firing SpaceX’s first rocket by September 2003. The first rocket, the Falcon 1, was actually launched from their site in the Kwajalein Atoll in March 2006. It failed. So did the second and third rocket launches. Finally in September 2008, the fourth launch attempt of Falcon 1 was successful. Several months later, NASA awarded SpaceX a $1.6 billion contract to make twelve round trips to the Space Station. SpaceX was days from bankruptcy when the call came from NASA.
Since then, SpaceX has gone from success to success. In 2021, SpaceX launched 21 reusable rockets which returned to earth and landed successfully on their launching pad. An incredible achievement! After Russia invaded Ukraine in 2022 and knocked out its internet communications, Musk backed Volodymyr Zelenksy and made SpaceX’s satellite internet service, Starlink, available to Ukraine’s military. This helped Ukraine immeasurably in the war. Then, Musk cut off all Starlink access near the Black Sea as Ukraine attempted to launch a sea attack on Russia’s Black Sea fleet. Musk feared that the attack would be like Pearl Harbor, setting off World War III. Rather than chronicling the details of SpaceX’s history, it is more useful, we believe, to describe the framework for problem solving which Musk has followed in his management of SpaceX and Tesla as well. He calls it the “algorithm.” He drilled it into his supervisors, so it became almost a mantra.
Musk’s Algorithm for Successfully Manufacturing a Product
- Question every requirement. Know the name of the person who made the requirement ‒ not just the department or agency ‒ and then question the need for the requirement.
- Delete any part or process you can. Even if you have to add them back later.
- Simplify and optimize. A common mistake is to simplify a part of a process that should not exist.
- Accelerate cycle time. Every process can be speeded up.
- Automate. That comes last. Musk admits that in his Tesla factories in Nevada and Fremont, CA, he began by trying to automate every step ‒ instead of waiting until the previous steps had been taken.
Musk’s General Management Rules
- CEOs should be out on the factory floor from time to time. Musk’s reason for this: “If the troops see their general out on the battlefield, they will be more motivated.”
- All technical managers must have hands-on experience. For example, managers of software teams should spend at least 20% of their time coding. Otherwise, they are like a cavalry leader who can’t ride a horse.
- It is OK to be wrong. Just don’t be confident and wrong.
- Never ask your troops to do something that you are not willing to do.
- When hiring, look for people with the right attitude. Skills can be taught. Attitude changes require a brain transplant.
- A maniacal sense of urgency is our operating principle. (Musk’s managers learned to never say no to a timeline; that could get you fired. They learned to just agree and then explain later when it couldn’t be met.)
- Whenever there are problems to solve, skip a level to meet with the level right below your managers.
- Comradery is dangerous. It makes it hard for people to challenge each other’s work. There is a tendency to not want to throw a colleague under the bus. That needs to be avoided. (Musk’s history of firing managers and engineers for the smallest errors is legendary.)
Since we last wrote about Elon Musk in 2017, the market capitalization of Tesla has skyrocketed from roughly $60 billion to over $850 billion. It is worth more than the next nine automobile companies combined, including Toyota, Mercedes-Benz, BMW, Honda, Ford, and General Motors. In late 2021, its market capitalization was well over $1 trillion. It wasn’t always this way. In 2006, iconic Silicon Valley VC icon, Michael Moritz, declined to invest in Tesla saying, “We’re not going to compete against Toyota.” In 2008, Tesla was in a death spiral; it would run out of money on Christmas Eve. Musk, having invested all of his gains from PayPal into SpaceX and Tesla, had to go hat in hand to family and friends. His brother, Kimbal, put up his last $375,000 into Tesla. Sergey Brin of Google invested $500,000, and even regular Tesla employees wrote checks. Musk’s then-girlfriend, Talulah Riley, tells of him going into the bathroom and retching from the stress. He was working day and night and again trying to pull a rabbit out of a hat. As Isaacson writes, “Musk has a personality that causes him to put all the chips on the table. His appetite for winning, for being successful, for being number one, is inseparable from his huge appetite for risk.” At the last moment, Musk and other investors in Tesla ponied up another $20 million to save the company from bankruptcy. Then in 2009, Mercedes, interested in Tesla’s battery technology, purchased a 10% stake for $50 million. In the book, Isaacson quotes Musk saying, “If Daimler had not invested in Tesla at that time we would have died.”
Tesla started working on the Model S in 2009. They spent close to one billion dollars designing and ramping up production for Model S, but didn’t launch the car for almost three years. During this period Musk made a brilliant hire; he brought on board Franz von Holzhausen, who had worked at VW, GM, and Mazda. In short order, he designed about 95% of what today is Model S. Model S was a game changer. It astonished the automobile industry. The Model S was to the automobile industry what the iPhone was to the communication and social media industries.
Oracle founder Larry Ellison only joined two corporate boards ‒ Apple and Tesla ‒ and he became friends with both Jobs and Musk. He said that they both had beneficial cases of obsessive-compulsive disorder, because they “obsessed on solving a problem until they did.” What was different about them was that Musk, unlike Jobs, was closely involved not only in the design of a product but in the engineering and manufacturing of it. Musk took on materials, manufacturing, and laying out huge factories. Musk actually spent more time walking around assembly lines than he did walking around the design studio. Musk said, “The brain strain of designing the car is tiny compared to the brain strain of designing the factory.”
Some of the most gripping parts of Elon Musk deal with the period between 2013 and 2018 when Tesla, despite being the technological wunderkind of the auto industry, was still producing negative earnings. In 2013, Musk turned to his great friend, Larry Page of Google, to ask if Google would purchase Tesla to save it from its financial problems. However, the deal never took place, because Tesla salesmen did a phenomenal job selling large numbers of Teslas in a 14-day period, resulting in the company having its first profitable quarter in March 2013. The stock soared from $30 to $130 by July, dealing the short sellers, who infuriated Musk, a painful setback. Despite this temporary reprieve, Tesla was still not producing enough cars to consistently achieve positive cash flow. This laid the groundwork for two great “surges” that Musk organized to save Tesla. In Musk’s vocabulary, a “surge” is when Musk targets a seemingly impossible problem and calls in engineers and key staff members from all over the country to work day and night to solve a problem or achieve a highly improbable deadline that he has almost capriciously set.
The Tesla “Surges”
The first of these surges was the successful establishment of the battery Gigafactory in Nevada. In 2013, the Tesla Model S was using 10% of the world’s batteries. The production of the new models that Tesla had on the drawing board ‒ an SUV called Model X and the mass market sedan that would become Model 3 ‒ would require ten times that number of batteries. Musk convinced Panasonic, which produced its batteries, to partner with Tesla to build a $5 billion battery factory near Reno. In July 2017, Musk’s primary focus was to produce 5,000 cars a week in its Fremont, California factory; otherwise, Tesla could not meet its costs. At the time it was producing 1,500 battery packs and cars a week. Musk called for a surge both in Nevada and Fremont to make his production target. Musk took charge of the factory floor, playing the role of general in the army. He flew in top managers from all over the country, and some spent four months there, crashing in $20 motels, getting less than five hours sleep. During this period, Musk lashed out at many managers and engineers, both senior and junior, firing many who had worked long and hard for Tesla. As the bottlenecks in Nevada lessened and the factory started making its target of producing 5,000 battery packs a week, the surge shifted in April 2018 to the Tesla production line in Fremont. At that time, the factory was only producing 2,000 cars a week. Musk had installed monitors at each assembly line station with a green or red light indicating whether things were flowing properly. This enabled Musk to walk the floor and home in on trouble spots. His surge team called it “walk to the red.” During this three-month period, Musk often made up to one hundred command decisions daily as he walked the factory floor, removing robots and simplifying the process. Some involved in this surge called it an “insane time.” But on Sunday, July 1, 2018, a black Model 3 was disgorged from the factory with the number 5,000 scrawled across the windshield. The surge had worked; the factory had more than tripled production, meeting Musk’s goal. In 2023, Tesla’s production goal is 1.8 million vehicles ‒ up from 1.3 million in 2022.
One of the projects that takes up much of Musk’s attention is the autonomous car. Tesla calls it the Robotaxi. Musk started focusing on this initiative more than a half dozen years ago, telling the auto industry, analysts, and the press that Tesla would be producing Full Self-Driving cars within several years. Although Waymo (produced by Google) and Cruise (GM) self-driving cars are approved for use in California, Robotaxis are still not approved. Tesla is devoting substantial resources to this effort, and some investment professionals believe that Tesla’s Robotaxis, which will supposedly sell for $25,000, will produce an enormous cash flow from its use globally over the next ten years. According to some, this is the reason that Tesla’s stock sells for over 50 times 2024 projected earnings.
Musk’s Other Projects and Companies
The Boring Company: Musk founded several companies that have nothing to do with space and cars. One is called The Boring Company. Stuck in Los Angeles traffic one day in 2017, Musk decided to launch a company that would bore tunnels so people could get around more quickly. He has invested $100 million in The Boring Company. Thus far, the company has bored a one-mile-long prototype tunnel near SpaceX headquarters in L.A., and also completed a 1.7-mile tunnel in Las Vegas from the airport. But those are the only two tunnels that have been completed.
Neuralink: Musk has always been interested in science fiction and futuristic products. In this vein, he founded a company call Neuralink. He was typing on his iPhone with his thumbs one day and complained about how long it took. He reflected: “Imagine if you could think into a machine like a high-speed connection directly between your mind and your machine.” Thus, in 2016, he founded Neuralink to implant small chips into the brain and allow humans to connect their minds to computers. Musk recruited a young Canadian woman, Shivon Zilis, who was not only a tech geek but also the goalie on the Yale University women’s ice hockey team. She initially worked on artificial intelligence for Neuralink, Tesla, and SpaceX, and has since become the top manager at Neuralink.
SolarCity: In 2004, Musk encouraged two of his cousins to start SolarCity. Musk provided most of the initial funding and became Chairman. The goal was to create a national company which would become the leader in providing solar panels for residential customers. The company prospered for a while, installing about 25% of all solar panels not done by utility companies. But after a while it floundered. In 2016, Musk convinced the Tesla board to purchase SolarCity. He justified buying it for $2.6 billion by quoting Tesla’s original mission statement: “The overarching purpose of Tesla Motors is to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy.” A Delaware court ruled in favor of Musk in 2022 in a shareholder suit which had charged that this was a bailout. The company now goes under the name of Tesla Solar.
OpenAI: Musk has been obsessed with artificial intelligence (AI) for a decade or longer. In particular, he sees a great risk that AI can be a mortal threat to humanity, when AI-based robots become smarter than humans. Thus, together with Sam Altman, Peter Thiel, and Reid Hoffman, he helped found the non-profit company OpenAI. OpenAI later became a for-profit company and launched the AI game changer called ChatGPT. Musk has been embedding AI into Tesla’s products.
Interspersed among the 95 chapters of Elon Musk, Isaacson tells the story of Musk and his bizarre family relationships. Currently he has ten children. At the age of 29, he married Justine Wilson, despite the fact that his brother, Kimbal, and his mother, Maye, advised him not to, as Elon and Justine seemed to enjoy fighting. Tragically, their first child, Nevada, died of SIDS. In 2004, they had twin boys, one of whom is now a transgender girl and estranged from Musk. Two years later, Elon and Justine had triplets ‒ all boys. They divorced in 2008, after which Musk married, divorced, and then re-married Talulah Riley. He also had a brief relationship with actress Amber Heard. Since then, Musk has had an on-again, off-again relationship with a singer named Grimes with whom he has three children ‒ two by surrogate mothers. The mother of his last two children is Shivon Zilis (Musk’s top operations manager at Neuralink, mentioned above). They have never married nor been romantically involved, but in 2021 had twins using IVF with Musk as the sperm donor. Zilis was encouraged to have Musk’s children because of his worry about the declining birth rate and the long-term survival of humanity.
The last 100 pages of Elon Musk deal with the details of Musk’s $44 billion purchase of Twitter in October 2022. What a contrast between the “hardcore” culture of Musk’s companies and Twitter’s, with its coffee bars, yoga studio, fitness room, and café serving free meals including vegan salads. Musk discovered T-shirts in drawers at Twitter emblazoned with “Stay woke.” Twitter prided itself on being a place where “coddling was considered a virtue.” Twitter had instituted a permanent work- from-home option and allowed a mental health “day of rest” each month. Since the acquisition, Musk has confirmed that 6,000 employees have been fired ‒ about 80% of the staff. Over the years, Musk’s political views have changed from liberal to libertarian and then moderately conservative. One of the reasons Musk bought Twitter is that he prizes free speech, and Twitter had been censuring some speech ‒ much of it conservative ‒ as the “Twitter Files,” released by journalists Matt Taibbi and Bari Weiss, revealed. But Musk also learned that much content moderation was still needed, as his free speech policy was tested with floods of antisemitic and racial slurs. Having lost a large percentage of advertising, Musk is intent on charging some kind of a subscription fee. Twitter (now X, mimicking the name of his internet bank, X.com, and SpaceX) is apparently losing money and is very much a work in progress. It may well prove to be his Waterloo, as his friend, historian Niall Ferguson, has written.
Elon Musk is sui generis ‒ one of a kind. He has a tireless work ethic and extraordinary willpower. He has been quoted as saying, “My mentality is that of a samurai. I would rather commit seppuku [hara-kiri] than fail.” Despite his OCD and Asperger’s, or perhaps because of them, he has been the man with the Midas touch. Normal rules don’t seem to apply to him ‒ neither in business nor in his family life. Tesla shares are selling at over 50 times next year’s earnings ‒ a very steep price for Musk’s brilliance. Should one own Tesla stock at this price? If Musk can pull off his vision of millions of Robotaxis around the world, then perhaps the stock is a buy. But, we, at Bradley, Foster & Sargent, believe at this point that it could be difficult to make money purchasing Tesla at this price.
Rob serves as chairman of Bradley, Foster & Sargent. He is a portfolio manager and member of the firm’s investment committee and its board of directors.
Rob founded Bradley, Foster & Sargent with Joseph D. Sargent and Timothy H. Foster. Earlier, he was president and CEO of Boston Private Bank & Trust Company, which he founded in 1985, and he spent 14 years with Citicorp, including 12 years in Europe, the Middle East, and Africa. Previously, he served as an officer in the U.S. Navy in Vietnam.
Rob served for seven years on the board of governors of the Investment Adviser Association, the national not-for-profit association founded in 1937 that exclusively represents the interests of federally registered investment advisory firms.
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