This is the season when we celebrate great financiers like Warren Buffett.
But you don’t invest in the past. You invest in the future.
Maybe we should be celebrating Elon Musk instead.
The Fool’s Jason Hall calls what is happening with Musk’s stock “a bubble,” and on an absolute valuation basis, he’s right. But if you got in on Google Inc (NASDAQ:GOOG) when it started, you’re more than happy now. If you got in on Amazon.com, Inc. (NASDAQ:AMZN) during the 1990s, you’re also whole.
Musk founded a “web platform for publishers” called Zip2 back in the 1990s, selling it to Compaq for $305 million at the height of the dot-com bubble, netting himself a reported $22 million. Then he launched a payment outfit called PayPal, selling it to eBay Inc (NASDAQ:EBAY) for $1.5 billion in 2002 and netting himself another $160 million.
But he told VentureBeat he was broke in 2010, mainly because he kept plowing his money into new ventures.
Tesla Motors Inc (NASDAQ:TSLA) was blamed by Musk for his own troubles back in 2010, and it’s nothing if not audacious.
The idea of building a new car company from scratch has been around for generations, and the road is littered with those who tried and failed. This is also true in the area of electric cars, where such companies as Coda and Fiskar have tried, and failed, often spectacularly. It’s become a political issue, with The Motley Fool’s John Rosevear asking in April, “Has Obama’s Electric Car Revolution Failed?” Not Fiskar’s, not Coda’s, not even Musk’s. Obama’s.
What separates Tesla Motors Inc (NASDAQ:TSLA) from the rest is Musk’s insistence on an all-robotic assembly process, on high-end styling ahead of mass production, and its apparent profitability. The company nearly broke even in its most recent quarter, and now looks poised to go into the black ahead of schedule. It has been steadily reducing debt and is now cash flow positive.
The company sold more cars, over 4,700, within its price range during the first quarter than Mercedes, BMW or Audi, and is now planning to repay its government loans with a new offering of equity. Skepticism, and the company’s performance in the face of it, have led shareholders on a wild ride upward, now up to nearly $85, and Musk himself is putting another $100 million to work in it.
Tesla Motors Inc (NASDAQ:TSLA) is the first company to succeed in the electric car market, and it may be the last new entrant there. But it has a solid niche in the luxury end of the market and a functioning business model, which is ready to move into the higher-volume middle of the market. As battery technology continues to improve, Tesla Motors Inc (NASDAQ:TSLA)’s future looks bright.
SolarCity Corp (NASDAQ:SCTY) was co-founded by a Musk cousin, named Lyndon Rive, and works at the more-profitable end of the solar energy market, selling, financing, and installing solar panels.
There are many companies in this part of the market – SunRun and RealGoods Solar among them. But SolarCity Corp (NASDAQ:SCTY) was early to the game of solar leasing, and was quick to provide financing.
In a SolarCity Corp (NASDAQ:SCTY) solar lease, you don’t actually own the panels on top of your house. Instead, you buy them over time with power generated by the panels. With this financing arrangement, the installer holds an enormous amount of debt, which only comes back over time.
In this early stage of the game it’s the ability to do deals that matters. Timing also matters a lot. SolarCity Corp (NASDAQ:SCTY) went public late last year, at the bottom of the industry’s cycle, and shares are up about 200% in that time. It’s a $500 million finance line from Goldman Sachs that has really sparked the stock to new highs.
For the first quarter of 2013 SolarCity Corp (NASDAQ:SCTY) reported a loss of $31 million on sales of $30 million. The key is the balance sheet, which was flush at the end of last year with $160 million in cash, and a reasonable debt-equity ratio under 25%. It’s also cash flow positive on an operating basis.
What investors are buying with SolarCity is growth and stability, in a market where both are in short supply. As the cost of solar power plunges below that of other forms of grid energy – and that has already happened in many places – that growth can be expected to continue, with SolarCity Corp (NASDAQ:SCTY) having crossed the chasm to the profitable side of the business.
What Next? SpaceX
Musk’s best deal may be yet to come. That would be Space Exploration Technologies, known as SpaceX, which has managed to lift a robotic space rocket to the International Space Station, and get it back.
The Fool’s Tim Byers thinks it’s now the right time for SpaceX to go public. It’s chief rival is the untied Launch Alliance, which was started by Boeing, Lockheed, and Russia’s Soyuz.
When you’re betting on Elon Musk, however, understand that you’re speculating, that he’s always going to run things close to the edge financially, but that he has, so far, managed to find the best operating teams in every business he’s worked in.
The article In Musk We Trust? originally appeared on Fool.com is written by Dana Blankenhorn.
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