Elon Musk became the richest person in the world for the first time recently – but how has he achieved it and what can we learn from him? In this article Business Leader will look at the trickle-down impact this wealth has had on investors and whether his working patterns should be more widely implemented.
Outspoken Tesla and SpaceX entrepreneur Elon Musk became the world’s richest person for the first time recently (at the time of writing he is going back between first and second), with his personal wealth for that period surpassing Amazon founder Jeff Bezos. Musk is now valued at more than £136bn. In the past year, his personal wealth has increased by more than £100bn.
Jeff Bezos had held the position since 2017, having himself surpassed Microsoft founder Bill Gates.
THE GROWING ARMY OF TESLANAIRES
So why does this even matter to you? Well, for the Business Leader readers that are active investors, it is interesting to take note of the growing army of ‘Teslanaires’.
His success is their success. And whilst Musk divides opinion, with many also saying Tesla stock is overvalued, his rocketing wealth has helped to create a legion of millionaires.
A recent BBC article explained that shares in Elon Musk’s electric car firm rose more than 700% during 2020 to become the world’s most valuable car company.
December 2020 was indeed a milestone for the car company as it joined the S&P 500, an index of the biggest stocks in the US which includes the likes of Apple, Microsoft and Facebook. Tesla shares rocketed and it became one of the top 10 most valued companies on the index.
Tesla stock is now worth more than the combined valuations of General Motors, Ford, Fiat Chrysler Automobiles and Toyota. Yet, Tesla makes just a fraction of the cars of its more established rivals.
Is the value of Tesla’s stock sustainable though, and what should investors be considering?
Susannah Streeter, an analyst at Hargreaves Lansdown, talks about the polarising nature of the stock and what is next for Tesla.
She comments: “Given the meteoric rise in the share price in 2020, investors would be wise to ensure they hold Tesla only as part of a well-diversified portfolio.
“Tesla came in just shy of its production target in 2020 of 500,000 vehicles, which is a significant achievement given its previous production hitches, but the group’s valuation remains eye watering at around 202 times forward earnings. To get even close to justifying its price, Tesla will need to grow fast and consistently hit quarterly sales production numbers going forward.
“The sale of regulatory credits also accounts for a hefty proportion of total revenues and cash now. As rivals manufacture new electric vehicles, the market for these credits is likely to fall, putting more pressure on the core automotive business. For the moment, Tesla is maintaining its lead and still enjoying first mover advantage. The e-vehicle market has huge room for expansion but given the premium price of Tesla’s cars, they will remain a luxury item for many consumers.
“Much of Tesla’s share price growth has come from its improving car sales, boosted by strong demand from China and hopes of subsidies for electric vehicles. The shift towards electric cars globally has put car companies like Tesla in the sweet spot.
“Many investors also believe there is strong growth to come from other parts of Tesla’s business, including its self-driving software and battery power storage.”
HOW DID HE CHANGE THE AUTOMOTIVE SECTOR?
So, how did Elon Musk disrupt the automotive sector and how is his approach different? Raphael Lulay, who is an analyst at Block-Builders, comments: “The price of Tesla shares has risen by 869% within a year, while the competition has reported losses and it is interesting to look at how Elon Musk differs fundamentally from his competitors in many respects.
“Firstly, his investment in production facilities stands out. The US carmaker is increasing his footprint quickly. For example, his Shanghai Gigafactory was built in just under a year, while Daimler’s Factory 36 in Shanghai took around 30 months; and BMW’s factory in Leipzig was similarly built in 36 months. Tesla acts as a very active developer and Elon is prepared to take responsibility and, if necessary, initiate dismantling measures at its own expense.”
Raphael also says that Elon Musk is an outlier in how he approaches marketing and advertising, relying heavily on his own personal brand for the benefit of Tesla.
He says: “While marketing budgets across the automotive industry have recently risen sharply, Tesla does not pay for any advertising at all. He instead relies on free advertising via communication through Twitter and other platforms. Elon Musk has 38.7 million followers, and Tesla itself has another 6.2 million. In contrast BMW has 2.1 million, giving you an example of the comparison.”
The coronavirus outbreak has affected many industries and the automotive industry is amongst the hardest hit. After carmakers stopped production and dealerships closed showrooms amid COVID-19 lockdown, global car sales slumped worse than ever before.
However, Tesla was generally less affected by the financial downturn caused by the coronavirus pandemic; and the market capitalisation of the world’s most valuable car company, Tesla, hit over $500bn at the start of 2021 – almost seven times more than Ferrari, Porsche and Aston Martin combined.
Raphael comments: “2020 was been a fantastic year for Tesla, despite the COVID-19 effects on the global automotive industry. The company’s stock price surged by nearly 200% in the last three months and they are up about 500% on the year, despite a 4.9% revenue drop in the second quarter of 2020.
“One of the reasons for such a premium valuation is Tesla’s ability to convince investors that it’s much more than just an automaker and plans to make its vehicles capable of deploying into an autonomous ‘robotaxi’ ride-sharing service prove that.”
To become a billionaire – let alone the world’s richest person – should set off an enquiring mind with a host of questions. How did he do it? What does his day look like? What books does he read?
With so much now said about the role of CEO and how they should structure their day, it’s interesting to look at Elon Musk’s. So, what do we know?
Unsurprisingly, various reports and Musk himself admit to a punishing schedule. Which shows that he avoids taking phone calls, has incredibly short meetings, multi-tasks and meticulously plans his day into five-minute slots.
He has also stated that he works up to 100 hours a week, sleeps six hours a day and routinely wakes up at 7am, often skipping breakfast but taking to shower – something that he said has a ‘greater positive impact than any of his other daily habits’.
To ensure he can work on several of his companies at once, Musk breaks down his day into five minute slots and splits his time working across Tesla, SpaceX and his other businesses often including the weekends.
Elon Musk’s approach to work contradicts much of the current narrative around leadership – which is chipping away at the ideal of the hero leader who works brutal hours, skips breakfast and is sending emails when he or she is with their kids.
But is this the only blueprint that will make you a billionaire or even a millionaire? Is it possible to achieve Musk’s level of wealth without working non-stop? Is this just unique to his world and not applicable to the average CEO? Or should leaders actually be copying Musk?
Jackie Fast is an entrepreneur and investor, who has successful exited a business. Here is her take.
She comments: “Despite a widespread desire for work/life balance, it is unrealistic to expect to achieve significant success in this way. As someone who achieved success early on, I know firsthand that you need to work harder, smarter, and faster than the next guy. I work all the time.
“Business now favours the brave. The rebels and rule-breakers who are not afraid to get their hands dirty and do not waste time on diplomacy and keeping everyone happy. Instead, they choose to stand for something, which enables both customers and employees to align. This is what is propelling leaders like Elon Musk from his humble beginnings to the richest man in the world in such a short space of time.
“So yes, you need to work hard. Harder than the next guy. And I personally think people who want to become multimillionaires by working three days a week believe in fairytales. This is not to say that you shouldn’t want to have work/life balance, but don’t think you are going to become the next Elon Musk by doing so.”
Chris Atkinson is a leadership consultant at Strategic Leaders. He is not so sure that the 80-hour week is a good thing.
He comments: “Elon Musk’s somewhat flippant comments about dialling back his hours from120-hour weeks to a ‘manageable’ 80-90 hours is probably not helpful as a role model for organisations to model themselves on.
“Even Musk admits that ‘the pain level significantly increases once you exceed the 80-hour mark’. However, it’s fair to say that the majority of senior executives would admit to having made significant sacrifices to get to that position – sadly those sacrifices are often (but not limited to) personal health or family.
“While Musk’s character and approach is unique in many ways, his excessive working hours probably aren’t unique for senior leaders…. and that is a problem. The role model of the senior exec is largely built around the hard working, driver personality willing to make sacrifices to get results.
“Some years ago, I ran a training programme for potential board members of a premium automotive manufacturer and a part of the programme was Q&A with an existing board member.
“The question of work/life balance regularly came up and, without exception, the speakers admitted that their role consumed most of their life; for many it had led to divorce or even serious illness such as heart problems. Elon Musk’s tireless work ethic therefore presents an interesting challenge for leaders; is this a necessary component or a prerequisite for success at that level?”
Chris’s final question is a pointed one – as consultants and health and wellbeing advocates point to a more rounded leadership style that does not embrace the hero aspects and burning long hours; can success like Elon Musk has achieved be found with this approach? Or is success relative to each person and Musk an outlier – a one off, and his actions and approaches completely unique to him.
Whatever you think – one thing is for certain – Tesla stocks still seem a safe bet
Is Tesla stock over-valued and over-hyped?
Alpesh Patel OBE shares his thoughts on the hype around the stock price for Tesla.
Tesla’s valuation was justified by a friend on the basis they are probably working on a time-machine or some such incredible tech. He was being tongue-in-cheek – but meant conventional valuation measures don’t operate.
It was the world’s most shorted (ie bets it would fall) stock, yet it soared. Those who have hit the jackpot (it reflects the broader truth that the wealthiest Americans own stocks generally and make a large proportion of their wealth from their investments over the long term) would want to decide if they are risk-loving or risk-averse.
Most people will be in between and will best do something in between those two extreme strategies. Few would be buying more I suspect, unless willing to hold for a decade just in case there is a sharp pullback (after all, the Nasdaq peak of 2000 was only retested in 2015).