It's been a tough year for Elon Musk. Tesla shares are on track for their first down year ever — and not just by a hair, but 15 percent. General Motors is about to beat Tesla to market with a long-range EV at a price point for the mass market. Tesla was caught up in the fallout from the first passenger death related to its self-driving vehicle feature. And Musk's plan to have Tesla acquire the solar company he backs, SolarCity, has drawn fire from shareholders and corporate governance experts. Then last month a SpaceX rocket blew up — though it's now reportedly under investigation as a potential act of sabotage.
A billionaire like Musk is prepared to face existential crises at his companies. He has built them in a way that can withstand short-term concerns and sticks to his guns in a way a visionary can be expected to: skepticism and uncertainty met by equal parts salesmanship and shrewd preparation.
This week he tweeted a typical tease about a big product announcement coming from Tesla on Oct. 17. A few weeks ago, in another slick media-made event, he reminded everyone that he still plans to land on Mars. So here's an obvious lesson entrepreneurs can learn from Musk: Keeping the bold news flowing is always a good idea when the short-term news flow has been bad. Musk has also adopted key ideas from other billionaires who have built empires that last.
Here are a few big lessons from Elon Musk's wild — and so far successful — ride through the markets.
First things first: Don't panic. Or if things are so bad you can't help but panic a little, here's some calming advice.
It probably has not changed and does not suffer from human emotional frailty.
Musk was close to seeing both Tesla and SpaceX collapse in 2008.
In fact, he told "60 Minutes" in 2014 that his rocket company, which hit the brink of insolvency after three different failures of its early rockets, would have gone broke if a fourth rocket had failed. At the same time, Tesla was also nearly out of money. Musk told the broadcast that the Sunday before Christmas that year was "the closest I've ever come" to a nervous breakdown.
Musk kept working on different avenues to raise money for both companies just as the fourth SpaceX rocket was about to launch. When the Falcon 1 successfully launched into orbit in the last days of 2008, the National Aeronautics and Space Administration gave the company a $1.5 billion contract that cemented its survival. Days later Tesla raised $50 million in a venture capital round that would close in May 2009.
SolarCity has run into all sorts of market skepticism: Nevada pulled back on rules that are required to make the economics of solar work for residential customers. The notion that other regulators might follow suit made investors much less willing to tolerate SolarCity's losses, which reached $85 million in the first half of this year, with much larger losses in cash flow required to build rooftop systems that will generate revenue over decades. These events have led investors to short SolarCity shares, which are down more than 60 percent this year.
Musk responded with a controversial proposal to have the more financially solid Tesla buy SolarCity in a deal that values stock in the smaller company at $2.6 billion — SolarCity's current market cap is under $2 billion.
To Musk, the deal makes sense because the two companies' products should be used together. SolarCity's panels can be combined with Tesla batteries that store residential power and charge Tesla vehicles. But Musk is chairman and the largest shareholder of SolarCity, and its co-founder and CEO is Musk's cousin Lyndon Rive. Corporate governance experts have torn the deal to shreds. Some shareholders of Tesla have challenged the deal in Delaware's courts, arguing the deal will expand Tesla's losses at a time when it, too, will have to raise money to finish paying for its giant "Gigafactory" battery factory.
Musk is sticking to his long-term vision of why the deal is a no-brainer. And
Tesla financed its first factory with loan guarantees by the Department of Energy after the 2008 financial crisis locked up private debt markets, especially for young companies. SolarCity's clients also benefit from tax breaks, as well as regulations that let them sell excess power they generate when it's sunny to help pay for the conventionally produced electricity they use the rest of the time. Tesla's customers also benefit from a $7,500 tax credit for electric-vehicle buyers, which will expire when the Model 3, due next year, hits sales targets.
Indeed, government aid and incentives are a big part of the reason Tesla was able to go public in a skeptical 2010 market for initial public offerings. Would-be imitators who want to understand what it takes to start and sustain a billion-dollar business need to grasp how the government can help them — or hurt them.
Berkshire Hathaway chairman and CEO Warren Buffett has said something useful about the benefits of being in highly regulated, capital-intensive businesses like energy and transportation, including those utilities now making things tough for SolarCity:
"We relish making such investments as long as they promise reasonable returns. ... It is in the self-interest of governments to treat capital providers in a manner that will ensure the continued flow of funds to essential projects."
It's the most obvious lesson Musk teaches: His companies are becoming iconic because the product is, especially at Tesla.
Customers and investors alike have been attracted to the sheer audaciousness of his goals, which have set him apart from other entrepreneurs, even in Silicon Valley. Tesla has also won customer loyalty for constantly updating its products, a capacity now being tested as it moves to refine its autopilot system in the wake of a highly publicized crash in May.
Wannabe billionaires should ask themselves: Is my product really exciting enough to build a company around? On Monday, when Musk tweeted that a Tesla product announcement was coming, shares went up 3 percent.
Musk actually hasn't been so great at this.
The biggest negative sell on Tesla, other than its losses while building the Gigafactory, has been its spotty record of bringing new models to market when Musk has said it will. Delays on the Model S were overshadowed by the ecstatic reviews the car eventually got, but the Model X sport-utility vehicle was also late. The launch date of the Model 3, the company's first mass-market car, is set for sometime in the second half of next year. With so much of the company's future riding on the Model 3, its success is crucial. With about 400,000 orders in place, it also seems likely. But if manufacturing delays lead to problems and push profits further into the future, any payoff in the stock will come later.
Last week Tesla announced record sales that caught the market by surprise.
Take Musk's negative lesson along with the positive: Undersell, then overdeliver.
— By Tim Mullaney, special to CNBC.com