Elon Musk Borrows $150 Million To Buy Tesla

July 7, 2017 – 08:43 am

tesla
Tesla Motors is one of the most extraordinary business success stories in recent decades, in part because it has accomplished what no other American company has accomplished in more than half a century:

Become a viable new car company.

Many successful companies arrive at success only after going through near-death experiences, and Tesla went through one in 2008.

In 2008, with the global economy melting down, Tesla was behind in delivering its first car, and the company was having trouble raising the additional capital it needed to stay afloat.

Musk was personally in okay shape, thanks to earlier successes with PayPal and other companies, but he couldn't stand the thought that his latest project was going to go bust. So he took his "last $35 million" of cash, as he later described it, and doubled down on Tesla.

Five years later, Musk's stake in the now-profitable Tesla is worth about $2.5 billion.

And Musk is still swinging for the fences.

Tesla has decided to use its skyrocketing stock price to go on the offensive. The company will sell stock to repay the money it borrowed from the government. And one of the big buyers of that stock will be Elon Musk.

This new loan, of $150 million, will be added to Musk's existing tab at Goldman of $125 million. So, after the deal, Musk will owe Goldman $275 million.

Relative to Musk's $2.5 billion of stock in Tesla, a $275 million loan is chump change.

But if Tesla were to stumble and go bankrupt, as car companies occasionally do?

Well, then, depending on the health of Musk's other ventures, that $275 million might look like a big number.

Many entrepreneurs are celebrated for their "risk-taking, " but aside from quitting safe jobs to start companies, many entrepreneurs actually don't take that much personal financial risk. Elon Musk does. And his willingness to take that risk, especially back in 2008, is a big reason Tesla is succeeding today.

UPDATE: A sharp reader points out that something else is also going on here, namely that Tesla is using the capital it raises in the deal to pay off its government debt-and that that debt requires Musk to maintain more than 65% ownership of Tesla. By putting some money where his mouth is, Musk is arguably increasing investor confidence in Tesla, which will make it easier for the company to raise capital at a high price. And by paying off the government debt, Musk is also "unlocking" his stake in the company, which can now be sold. So that actually reduces Musk's risk somewhat.


Source: www.businessinsider.com

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