Is Elon Musk Guaranteeing Tesla Buyers' Deposits? Yes and No
Tesla Motors, the cash-poor electric-car startup which just unveiled a new sedan prototype, may have gotten money from General Electric. But it's really hoping to trick car buyers into investing on the sly.
In what appear to be leaked excerpts from the May issue of Car & Driver, CEO Elon Musk says that GE Capital participated in a recent round of convertible-debt financing for the troubled company.
Welcome news indeed. Under Musk, Tesla Motors has been running on financial fumes. An engineer troubled by the company's mismanagement leaked word that the company was down to $9 million last October. In response, Musk announced that the company would raise $40 million in debt financing. He also told Tesla buyers that he would personally guarantee their deposits.
Musk has been saying publicly, since November, that the company had raised the money, implying it was a done deal. But tipsters tell us that he actually didn't close the round until two weeks ago. He may well have been delaying the news so he could include word of a deep-pocketed investor like GE in the round.
It's just another sign of Musk's troubling relationship with reality. Every entrepreneur must dream of things that have not yet come to pass. But Musk has a history of presenting futuristic fictions as facts on the ground — like the time he claimed the government had approved his company's $350 million loan application. It hadn't, and his flack was forced to issue a retraction.
Musk is now asking Tesla buyers to pony up $40,000 in deposits for the new Model S, even though he has yet to reveal a site for the factory where he plans to build them or financing for production. It's eerily reminiscent of the career of automotive entrepreneur Preston Tucker.
With Tesla desperately short on cash, and breaking even at best on its sales of its Roadster sports car, Musk is clearly planning to use Model S buyers' deposits as a source of capital. It's a sneaky way of turning them into lenders, without giving them the recourse that, say, GE Capital might have.
And Musk is not being straight with buyers on how safe their deposits are. On Thursday, when he unveiled the Model S in Los Angeles, he stated flatly that buyers could lose their money:
For those who are worried about what will happen to their deposits if the car is never produced, since the money will be spent on development and not held in escrow, Mr. Musk said: "The worst-case scenario is they would lose their money. They are at risk."
That's not what he told Car & Driver readers:
Even in the worst case of an Armageddon scenario, I'll personally refund people [their money] if need be. I think there's very little danger of that. We've raised around $40 million, and a bit of news that hasn't come out yet [is] General Electric is investing in Tesla. [GE Capital] will be the second-largest investor in this round, after me. Our business plan that we presented to investors gets us to profitability by the middle of this year, even if some negative stuff happens.
(A nice bit of misdirection, that — shifting the subject from the company's present losses to the "plan" for profitability.)
So which is it? Are buyers' deposits at risk, or aren't they? Is Musk good for the money, or isn't he?
One reason for Musk's ever-chaning answers may be his shifting fortunes. We hear he's been complaining to friends about being short on cash and having to sell investments at a loss in order to invest in Tesla's recent debt round. He's living in Los Angeles and flying up to the Bay Area to work at Tesla. We're told he's staying with friends — possibly a move to defray the costs of his commute. Add to that an almost certainly expensive divorce from his wife Justine. If buyers are going to rely on Musk's backing for their deposits, they should be asking him to open up his books.