Elon Musk's audacity turns some people off.
Take Barry Randall, who manages the Crabtree Technology model on Covestor, an online marketplace for investment management. Randall looks at Musk--the bold, insurgent innovator whose ambition is to disrupt both the automotive and energy industries--as venal.
Tesla's ongoing attempt to buy SolarCity is nothing but an attempt to preserve Musk's own brand, that of the Rebel Alliance leader.
There's nothing synergistic about Tesla and SolarCity.
Now, Randall's lament is that of an investment advisor whose viewpoint promotes his financial aims as regards bets on either Tesla or SolarCity stock, or both. It's his business, and he's not alone in his concerns about the prudence of riding the cash-flow roller-coaster ride of Musk's financial brinkmanship. Wall Street Journal staffer Charlie Grant notes that the fledgling car-maker's addition of solar-panel development would worsen its capital expenditure risks. He writes:
From a strictly financial perspective, the deal is something Tesla shareholders can do without. Tesla, of course, has significant ongoing cash needs without the additional burden from SolarCity. Though Tesla showed $3.2 billion in cash on its balance sheet as of June 30, that money is expected to burn quickly as Tesla prepares to bring the Model 3 sedan into production. Capital expenditures alone are expected to total $1.75 billion for the second half of the year.
But Randall's assertion that Tesla and SolarCity are fundamentally a-synergistic is a classic case of living in a bubble where disruption never causes the failure of well-run, well-established, and keenly focused incumbent organizations and industries. Consider Rotman School of Management professor Joshua Gans' take on the same subject in a recent Harvard Business Review essay, "Why Elon Musk’s New Strategy Makes Sense:"
What will the integrated electric car and solar future look like? There may be complementarities between the two but the overlap is uncertain. (Solar can do more than charge cars; and not all car charging will happen at home via solar.) Having an integrated company leaves Musk free to tweak the approach of each without having to ask for permission from two boards. In other words, his approach to clean energy requires cleaning up the organizational lines.
Musk’s interest in tweaking both approaches makes sense given his view that the business model of the car industry is doomed. He sees cars going autonomous, threatening the need for car ownership. Tesla has to date operated on the business model of the car industry, selling people vehicles that they own and control. But Musk sees the future as one where cars are accessed, not owned. It’s hard to know who will end up owning the cars, but it may not be the individuals who end up riding in them.
The fact of whether there will be synergies (or not) is the nature of disruptive innovation. Uncertainty obscures the answer. For an investment advisor, the uncertainties make the initiative to combine the companies an unwarranted risk.
WSJ staffer Charlie Grant affirms that risk here:
For his investors, confidence in Mr. Musk has always trumped financial performance worries, which suggests this deal will go through. But that scenario means Tesla shareholders could end up biting off more than they can chew.
So, maybe classic investment wisdom flies in the face of investing in disruptive innovation, and here's a case of a business model--a synergistic one--disrupting not one, but two major industries, automobile and fossil-fuel based energy. Is anyone going to interpret the notion of bold as not going against conventional wisdom?
For our part, we're thankful to be hosting Tesla chief technical officer and co-founder JB Straubel as part of our proceedings at HIVE, tomorrow night at LA Live in Los Angeles. Considering Straubel had something to do with bringing Elon Musk into the company in the first place, we think we'll be hearing something valuable about what it takes to innovate, and possibly disrupt well-entrenched, well-run businesses.