How Tesla Motors and SpaceX nearly disappeared in 2008

At the end of 2008, two companies, Ilona Mask, Tesla Motors and SpaceX, spent several days on the edge of the abyss. Both projects were in desperate need of new investments, and management had no clear plans for their receipt. The founder himself was on the verge of a nervous breakdown - the year turned out to be too stressful even for such an outstanding person as Musk.

The miracle happened, as is customary, at the very last moment. Why did investors again believe in Tesla and how did it happen that NASA “suddenly” offered SpaceX a very profitable contract at that moment? Who knows, this is probably a Christmas tale about how in three days Tesla Motors and SpaceX escaped from bankruptcy and received the necessary money.

They argue about Ilon Mask and his projects. Opposing points of view begin with a high degree of praise for grandiose ideas and end with attempts to convict the inventor of cheating customers, and the unjustified waste of investor and customer savings.

Urgent need recharging

Here is what Ashley Vance writes about the year 2008 in a book about the history of Elon Musk:

“By 2008, the company began to run out of money.
Roadster development cost $ 140 million - substantially more than the $ 25 million laid down in the 2004 business plan. Under normal circumstances, Tesla would probably be able to get additional funding. However, market realities were far from ordinary. Large American automakers were approaching bankruptcy at the height of the dire financial crisis since the Great Depression. In the midst of this chaos, Mask had to convince Tesla investors to part with tens of millions of dollars. Investors needed to provide their clients with evidence of the feasibility of these investments. As Musk himself said: “Here you are trying to justify financing for the development of electric vehicles, and in the meantime, industry publications are literally shouting that this manufacturer is making bullshit, the company is doomed, there is a recession in the yard, no one is buying cars.”

In 2008, there were no streams of articles on the situation of companies in the media, and Musk apparently behaved in such a way that even Richard Branson, who talked to him in times of crisis, was surprised at his apparent calmness and his hair that did not turn gray. But in fact, Musk was really afraid of failure. Especially after the auto industry mastodons Chrysler and General Motors filed for bankruptcy. More facts were revealed later, in 2013-2014, - confessions appeared in an interview. Tesla struggled with the financial crisis like other manufacturers. When the company needed money for Model S, Elon Musk decided that it was better to go bankrupt himself. He gave his personal last 35 million to the company. During the 2008 crisis, Tesla Motors was still a private startup. She became public later.

Musk, of course, is a genius. But Tesla was not ready for mass production, and there was a new concept. What was he counting on? At the end of October 2008, the media wrote about a new protracted round in the process of financing the company. And although the company was shaken, like many others at that time, from the crisis of 2008, Musk believed himself and promised everyone that all pre-ordered 1200 electric vehicles would be delivered to their owners. The company seemed to consolidate after the closure of the Detroit office and the dismissal of 90% of its employees.



Reporters learned that the company is considering options for attractinginvesting. On October 31, the company expected revenues of 20 million from existing investors during the week in addition to the 9 million in the account. This was known from the words of the founder , said in a conversation with Reuters. Elon Musk promised to personally verify that the company will have enough funds to release all custom roadsters. He also added that he had every reason to say so that future owners of the electric car would throw off worries about their deposits.

Tesla has shipped less than 60 roadsters despite accepting 1,200 orders. People made deposits in the amount of 5 to 60 thousand dollars for orders under a contract with the condition that this money can be used as working capital of the company. And after that, Tesla's position became unstable due to confusion in the financial markets, rising car prices and constant production delays. When Tesla was unable to protect a hundred-million-dollar investment, Musk cut the company's workforce by 24% and delayed the development of a Model S battery-powered electric sedan. Assembled at the factory outlet, it should have cost 60 thousand dollars. He also accepted the CEO post from a former colleague Ziva Drori .

Why did people pre-order

“A month after the presentation, the famous show of exotic cars Pebble Beach Concours d'Elegance was held in Santa Monica . Tesla became such a popular topic of conversation that the organizers of the event simply begged to bring to the Roadster exhibition and canceled all participation fees for the company. Dozens of visitors directly at the Tesla booth wrote out checks for $ 100,000 to pre-order the car. “That was long before the Kickstarter crowdfunding platform, we never thought of anything like that,” says Tarpenning. “But then we began to receive millions of dollars at such events.”

Venture funds, celebrities and friends of Tesla employees began to buy places on the waiting list. The matter went so far that individual representatives of the Silicon Valley elite personally came to the Tesla office to buy a car. Once the company was visited by entrepreneurs Konstantin Otmer and Bruce Lick, who knew the Mask from the time of his internship at Rocket Science Games. Musk and Eberhard conducted a personal tour for the guests of honor, which lasted more than two hours. “At the end, we said: well, we’re taking it,” says Otmer. - At that time, Tesla was not yet allowed to sell cars, so we joined their club. Membership cost $ 100,000 and promised a free car. ”

Ashley Vance, "Elon Musk. Tesla, SpaceX and the road to the future "

For two birds with one stone: besides Tesla there was also SpaceX

Before the fateful Christmas of 2008, the company underwent three failed launches that practically crippled the company. With everything at stake, Musk made a final attempt. At the end of September 2008, the Falcon 1 rocket launched for the fourth time and successfully delivered a payload model into orbit. Musk said of this moment: “We had smoke coming out of our ears. At that time, we actually had no money and the fourth failure would be the absolute end of the game for the company. ” But even taking into account, finally, a successful launch, Musk found himself in the center of the ruins of a financial crash that memorable Sunday before Christmas. One would think that all these are clearly “signs”. After all, every time something went wrong. Perhaps if a failure occurred for the fourth time, there would be no continuation. But this would be contrary to the conviction of Elon Mask to follow his dream at all costs. And fortunately, Musk entered into a sensational contract with NASA for $ 1.6 billion. Under the terms of the deal, SpaceX was supposed to make 12 flights to the international space station. The treaty put an end to the debate over whether space flights could become cheaper and whether a commercial organization could compete with NASA.

Ilon said that 2008 was the worst year in his life. The Falcon 1 rocket crashed in August, and Tesla, which fired at a tremendous speed in the Roadster, “ate” a huge pile of money. Musk said that the costs of both SpaceX and Tesla were $ 180 million, which were previously raised on the sale of his stake in PayPal in 2002. To problems "at work" added changes in family life. That year there was a divorce proceedings and he had almost no personal money left.

In all this difficult situation, Mask really needed investor money - all for the sake of making Tesla continue. Plus, the popular Top Gear broadcast allegedly slanderednew Tesla model. Things were going on and the truth is very, very bad.

I remember how I woke up on Sunday on Christmas Eve of 2008 and thought "buddy, I never thought that I would be someone who could have a nervous breakdown." I was on the verge, and the environment seemed hopeless.

Great gift for an adult boy

On December 23, 2008, NASA “donated” SpaceX a contract for $ 1.6 billion so that at least 20 metric tons of cargo would be delivered to the international space station during 12 planned flights. Musk later admitted in an interview that he was so delighted with the call from NASA that his response was very emotional. This saved SpaceX. And two days later, on the evening before Christmas, Tesla investors decided to invest more money. A wonderful story, isn't it?

At the moment of sincere human vulnerability, Musk could only say "I love you guys." In just three days, Musk went from great sadness and risk to grand joy and was rewarded. He was not just lucky, he lost his way, thinking only about the realization of a dream, and not its economic justification. In his interviewwith Scott Pelly, Musk said: “In fact, I did not believe that Tesla would be successful. I thought that most likely we would go broke. But I was convinced that we should at least try to correct people's belief that an electric car should be ugly, slow and boring like a golf car. If something is important enough for you, you should try, even if failure is more likely. ”



Since then, rockets have behaved beautifully. The cargo rocket capsule docked three times with the space station, and the factory in California is always ready for the fact that they will need to be helped to staff future missions. However, the words “bankruptcy” and “Tesla” were used in the same sentence later - in 2010, in 2013 , and now in 2016.

In 2014, in an interviewMusk spoke to “60 minutes” reporters about his way of thinking and the difficulties in his path. The moral of his story, most likely, is that you have to be prepared to risk everything for the sake of what you believe in. However, what would happen if the situation were resolved differently?
The founder was faced with a choice between two points: to divide the remaining capital between the two companies or to concentrate all resources in one of them. But only in which. And he decided to share the money and continue to follow both dreams. The risk was colossal and almost catastrophic. But thanks to a combination of circumstances, capital has exceeded the bar of $ 20 million. If this money did not appear, the company would soon go bankrupt. Even with such luck, Musk still doubted SpaceX.

Irretrievable investments

In the economy, there is such a thing as a bad investment . These are investments that will never be returned. The more such expenses the project undergoes, the more they invest in it in the hope of returning everything at once “well, at least this time”. This spiral draws its infinity. Sometimes it’s hard for people to stop and honestly say to themselves: “that's it, I will not return anything and this is true, the best thing you can do is quit or honestly work without waiting for profit.” It is possible that this is known from the very beginning, but the idea is so cool that it is really impossible to give up the desire to realize it. And then the founders are immersed in an exciting process for the sake of the process and technical implementation, it is only a pity that investors and Santa Claus are different characters.

In a similar position was the Franco-British Aviation Project Concord. The plane was revolutionary: it flew twice as fast as previous passenger planes. And the costs for it were just as impressive, it accommodated too few passengers to pay off, and there were few orders. Nevertheless, they continued to develop it - Concord caused losses to owners for more than 40 years. When the documents of the British Cabinet were published, everyone understood that the government of the United Kingdom was aware of the weakness of the business case. The result is about a billion dollars in sunk costs.