As SolarCity Crashes, Is Elon Musk Overrated?

  • Date: 11/05/16
  • Ryan McQueeney, Nasdaq

SolarCity is struggling. Tesla is struggling. Elon Musk is not the King Midas of making companies perfect. Musk’s magic can’t do everything anymore.

Less than a week after another disappointing earnings report from Tesla Motors, Inc., for which Musk currently serves as chairman, reported a wider-than-expected Q1 loss , sending shares plummeting nearly 25%.

With shares of Tesla down nearly 7% after also missing earnings expectations, Musk’s net worth has certainly taken a hit over the past week. Of course, we don’t really feel bad for the still-enormous fortune of the billionaire founder of Tesla, SpaceX, and PayPal, but investors are beginning to ask questions about the true reality of the perceived “Musk effect.”

Let’s get one thing straight: Elon Musk is a genius. The man has been a revolutionary force in the advancement of our society, and his lofty dreams about the capability of humanity is inspirational. Nevertheless, it is becoming clearer that Musk’s backing does not automatically make a company a sound investment.

The Tesla Problem

Perhaps the most troubling issue for Musk is the persisting difficulties of Tesla. Musk himself has been the loudest spokesperson of Tesla and electric vehicles in general, even going so far as to say that the company will be worth as much as Apple is today by 2025. Now, many critics are starting to argue that Musk’s rhetoric artificially boosted Tesla’s value for years.

The problem with Tesla is that the company doesn’t make enough money from selling cars. Many things contribute to the lack of sales, one of which is the ridiculously high price-tag that comes with shopping for a Tesla. Have no fear! Elon Musk and the sub-$30,000 Model 3 are coming to the rescue!

Except it’s really not the simple, and the Model 3 is itself a great example of how powerful Musk’s words can be. Investors have been practically drooling over the Model 3, thinking that Tesla had finally found the affordable vehicle it needed to appeal to the common person and boost sales. In reality, Tesla won’t be beginning production on the Model 3 until the end of 2017 . By then, the federal tax credit that makes the car less than the $30k price it has been marketed at will likely be long gone .

Overvaluing SolarCity

What investors should be realizing now is that there should no longer be a premium on SolarCity just because of the Musk connection. While the company’s latest report helps illustrate the point, we really got our first hint at this when it was announced that Tesla’s new solar-battery just didn’t work well with rooftop solar panels.

Despite Musk serving as chairman, SolarCity officially decided not to use the new Tesla batteries. At this point, the possible relationship between SolarCity and Tesla, once viewed as one of the best things going for SCTY stock, seems further apart than ever before.

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