> As SolarCity struggled to raise money from institutional investors, it began offering individuals a chance to buy what it called Solar Bonds. (“Now you can get paid while driving the solar revolution,” the marketing material said.) But there were few takers—so other parts of the Musk empire took up the slack. According to the shareholder lawsuit, SpaceX acquired $255 million of the bonds.
Other than Musk's involvement in both, what's the situation where a company like SpaceX sees a need to plow $255 million into debt obligations issued by a solar panel installer?
Being able to land and deploy solar panels at scale is essential to this goal. And Musk has learned the hard way not to trust third party suppliers that he doesn't control.
SpaceX's aspirational goal is to launch something Mars-wards in the 2022 window to identify where the base will be and have some resources. Then send several vehicles and a few people in 2025 to set up a mission. Primary on that mission is to deploy solar panels, and start making methane+oxygen from CO2, water and energy. This is both for a return trip and for people to breathe. Then in 2027 send the first trip that can make a return flight. (Those dates are set by the fact that the Earth and Mars come into a good conjunction for launching from one to the other every 26 months.)
Musk says "aspirational". I think "crazy". But bump those by 2-5 years and it becomes barely plausible. And the end goal sounds less crazy now than it did 5 years ago. When it sounded less crazy than it was 11 years ago when we all were laughing at him.
And if he succeeds, the Mars colony could come to be worth more to SpaceX than its satellite launch business. By a lot.
Being able to land and deploy solar panels at scale is essential to this goal. And Musk has learned the hard way not to trust third party suppliers that he doesn't control
That gave me the best laugh I've had all day. Bravo! Is SolarCity going to send installers to Mars in Teslas launched on top of a Falcon Heavy?
And if he succeeds, the Mars colony could come to be worth more to SpaceX than its satellite launch business. By a lot.
While the concept of settling Mars is understandable from an academic perspective, what is the economic justification for claiming that Mars is valuable? Any Martian colony would require hundreds of billions of Earth investment just to become habitable for a few dozen people and there aren't any resources on Mars that could be excavated more cheaply there than on Earth.
I've always liked the idea of a low-gravity forge: mixing metals on Earth is difficult because the heavier metals separate from the lighter metals due to gravity. This wouldn't happen in low-gravity situations, so you can truly make "space metals" that cannot be manufactured on Earth.
However, this only calls for a LEO (low earth orbit) colony, not really a mars colony. Even then, shipping raw material up to LEO is still mindbogglingly expensive (let alone Mars). So no one has even attempted the experiment yet.
SpaceX's plans are to reduce the cost of a launch for their superheavy to $5 million per launch (assuming 100 launches with minimal maintenance). Each launch will be around 100,000 kg to LEO. That reduces the cost of transport to $50 per kg.
That's expensive, but not ridiculous if we are able to get some good composites out of it.
Interesting. If we can manufacture rocket fuel and forge these 'space alloys' on Mars (or in LMO, low mars orbit), the transport cost to get those alloys to Earth could be theoretically much lower once you have a stable, relatively automated Mars base.
> what is the economic justification for claiming that Mars is valuable?
In all likelihood, it will be intellectual property. Putting people who have taken a risk to go to a new world (literally) in tight proximity with a shared goal is a proven path for innovation. The lack of many Earth-based restrictions boosts that tendency.
I reminded of the early days of Silicon Valley when it was mostly suburbia, farmland, and chip manufacturers and I think of all the hardships they must have gone through creating startups in their parents' garages.
CA is one of the most regulated, least risky places, on Earth and yet has led the way in innovation in multiple industries for decades.
More likely, Mars will be like Antarctica: a desolate and undesired research station and occasional tourist destination for those with too much money.
CA is one of the most regulated, least risky places, on Earth and yet has led the way in innovation in multiple industries for decades.
You are mixing cause and effect.
CA started off as an unregulated wild west. It became a center for innovation, and then added regulations. But retained critical innovation mass as it went. However the regulations came after.
You can verify this by looking at industries. Gold mining, no regulations except what the miners invented back in 1849. (And we are still dealing with the weird way of regulating water rights that they came up with.) Shipping because some idiots built a railroad across the country, and therefore Los Angeles/Long Beach was the cheapest way to trade with Asia. Hollywood moved here because lots of good weather, open spaces, and no regulations. Agriculture moved here because of the same plus some ambitious water projects. (Plus available migrant labor that nobody enforced wage laws for.) Aerospace moved here for the same. Silicon Valley started for a different set of reasons (see Steve Blank's Secret History of Silicon Valley) but I guarantee you that there weren't a lot of regulations when that got going in the 1950s.
In all cases regulation came later, often much later. And the result is that many industries that got going in California, such as the manufacture of semiconductors at scale, wound up moving elsewhere. But so far, at least, we've been lucky enough to dream up new ones. :-)
In all cases regulation came later, often much later. And the result is that many industries that got going in California, such as the manufacture of semiconductors at scale, wound up moving elsewhere. But so far, at least, we've been lucky enough to dream up new ones. :-)
This is empirically false. California's fastest growth for technology (i.e., Silicon Valley post-chip manufacturing), entertainment (i.e., films, video games, and music), and agriculture all took place after the introduction of regulations.
Silicon Valley flourished because regulations protected workers' rights. Entertainment flourished because local governments passed laws incentivizing film production and protecting workers' rights. Agriculture flourished because water-use regulations protected agricultural uses over residential/commercial usage.
In all cases, yes--the industry came first. But these industries didn't flourish until after the regulations came.
And the crazy thing is that despite all the regulation, CA's industries are still flourishing. It turns out that a company that can survive the costs of CA regulation can survive pretty much anything; a company that can't simply doesn't have a viable business model.
> And Musk has learned the hard way not to trust third party suppliers that he doesn't control.
1. Does he mine, refine and smelt his own iron and titanium ore, too? Where exactly does that buck stop?
2. Does SpaceX have a sudden pressing need for all the parts, and the debt obligations of SolarCity that have nothing to do with manufacturing solar panels (That is, 100% of the company?) SolarCity doesn't make any of their own panels, you know - they just install them on rooftops, and do financial engineering, and get bailed out by other people's money.
As laid out in the article, at the time of the merger, Solar City was indeed trying to get into manufacturing solar panels. That it hasn't worked out doesn't mean that the attempt doesn't fit within SpaceX's goals.
I'm sure that the Boring Company also has investments from SpaceX.
As to mine, refine, etc, he has generally tried to go down to things that he can get off of mass markets. The thing he avoids is having a custom part only intended for him which he is dependent upon another company for.
And he chose to do this by lending money at way-below-market rates to a financial dumpster fire of a company that didn't, and still doesn't have any capacity or secret technical expertise to manufacture one component of his Mars plans, which are still decades in the future?
All the while, knowing that the financials of SolarCity are worse then he publiclly claimed?
Pardon me, but given the personal financial gain he had in the deal going through, this stinks so bad, you can smell it in Minsk.
Speaking of which - given his penchant for over-promising, and spectacularly under-delivering, I feel like only a lunatic would choose to settle in a Mars colony ran by SpaceX.
Also:
> The thing he avoids is having a custom part only intended for him which he is dependent upon another company for.
So, hold on. Was SolarCity supposed to be making custom parts for a Mars colony? Why would their expertise in doing financial engineering to sell people solar roofs be of any help in this endeavor?
If they weren't going to be making custom parts, and they'd just be making off-the-shelf panels, why pick a supplier decades before he actually needs one? Solar panels aren't sheet metal, but they are as close as you can get to a commodity, these days - and will be even more so, decades from now.
The bonds that SpaceX bought both helped the company stay afloat, and were at above market rates. And SpaceX made money off of that. SpaceX's involvement made sense, both tentatively (in the hope that SpaceX would get technology that they want down the road) and immediately (financial returns). The deal worked out well for SpaceX. Though it didn't pan out for their eventual hopes down the road.
Tesla is the company that really sank money in. Their synergy made more sense, Tesla has a lot of expertise in batteries and solar panels + batteries is a great combination. This is true at a small scale such as the home installations of solar panels + batteries that Tesla sold. Or at a large scale such as the South Australian battery project. And even in a distributed project such as the solar panels that Tesla added to a ton of supercharging stations.
That said, the Tesla involvement in Solar City has been a disaster for Tesla. (Though not for Elon Musk.) But Musk has always run financial house of cards. And he has enough going his way that he could still come out on top. The story with Musk is that he either will change the world or go out with a bang. This is still true. But he's coming ever closer to really changing the world, and the bang if he goes out will be truly spectacular.
SolarCity paid SpaceX 4.4% on those bonds, when they couldn't find any non-insider takers for a 6.5% yield.
4.4% on a junk bond is not 'above market rates'. It's a sweetheart deal.
> And SpaceX made money off of that.
1. In finance, ignore counterparty and default risk at your own peril.
2. Only because Elon then took the money of Tesla shareholders to buy SolarCity. If the purchase didn't go through, those bonds would have been about as valuable as toilet paper.
> in the hope that SpaceX would get technology that they want down the road
These were bonds, not tech licenses. It was propping up a business that may at some point in the future, license tech that hasn't been invented yet at better terms than any competitors in the solar space, who are not bogged down with a financial rock, and an entirely irrelevant residential-panel-financing business about their neck.
> Tesla is the company that really sank money in.
Yes, they ended up eating the worst of his self-serving trades. Despite a happy outcome of SpaceX, it was still not responsible of him to have invested SpaceX money into his own failed side venture.
> Their synergy made more sense, Tesla has a lot of expertise in batteries and solar panels + batteries is a great combination.
Ford has a lot of expertise with ICE engines, yet for some reason, it's not been trying to become a gasoline company... But sure, as much as I think there's no synergy between a failing firm that is specializing in financial engineering, and an auto manufacturer (And hindsight confirms this - SolarCity is, years later, nothing but a drain on Tesla's balance sheets), I do agree that, bad as it is, it's still a better case that SpaceX / SolarCity.
No, but late last year Elon Musk was caught tunneling funds from SpaceX to Boring Company and putting SpaceX employees to work on BoringCo projects. He had to give SpaceX shareholders a stake in Boring to smooth things over.
Very interesting, but can you elaborate how we could benefit from colonizing Mars? Even more so - how could SpaceX be much more worth by being able to go to Mars, and how others wouldn't be able to achieve similar step sometime after them (depriving SpaceX from exclusivity of operation)
Mars is much smaller than Earth with much more hostile environment. I heard some ideas of growing trees or putting air on Mars, but just to adjust a flow of a river on Earth could cost millions of dollars; if you add complexity to get it done on Mars I don't think a price tag could be even put on it.
Visiting Mars - sure who wouldn't want it, but other than biologist and geologist, I doubt masses would want to migrate and live there, making SpaceX worth billions in process (that assuming somehow SpaceX would be given an exclusivity to park their rockets on Mars - a body to give such approval doesn't even exist and I doubt any single country can claim Mars' ownership)
Most people will not want to move to Mars, just as very few Europeans wanted to move to the New World in the 1500s.
However while relatively few people want to move to Mars, it is a large absolute number. For example a few years ago when Mars One called for volunteers for a one way trip to Mars, they got 200,000 people volunteering. Even filtering for people whose education and skills would make them useful, they had a large number.
One estimate that I saw said that a viable colony would require about 100,000 people to move over a century. And a person leaving Earth can reasonably spend their life savings to do so. The value proposition is essentially sell your house, use the money to move to Mars. SpaceX is planning to make the trip barely above cost. But don't forget. They will be landing on a planet where basic infrastructure, starting with energy, oxygen and tunnels, are provided by SpaceX. That's going to be billions per year. Of course it will be a long time before that colony is self-sustaining. But when it is, those infrastructure basics will be worth a lot.
As for a second contender, developing a rocket that can compete with SpaceX takes over a decade, and many billions of dollars. And then when you try to travel to Mars, you're going to be landing on a place where the infrastructure is owned by SpaceX. Musk is likely to welcome the competition...and charge top dollar for fuel for a return trip. So you'll have to invest billions more. And once you've done so, you'll be competing against an established competitor who is charging thin margins. And you still won't be in that lucrative infrastructure business.
As for who owns it legally...I believe that the people who live there will claim the land that they settle. And will create their own laws. They would mostly come from the USA where legal tradition resolves all property disputes in favor of squatter's rights. There will be room for all for a long time, but guess who the first and biggest squatters would be?
I think everyone else would conclude that Musk is welcome to have the Mars monopoly.
There's nothing there you can't get on Earth without the hassle of climbing out of a gravity well, schlepping across in front of a 24-hr supercharged X-ray machine, then climbing back down into another gravity well, then gathering whatever it is you felt is worth a hundred billion dollars of investment, waiting 2 years for the planets to align again, climbing back out of the gravity well you descended into, crossing the same X-ray moat, then finally returning to Earth and discovering some cheap bastard got it all from a mine in Australia.
You should ask Musk about that. I think he believes that we as humanity need backup plan if anything is to happen to Earth. Also he is probably megalomaniac and thats why he sets to grand goals.
By the way i am pretty sure people who come to Mars in numbers will colonize it and it now it seems that United States will be the country that colonizes and claims Mars.
NASA has already committed to a permanent moon colony. I think it's pretty inevitable that Mars colonies will become common. Humans love to explore and expand.
So why wouldn't you want to get ahead of the curve? Maybe governments and eccentric billionaires start paying SpaceX for their services and expertise in Mars colonization. Maybe SpaceX makes tons of money selling vacations to Mars. Maybe musk names himself Lord emporer of the planet.
Whatever is going to happen, musk wins for being so far ahead of everyone else.
> NASA has already committed to a permanent moon colony
NASA's priorities get changed for it every 4-8 years and doesn't get given funding increases to compensate. I am very skeptical that we will see a permanent moon colony (run by NASA) in the foreseeable future. I would love to be proven wrong.
Seriously? Space solar is all multijunction, a totally different, far more expensive product than single-junction consumer cells. (Multiple junction cells have a higher conversion efficiency than single junction cells, so they're smaller and lighter, but they cost 10-100x more, since they're a low volume specialty product)
Solar city, if it ever actually made solar panels, would never make multi-junction ones.
Any person who goes to Mars in the next 30 years is going there to die. Full stop. The technology doesn't exist to keep them alive on the journey, and the technology to bring them home is decades farther out still.
OTOH, going to the Moon and back is relatively easy, and that's where everybody will be focusing their energy when this Mars mania finally runs its course.
Governance at private companies with single majority shareholders (Musk owns >51% of SpaceX, and has even more voting control) is tricky. Controllers work for the C level/CFO, not shareholders (and the CFO is the one who is going to get sued, not the controllers).
Solar bonds are not as safe as US treasuries (almost nothing is for those who aren't up to speed), but the argument could be made (hopefully with data!) that they were low enough risk that people weren't going to suddenly stop paying their electric bills for the solar on their roofs (and the benefit to SpaceX was premium earned vs that of other safer cash equivalents), so you might as well lend your satellite launch customer deposits to Solar City to get more solar panels installed on roofs. And if you, as the controller, did not see it the same way, they might consider finding a controller who would.
Disclaimer: TSLA investor, owned SCTY solar bonds, have a friend who is a controller for a private family owned company who likes to talk work quite a bit. I admire the financial engineering used to succeed up to this point, and wince at the fiduciary issues occasionally.
These were just corporate bonds, though, and corporate bonds don't work that way. A corporate bond is a simple agreement: you give me $X now, I give you back $X + interest when the bond matures. They're a way for a company to borrow money, nothing more.
If SpaceX managed to get extraordinary concessions for its bond purchase, like some kind of exclusivity agreement, that would raise even more questions -- like, why does one of Elon's other companies get special perks for buying Solar City bonds that the non-Elon-connected buyer doesn't?
SpaceX typically starts taking payments for launches years before they actually take off, which means they can end up sitting on cash that needs investing. It isn't entirely clear that solar bonds are the best vehicle for that, but it's not entirely ridiculous either.
> As SolarCity struggled to raise money from institutional investors, it began offering individuals a chance to buy what it called Solar Bonds. (“Now you can get paid while driving the solar revolution,” the marketing material said.) But there were few takers—so other parts of the Musk empire took up the slack. According to the shareholder lawsuit, SpaceX acquired $255 million of the bonds.
Other than Musk's involvement in both, what's the situation where a company like SpaceX sees a need to plow $255 million into debt obligations issued by a solar panel installer?