As you may be aware, Vernon Unsworth (hero of the Philippines cave rescue) recently lost a defamation case against Elon Musk, who had called him a “pedo”. Such are the vagaries of American defamation law that, even though the accusation was completely false, and Musk admitted as much, Unsworth lost his case.
A fascinating detail emerged during the case which had little to do with defamation but says an awful lot about the world’s tech billionaires.
[Musk] told the jury under oath that, despite being worth more than $25 billion, he actually has very little money.
That’s because Musk’s wealth is both illiquid AND unprofitable.
Although Musk owns 20% of Tesla, he can’t sell his shares. This isn’t entirely unusual: Warren Buffett doesn’t sell his shares in his company Berkshire Hathaway, either. But there’s one key difference between the two: Berkshire Hathaway is a consistently profitable company. Tesla, on the other hand, bleeds money.
Tesla has had a few good quarters here and there. But for the most part the company has lost more than $10 billion in cumulative NEGATIVE free cash flow over the past decade.
Buffett’s net worth is derived from his company’s financial performance. Berkshire Hathaway has over $100 billion in CASH on its balance sheet and generated nearly $40 billion in Free Cash Flow last year. Buffett owns a huge piece of that success.
Tesla has tiny amount of cash by comparison, a growing pile of debt, and lost a billion dollars last year…And he’s definitely not the only ‘billionaire’ in this situation. All across Silicon Valley (and much of the world) we see tech entrepreneurs loaded up with shares of their loss-making businesses, but short on any actual money.
The founder of Snapchat is worth more than $3 billion thanks to his company’s stock price; yet the business has lost billions of dollars since inception and has never generated positive cash flow in a single year, ever.
Uber, WeWork, Lyft, Slack, Peloton, Pinterest– there are so many tech companies, or companies masquerading as tech companies– that consistently lose tons of money. It’s absurd…[These companies] bleed cash. Many of them have no hope of ever turning a profit…
We live in a world where central bankers have conjured trillions of dollars out of thin air and have even made interest rates NEGATIVE in a number of countries.
Well, when interest rates are zero (or negative) and central bankers create money at will, it means that money has no value anymore…
I also read this morning that, over the weekend at an art fair in Miami, someone paid $125,000 for a piece of ‘art’ that was nothing more than a banana duck-taped to the wall.
That’s pretty much the equivalent of lighting your money on fire… and another extreme example of how little people value and respect capital anymore.
sovereignman.com/investing/broke-billionaires-and-other-ridiculous-signs-of-the-top-
If all of this sounds eerily familiar, it should. During the 90s, the “dot-com bubble” saw speculators throw mountains of cash at anything with a “dot-com” after its name. In 2000, it all came crashing down. A handful of companies survived and came to dominate the market today: Amazon, ebay, Google. Unlike many tech companies, too, Tesla at least makes things. Perhaps venture capitalist Fred Wilson is right when he says, “Nothing important has ever been built without irrational exuberance. Meaning that you need some of this mania to cause investors to open up their pocketbooks and finance the building of the railroads or the automobile or aerospace industry or whatever”.
But how long can paper billionaires continue to spin money out of nothing, or siphon billions from taxpayers, before the collector comes knocking?