How Elon Musk drove Tesla's IPO over Wall St: 'Power Play: Tesla, Elon Musk, and the Bet of the Century'

Where are Elon Musk, Tesla at White House EV announcement?

Wall Street Journal reporter Tim Higgins explains why Tesla is missing in action at the president’s address.

Elon Musk, the second richest person on the globe, worth $182 billion per Forbes, is no stranger to making waves. Even before he netted his vast fortune, he managed to ruffle a few feathers while getting Tesla, Solar City and SpaceX off the ground even though he had plenty of doubters. 

In a new book, Power Play: Tesla, Elon Musk, and the Bet of the Century, author Tim Higgins offers key events that shaped Musk and Tesla into who and what they are today. 

It paid off. Tesla went public in 2010 for $17 per share. On Friday, the stock closed just below $700.

In an excerpt from Chapter 11, ‘Road Show’, Musk takes on Wall Street's investment banks as they prepared to take the newbie electric vehicle maker public. 

CHAPTER 11 – ROAD SHOW

"I don’t have time for this," Elon Musk bellowed. "I’ve got to launch the fucking rocket!" And with that he stormed out of the glass confer-ence room at SpaceX, abruptly ending a meeting to go over the finer points of the marketing material for Tesla’s initial public offering.

While Musk had shown he could be a nanomanager, he also had little patience. A passionate writer, he argued with lawyers about the phrasing of the prospectus that was issued in early January 2010 after nine months of work by Goldman Sachs and Morgan Stanley bank-ers. One of those bankers was Mark Goldberg, just twenty- four years old. An interest in renewable energy drew him to work at Morgan Stanley, which was how he found himself the newbie involved in a very unusual IPO process.

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On more than one occasion, Musk threatened to fire them all. "This needs to be more exciting," he’d tell them, pushing for such claims as that Tesla would take over the entire midsized premium sedan market. Or else he’d push back against slides in which Audi was cited as one of Tesla’s competitors. He fumed about how the carmaker had used its marketing might to get Tesla kicked out of appearing in Iron Man 2, after Musk refused to pay to place his cars in the movie. (It didn’t prevent him from making a cameo in the film, playing himself.) "Why is Audi even in there?" he demanded about the presentation. "They’re not even a factor . . . We’re going to crush Audi."

It was the kind of behavior expected of a startup founder but not the kind typically found in the c- suites of publicly traded companies, where attention was paid to shareholder return, communications were scripted, and unnecessary risk avoided. If Musk was chafing at the chance to become public, what would it be like when Tesla was 

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owned by the thousands of investors and he was at the mercy of their whims? But Musk had little choice. Going public would allow the company to raise money at the cost of his being able to run it like his own personal fiefdom. There was other atypical behavior as well. While Morgan Stanley had been initially picked to hold the prestigious lead banker role, it was later bumped to the No. 2 spot behind Goldman Sachs. Records later filed with the IPO would show that Goldman had given Musk a personal loan—a n early indication of how tenuous his own finances had become.

For help with the IPO, CFO Deepak Ahuja hired Anna Yen, a former executive at Pixar, to oversee investor relations. The job involved a tedious amount of paperwork that had to be filed with the Securities and Exchange Commission. In the process of submitting forms, Ahuja’s team realized that Tesla had failed to submit proper documentation to the EPA that year, a mistake that could lead to a fine of $37,500 per vehicle sold, or an almost $24 million weight to be carried by the company’s already beleaguered balance sheet. In the final days of 2009, they rushed to get the paperwork in, settling with the DOE to pay just a flat $275,000 fine. More importantly, the EPA agreed to cover all of the vehicles sold in 2009 as if they had been properly certified to begin with. (Musk had personally called EPA administrator Lisa Jackson, appealing for help in expediting the matter amid concern it could drag on for months.)

It was during this period that Musk hired a general counsel and, just a few weeks later, watched him depart. It was a position that would prove notoriously, almost comically difficult for Musk to keep filled; he didn’t seem to have much interest in the advice of his lawyers.

One thing Tesla elected not to do when preparing for public ownership, which would have ramifications years later, was introduce a dual- class stock system. This was what allowed Larry Page and Sergey Brin at Google (or Mark Zuckerberg at Facebook two years later) to keep control of their company, even as they held a small fraction of its total stock. It’s unclear why Tesla’s IPO paperwork, which it filed in January 2010, contained no such provision to ensure Musk’s con-tinued oversight of the company. Those who worked on it said the idea was omitted, in part, because selling Tesla as an investment was already going to be hard enough. Having an entrenched, unpredict-able leader tethered to the company could make the IPO more 

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challenging still. (Plus, Musk’s brother, Kimbal, was on the board, already raising one corporate governance question around nepotism.)

The best that Musk got was a provision requiring that any measure by shareholders to force changes, such as an acquisition or sale, must pass with a two-t hirds tally of outstanding shares—a  supermajority provision that could effectively give Musk a veto over articles he didn’t like. As long as he maintained his stake in the company, which in January 2010 stood at around 20 percent, his fellow shareholders would need to gain the approval of roughly 85 percent of the outstanding shares to get a measure past Musk— an exceedingly high bar for a company that was more and more becoming defined by its outspoken leader.

He had another form of protection too, at least for a couple of years. A provision of the deal cut with Daimler effectively ensured that Musk would remain CEO through 2012— a tacit acknowledgment by Daimler that it saw Musk as key to Tesla’s future.

Weeks after filing the paperwork for its IPO, the company was racked with disaster. A team of engineers from San Carlos was taking a private airplane to Hawthorne for meetings when it crashed upon takeoff. All three of the Tesla engineers onboard died. Musk himself had been scheduled to go to Hawthorne that day, but he had had to cancel his trip at the last moment upon learning that Kimbal had broken his neck in a sledding accident in Colorado. Musk was rattled as his team briefed him on the incident.

Two days later, Tesla was rocked with a blow that was decidedly less tragic, but that cast a shadow over its IPO prospects. The Silicon Valley industry online publication VentureBeat broke the news that Musk’s divorce proceedings had taken an unexpected turn. Musk, the billionaire, was pleading poverty. "About four months ago, I ran out of cash," Musk had told the court in filings. He had been living off personal loans from a friend since October 2009, spending $200,000 a month.* In The Times of London, Musk’s wife, Justine, who’d been 

* Musk later complained that the $200,000  monthly expenses included about $170,000 for both of their legal fees tied to the divorce. Much of the rest, he said, was for nanny salaries and supporting Justine’s household. He noted that they split custody of their five children. "Almost all of my non- work waking hours are spent with my boys, and they are the love of my life," he wrote in 2010.

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blogging about the couple’s divorce, amplified their spat. Musk found himself in a troubled spot. Tesla had survived because of his fortune; just a few years earlier he had promised customers that he would personally refund their money if Tesla went bankrupt.

The company’s lawyers did damage control. They drafted an update to Tesla’s IPO paperwork saying it was "no longer dependent on the financial resources of Mr. Musk" and that "we do not believe that Mr. Musk’s personal financial situation has any impact on us." Behind the scenes, however, Tesla’s bankers worried that the divorce threatened to disrupt the budding public offering. If Justine Musk suddenly had a claim to Tesla shares and didn’t agree to the lock- up period, for instance—t he time during which insiders aren’t allowed to sell their shares, which might devalue newly issued stock— the IPO could suffer. All of which was putting pressure on Musk to settle his divorce, and quickly.

When Justine lost an effort to throw out the couple’s postnup, the two quietly settled. That threat, at least, was put to bed.

Musk proved he could be his own worst enemy. A fan of Stephen Colbert, he wanted to go on the comedian’s Comedy Central TV show The Colbert Report. Tesla’s bankers and lawyers urged him to hold off. Tesla was in a quiet period ahead of the IPO; anything he might say could result in new filings and further delays. Musk bristled at the attempts to contain him. He threatened to fire the team handling the IPO, going so far as to begin efforts to set up his own road show with would-b e investors on the East Coast. When the bankers asked him to rehearse for them what he planned to say on this tour of investors, Musk refused. He didn’t care about their opinions. Finally a compromise was reached. Musk was persuaded that the bankers’ sales teams would need to hear his pitch if they were to help sell potential investors on Tesla.

Musk didn’t want a typical road show: A staid pitch made by a private company that yearned to be public, held in investor conference rooms, punctuated with PowerPoints. Sure, he would do those things. But he also wanted investors to get a true feel for his cars of the future. The young Goldberg worked for weeks to get permission to have the glass doors of Morgan Stanley’s Times Square office build-

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ing removed so they could bring the Model S into the lobby. Important investors were given test drives at a store nearby. "I’d never seen investors with ear- to- ear grins on their faces before," he recalled.

The presentation attracted those curious to see Musk in person. He wasn’t yet as famous as he would become but was already developing a reputation as a rebel in the tech world. That summer he had begun flexing his marketing muscle on a new social media platform called Twitter, which allowed him to send out 140-c haracter dispatches from his smartphone. During his presentation Musk encouraged investors to look at Tesla differently. "Think closer to an Apple, or Google, than a GM or Ford," Musk said. To emphasize the point, he had a slide that showed Tesla’s headquarters in Silicon Valley surrounded by tech giants. Despite the distance from Detroit, he did want to use Tesla’s connection with Daimler and Toyota as endorsements. Daimler, he noted during one talk, invented the automobile and now was turning to Tesla for help. "It’s like Gutenberg saying can you make a press for me?" he joked.

One of the topics on some investors’ minds was an obvious one: How would he balance his time serving as CEO of two companies, Tesla and SpaceX (not to mention his role as chairman of SolarCity)? He’d grow angry at Ahuja and the team whenever he got questions from potential investors that he thought were dumb, telling them they should’ve done a better job educating them ahead of time.

For those who bought in to the pitch, Musk allowed them to reimagine what the auto industry might look like. Morgan Stanley analyst Adam Jonas had begun his career inspired by Steve Girsky, who gained recognition as a leading authority on the industry before eventually joining the General Motors board after its bankruptcy reorganization. Musk’s vision excited Jonas enough to help inspire him to return to the U.S. from an assignment in London. His job was to monitor a pack of auto industry companies, providing unbiased advice to investors on their performance. He would study their financials and place in the overall industry, publishing regular notes on how he thought things were going and what he thought was a proper price for their shares. In the case of Tesla, he thought there was potential for the stock to rise in value over time to $70 a share. 

This constituted a rosy outlook, to say the least.

Opinions like Jonas’s could help form a narrative around the com-

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pany’s performance. Was it meeting or failing to meet expectations? The answer to that question could impact the stock’s price, pushing it down with disappointments or up with unexpected good news.

Jonas could see the potential for Tesla cars to move from a "rich man’s toy to mass market," he told investors, while cautioning that the company’s long- term independence could only be achieved through Musk’s long-h eld goal of coming out with an electric car at a price of around $30,000. The risks were great, though. He warned that missteps and delays in bringing out the Model S could hinder that ambition, as could the entry into the electric market of more experienced automakers.

"As is not uncommon with start-u ps, the biggest question is if Tesla can remain solvent long enough to capitalize on the forthcoming technology break-t hroughs," Jonas wrote to investors in financese, when initiating his coverage of Tesla several months later. In a worst- case scenario, the company’s shares might be worth nothing.

Would- be investors fell primarily into three camps: Those who questioned why they should buy Tesla shares before it had proved it could build the Model S. Those who felt that now was precisely the time to buy in, because once Tesla proved itself, it would be too late to get shares on the cheap. And a third, more unusual group. As part of the terms of the IPO, Musk had insisted the banks set aside a pile of shares to be sold to early customers of the Roadster, to give them a chance to buy a stake in the company they had already backed as consumers. It was an acknowledgment that without them— their patience and support—t here wouldn’t be a Tesla. They would serve as vocal advocates for years to come, a Greek chorus reflecting on Musk’s every move.

With investors suitably wooed, Musk huddled with his bankers on a call to discuss what they’d price Tesla’s stock at. The bankers recommend starting at $15 a share.

Said Musk: "No. Higher."

Goldberg hadn’t been doing IPOs for very long but in his three years at it, he’d never seen any CEO push back on price like that. After all, these bankers from Goldman Sachs and Morgan Stanley were the experts. Now the experts were stunned. They muted their phones, filling their side of the conversation with profanity as they debated their next steps. Who the fuck does he think he is? Who here can 

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convince him otherwise? Is this whole thing going to fail? Is it too late to pull out?

In the end, they had gone too far to back down. Musk had them over a barrel, and after watching him for months as he pushed back against custom, they knew it was well within his MO to walk away if he didn’t get what he wanted on arguably the most important part of the IPO—t he decision that would impact how much money Tesla took away from the arrangement. He had been right so far. They relented.

The stock was ultimately priced at $17 a share. At that price, it would raise a much needed $226 million for the burgeoning automaker. On the day Tesla was set to go public, Musk and his team arrived at the NASDAQ stock exchange in lower Manhattan in Roadsters. He was accompanied by his girlfriend, soon-t o- be second wife Talulah Riley, whom he’d met at the London nightclub two years prior. Musk rang the opening bell. As Tesla shares rose 41 percent that day, he stood outside for a TV interview with CNBC’s longtime automotive correspondent Phil LeBeau, who didn’t go easy on the newly crowned public company CEO, asking when the automaker would turn its first profit and noting that many in the industry doubted Tesla would be able to ramp up production of the Model S as promised. "People at this point ought to be a little bit more optimistic about the future of Tesla because we’ve confounded the critics at every turn so at a certain point people have to get tired of being wrong," Musk said with his typical bombast.

He and Ahuja then raced to Musk’s jet for a trip back to Fremont and a party at the company’s newly acquired factory. Ahuja watched as champagne was poured for the team. That day represented not only the culmination of months of preparation but years of building: The company had now successfully gone public. It was a huge milestone for any startup.

Musk raised a glass to the occasion. "Fuck oil," he toasted.

From the book POWER PLAY: Tesla, Elon Musk, and the Bet of the Century by Tim Higgins,  published in the US on August 3, 2021 by Doubleday, an imprint of The Knopf Doubleday Publishing Group, a division of Penguin Random House LLC, and in the UK on August 5, 2021 by WH Allen. Copyright © 2021 by Tim Higgins.

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