Elon Musk, the mastermind behind Tesla Motors (TSLA +2.45%) and co-founder of SolarCity (SCTY +0.00%), has become a stock market icon over the past two years, building one of the world's biggest fortunes along the way. But he had a tough week after both companies reported earnings that left investors wondering if he could live up to lofty expectations.
Between the time the market closed on Tuesday and the time it closed on Friday, Musk had lost $1.7 billion. And you thought you had a bad week.
Musk's vanishing billions
Elon Musk still owns more than 25% of both Tesla Motors and SolarCity, so when they go down he loses a fortune. Take a look at just how fast $1.7 billion can vanish:
| Company |
Shares and Options |
Stock Price Tuesday |
Stock Price Friday |
Elon Musk's Loss |
|---|---|---|---|---|
|
Tesla Motors |
37.8 million |
$176.81 |
$137.95 |
$1.467 billion |
|
SolarCity |
21.0 million |
$62.77 |
$50.18 |
$265 million |
Source: company SEC filings.
Before you feel too bad for Musk, keep in mind that including stock and Tesla options he is still worth about $6.3 billion today. So he won't have a problem making the mortgage.
The cost of high expectations
It isn't as if Tesla Motors or SolarCity is doing poorly, it's just that the market has set incredibly high expectations that neither company may be able to meet.
Tesla delivered 5,500 Model S units in the third quarter, which exceeded its own expectations but fell short of Wall Street's. The real story is that investors realized they've gotten way ahead of themselves. Tesla's going to make only 21,500 this year, and a $17 billion market cap prices in flawless execution. As a result, even great results will cause the stock to sink.
A similar story unfolded at SolarCity, which met expectations all around but the market decided to focus on earnings guidance being below expectations. Once again, expectations and SolarCity's lofty stock price came back to bite Musk this week.
Musk will be fine
A $1.7 billion loss in three days is tough for anyone, but Elon Musk will be fine. The market has richly rewarded him for building visionary companies, but those high expectations can backfire from time to time.
I'd still be comfortable investing in Musk's companies, even if they had a bad week on the market.
