Elon Musk is the wealthiest person on earth. Legend has it that he could be worth $250 billion, or about Rs 20 lakh crore (yeah, it hits you hard in the gut when you say it in INR). Most of his wealth has sprung from owning over 150 million shares and stock options of Tesla Inc, the iconic electric car and sustainable energy company founded about two decades ago.
Now, please suspend your disbelief and humour me with a “what if” quiz. What if Tesla had been incorporated in India? What if it was just as successful here as it’s been in America? Hey come on, don’t give up and leave – remember, you’ve promised to suspend disbelief and humour me. So, again, what if it achieved exactly the same milestones, ie, Tesla India, too, sold a million Model 3/Ys last year and touched nearly a trillion dollars of market cap?
Let's for a moment believe that Tesla India also sold a million Model 3/Ys last year and touched nearly a trillion dollars of market cap. How much would Elon Musk be worth today?
In India, equity cannot be bought and sold in a commercial negotiation. Instead, Elon needed to get a “fair valuation” done by a certified CA, who would discount uncertain future cash flows to come up with a number that would make sense to nobody but would satisfy India’s tax sleuths.
Through numerous such hurdles, at current prices, Elon's net worth may have been $25 bn, instead of the fabled $250 bn. That’s how India’s obsolete laws strip first-generation geniuses to barely a tenth of their potential.
A Game of 'What Ifs'
Yes, I will repeat this incredible set of “make-believe facts” one final time so that you don’t just shake your head and quit on me: Imagine that Martin Eberhard and Marc Tarpenning set up Tesla India in Pimpri, Pune, in 2003. Imagine Elon Musk, a co-founder at Paypal, filed with India’s Foreign Investment Promotion Board (FIPB) to infuse $30 mn in Tesla India to become its ex-pat chairman. Imagine that Martin and Marc quit in 2008, leaving Elon Musk as the “promoter” and CEO of Tesla India. Under his watch, a completely electric Roadster burnt the test tracks at Pune, hitting 245 miles on a single charge. Hurrah! A shining Indian star was born. C’mon, humour me.
Now to my trick question. So, we’re all agreed that Tesla India touched a trillion dollars, or Rs 80 lakh crore, of market cap in 2022. How much would Elon Musk be worth today? Would it be more or less than the fabled $250 billion?
Asked another way, would Elon Musk be wealthier or poorer if he had dared to set up Tesla’s first factory in Pimpri, Pune, instead of Fremont, California?
Remember, we are playing this “what if” game based on a key assumption, ie, Tesla India is as successful as Tesla Inc, not a penny more, not an EV less.
Say, Tesla Is Successful. What About Elon Musk?
But then, what about Elon Musk?
Allow me to do a minor throwback before I continue gaming. Do recall that Elon Musk had invested $30 mn in Tesla India via an FIPB approval in the noughties. In true American tradition, he had bargained hard with Martin and Marc to invest in deep value. But hell, he forgot that in India, equity cannot be bought and sold in a commercial negotiation. It’s not a simple question of what the buyer and seller are willing to settle at.
Instead, Elon needed to get a “fair valuation” done by a certified chartered accountant, who would discount utterly uncertain and unknown future cash flows to come up with a number that would make sense to nobody but would satisfy India’s tax sleuths!
Now even if he had known about this, Elon would have just tweeted “how ridiculous”, and ignored the silly rule. But who can escape the long arm of Indian law? A few months down, he received a notice under Section 56(2)(x) of the Indian Income Tax Act 1961, accusing him of undervaluing the company, and slapping a tax and penalty of $60 mn for the “transgression”. In true Musk style, he simply tossed the paper at his accountant saying “handle this nonsense, will ya?”.
A Young Elon Tangled In Old Laws
Now back to our game. The year is circa 2010, and Tesla India is ready for its IPO. It files a red herring prospectus with SEBI to sell 13 million shares to the public. There is much buzz around this whiz of a company, and the IPO sails through, raising $226 million at a market cap of $1.5 billion, listing at a 40% premium. Elon, with his holding of 28 million shares, is worth half a billion dollars, or Rs 4,000 crore in today’s money.
Tesla India was now cruising, and its board was pleased as punch. In 2012, it came up with a spectacular stock award for Elon Musk, who had vowed that he wouldn’t take a cent in cash salary, but would be a glutton for performance-based stock options. So. the board crafted an aggressive plan. Elon would get about 26-27 million stock options at a little over six dollars apiece, vesting in 10 tranches tied to stiff targets. These options would fully vest only if “Tesla achieved a sustained market capitalisation increase from $3.2 bn to $43.2 bn, and all 10 operational milestones were achieved”. Starting with the Model X Alpha Prototype to hitting an aggregate vehicle production of 300,000 units. Elon delivered on all targets … and then some more. By 2018, Tesla India was at $55 bn of market cap!
But hey, dial back again. Because while Elon hit the numbers, he was denied his stock options. Why? Because under Indian laws, a company’s founder/promoter is prohibited. So 26-27 million stock options just languished and rotted. Elon Musk was disappointed but too young and ambitious to let this setback rein him in.
In 2014, Prime Minister Modi took charge of India and promised to fix everything that was broken, including, and most palpably, archaic laws that had chained our start-up entrepreneurs to relative penury. Tesla’s board heaved an excited sigh and began creating another stock plan for its superstar CEO
Elon Musk’s 2018 stock award was even more spectacular than the failed 2012 one. This time, he was given over 101 million options at about $70 apiece, to vest in 12 tranches tied to much stiffer targets. I’ll keep it simple. Tesla had to hit a market cap of $650 bn if Elon Musk was to encash all his options!
Do First-Generation Geniuses Have a Chance?
Now dial forward to the present. In the first quarter of 2022, Tesla reported annualised revenue of more than $55 bn and annualised adjusted EBITDA of more than $12 bn. Tesla’s stock price was over $970 per share (vs the $70 per option price). Elon Musk should have been richer by a whopping (ugh, I hate this stock phrase) $25 bn … but, since Tesla was an Indian company, and the government was yet to change archaic rules, he was denied once again. Promoters are not entitled to stock options … go lump it!
Elon Musk was furious, but being an irrepressible genius, he tweeted “I will take Tesla private”, where the board could give him stock options.
Before he could spell out his plan, SEBI slapped its dreaded ban. “How dare a promoter make such a price-sensitive announcement on Twitter without taking the board’s, shareholders’, and regulator’s approval? Elon Musk shall be restricted from trading in securities for a period of two years”. Boom. Done. Over.
Postscript: Quite obviously, the above is a fictionalised account, but all the laws and their implications cited above are accurate. Net-net, if Elon Musk had founded Tesla in India, he would have been denied nearly 130 million stock options. All he could have carried were the 28 million shares he held at the time of the IPO in 2010. So, at current prices, his net worth may have been $25 bn, instead of the fabled $250 bn. That’s how India’s obsolete laws strip first-generation geniuses to barely a tenth of their potential. Sad.