Harnessing the Sun and Outer Space: Elon Musk's Sky-high VisionPublished: May 13, 2009 in Knowledge@Wharton
During a recent lecture at the University of Pennsylvania's College of Arts and Sciences, titled "Don't Panic: Adventures in High-Tech Startups," Elon Musk was asked about "the perception that entrepreneurship is dominated by luck, and if you create a very successful company, it's more about the external environment rather than any skill the entrepreneur has." Musk's deadpan response: "I'm just very lucky."
Clearly, Musk's record of creating visionary and successful companies required some luck. But, just as clearly, luck alone could not fuel this portfolio: By age 38, Musk has been a co-founder of PayPal, which he and his partners sold to eBay for $1.5 billion, and rocket builder SpaceX, which aims to commercialize the launching payloads into orbit. He's also CEO of electric-car pioneer Tesla Motors, where he designs cars in addition to guiding the business, and solar energy company Solar City, which sells and services solar energy equipment. The three current ventures continue to grow despite today's economic environment, he said.
Musk, a native of South Africa, has always been an innovator. At age 12, he wrote a video game called Blaster and sold it to a magazine for $500. While still a teenager, he left South Africa for Canada, enrolled in Queen's University in Ontario, and later transferred to Penn on an academic scholarship. He left in 1995 (he technically graduated in 1997) with a physics degree from the School of Arts and Sciences and an undergraduate business degree from Wharton.
"When I was at Penn, I started thinking about what would most affect the future of humanity," he said. "The three things that I thought would be the most effective were the Internet, the transition to a sustainable energy economy, and space exploration, particularly extension of life to multiple planets. That's not to say I thought I would be involved in all those things. But as it turns out, I am."
Upon leaving Penn for California in 1995, Musk planned to enter a PhD program at Stanford to study materials science and the potential of high-energy-density capacitors for energy storage. Instead, he was drawn into private enterprise by the more immediate possibilities of the Internet. That year he started Zip2, which linked local business listings to online maps, building a client base that included The New York Times, and publishers Knight Ridder and Hearst. He didn't know if money would follow. "In 1995, nobody had made any money from the Internet," he said. "Netscape went public in late '95, and that was the first inkling that -- even if nobody was making any revenue on the Internet -- at least there was some greater fool who would buy the stock."
When Compaq bought Zip2 for $307 million in 1999, it was the largest sum ever paid for an Internet company. Musk funneled some of his new riches into a start-up called X.com, which exploited what he saw as a dearth of online innovation in financial services. One feature of X.com's service was a way to transfer money to someone else using an e-mail address. In 2000, X.com merged with a start-up called Confinity that was working on beaming payments between Palm Pilot handheld electronic organizers. The company adopted the name PayPal and by the end of 2000 had a million customers, many using the service for eBay transactions. In 2002, eBay bought PayPal for $1.5 billion in stock.
Going into Orbit
"So that worked out pretty well," Musk said. After that, he was "burnt out on the Internet" and wondering why progress in space exploration was so slow. "If you'd said to people in 1969 that by 2009, we would barely be able to get to low-Earth orbit, let alone Mars or something like that, they would have thought that's ridiculous. In the popular literature of the time, they expected that we would have a moon base, a Mars base, that we would be exploring the solar system in a significant way by now."
In 2001, Musk had put together plans for a philanthropic, publicity-generating "Mars Oasis" project, which would transport a miniature greenhouse growing food crops to the surface of Mars. "People tend to respond to precedents and superlatives. So this would be the furthest that life ever traveled -- the first life on Mars. The public could get excited about it, and that would result in funding from NASA and an imperative to take things to the next step."
That project hit a snag over the cost of a launch vehicle, but there was a next step for Musk. In 2002 he formed SpaceX -- for Space Exploration Technologies -- with a short-term business goal and a longer-term grand vision. Short term, at a time when NASA is increasingly handing off space jobs to private companies, SpaceX's plan has been to develop launch vehicles that will reduce the cost and increase the reliability of space access, by a factor of 10, for jobs such as lifting commercial satellites into orbit or transporting cargo to the International Space Station. That ambitious goal actually seems down-to-Earth compared to Musk's bigger vision, what he calls "the super holy grail situation ... that we would play an important role in making life multiplanetary. Basically the idea is just to keep improving the cost of the rockets, improving the reliability, and making as much progress as possible towards that ultimate goal of helping extend life beyond earth."
Musk is CEO, chief technology officer and chief designer at SpaceX, which has its offices and manufacturing operation in a cavernous 500,000-square-foot building -- where Boeing 747 engines were once produced -- in Hawthorne, Calif. Last September, in a fourth expensive attempt, SpaceX successfully launched its Falcon 1 rocket into orbit from a launch pad on Omelek Island in the U.S. Army Kwajalein Atoll (about 2,500 miles southwest of Hawaii). It was the first privately developed liquid fuel rocket to orbit the earth and is still up there. In December, SpaceX won a $1.6 billion NASA contract to build unmanned vehicles to carry cargo to the International Space Station.
"It's worth knowing that after the space shuttles retire, around the end of next year , it will be SpaceX or nothing for five or six years -- well, SpaceX or [the Russian] Soyuz," Musk said. Soyuz will be the only vehicle able to transport people to and from the station. Meanwhile, SpaceX is working on a space capsule, called Dragon, for humans.
His Other Job
Musk described his work at trailblazing Tesla Motors -- where he is CEO, chairman and a hands-on product designer -- as "my other job." Tesla's curvy, head-turning $109,000 Roadster, which was unveiled as a prototype in 2006 and went into limited production in 2008, is an all-electric, plug-into-the-wall sports car (not a gasoline hybrid) that made Tesla the only production automaker selling highway-capable electric vehicles in North America or Europe. The two-seater will go 220 miles per charge. Under the car's hood there is no engine -- just empty trunk space. Instead, toward the back, there's a 900-pound battery pack roughly the size of a storage trunk. It is composed of 6,831 individual Lithium ion cells (the technology used in laptop computers). The car has specs to match most gas-powered sports cars: It can go from 0-60 mph in 3.9 seconds and hit a top speed of 125 mph. The company has delivered about 320 Roadsters so far, and the wait list is long.
By late 2011, Tesla plans to begin making a $50,000 Model S sedan, which can carry seven people and travel up to 300 miles per charge. The goal is to produce 20,000 sedans per year. The climate for growth is friendly: Under the federal stimulus program, consumers can receive incentives for buying electric vehicles, and Tesla itself is seeking $350 million in federal loans to build a Model S assembly plant in California.
"[What's] important to appreciate is that even if the power [for charging an electric car] is 100% coal-generated, the CO2 per mile is still better than a gasoline engine. The electric motor is incredibly good at turning energy into motion. Our electric motor on average is about 89% efficient, whereas a gasoline engine will typically be 17% or 18%. Mostly what you're doing with a gasoline engine in a car is generating heat." And of course, he added, the electricity to power a car might eventually come from renewable energy sources, like wind or solar.
Asked what has been the biggest obstacle in building his "incredibly successful companies," he replied, "I don't know about incredibly successful. I'd say moderately successful. But the biggest obstacle is finding great people. That's really the major source of impedance in growing a company."
Musk does give luck a little bit of credit in his success. "Definitely luck plays a role in anything," he said. "I do think you've got to have perseverance. You've got to stick it out, and the team that you're working with does, too. That allows you to get through a series of issues. It took us four flights to get to orbit at SpaceX. That was kind of grueling."
Musk also said that while his companies have exploded with innovation, business success ultimately comes down to the fundamentals. Even in a business as technology-driven as rocket science, "the fundamentals are what we need to improve the cost and reliability. Those are the outcomes you're seeking, and any innovations are only relevant to the extent that they improve those two variables. I could gloss it up and say this innovation, that innovation -- but what matters in the end is that you make [your product] a lot more reliable and you make it cheaper."