1. Based on the information presented in the minicase, and the discussion in both Chapter 2 and this chapter, to what extent does Elon Musk fit the general charac- teristics of an entrepreneur and a CEO, especially in respect to his attitude about risk and return? 
2. Consider the manner in which the readers of Aswath Damodaran’s blog responded to his $67 valuation for Tesla, as discussed in the minicase. Analyze the psy- chological basis for their responses.
3. From the MHHE web site for Chapter 6, download the free cash flow analysis file associated with this minicase. Compare the various cash flow analyses, for both the same point in time in 2013, to identify how the analysts’ views differed from Damodaran’s views, and then in 2014 to illustrate how the analysts’ cash flow forecasts changed as Tesla’s stock price climbed. As part of your answer, evaluate the assumptions about risk. In addition, assess whether the different analyses assume that Tesla would experience zero growth opportunities during its terminal horizon.
4. Consider the possibility that the volatility of Tesla’s stock has placed some investors in a situation where they are averse to a sure loss. On October 22, 2015, an article on the site seekingalpha.com suggested that this was the case.32 At that time, Tesla’s stock price was approximately $210. The article notes that the first time Tesla’s stock price had been at $210 was in Feb- ruary 2014. As can be seen from Exhibit 6-2, 2014 was a very bullish year for Tesla. On September 4, 2014, its share price peaked at an intraday high of $291.42. Thereafter, until the end of May 2015, Tesla’s share price declined, falling to an intraday low of $181.40 on May 27, 2015. The article suggests that with Tesla's share price down to the same level it was 18 months before, investors who purchased the stock at a higher share price would be inclined to hold rather than sell. Discuss the argument.
5. On April 19, 2016, an article that appeared on the web site seekingalpha.com discussed the implications of selling Tesla stock short.33 The article warns short sellers to be cautious in believing that even though Tesla’s fundamentals are poor, they should be wary of concluding that its stock price will drop imminently. In this regard, the author points to the sharp increase in the stock after Elon Musk unveiled the Model 3. Dis- cuss this position in the context of Exhibit 6-2.

Entrepreneur Elon Musk set himself the lofty goals of making financial transactions over the Internet more se- cure, combatting global warming by building the first commercially successful electric car, and building a pri- vate space company that could help establish a human colony on Mars.
Born in South Africa, he grew up in Canada, and in 1995 at age 26 moved to Silicon Valley. There he co- founded a high-tech firm called Zip2 that provided on- line publishing for media companies. In 1999, Compaq Computer Corporation purchased Zip2 for $307 million, of which Musk’s share was $22 million. He set aside $4 million for personal use, and invested the rest in a startup called X.com.
X.com eventually became PayPal, the online payments firm discussed in Chapter 3. When eBay acquired PayPal in 2002 for $1.5 billion in stock, Musk’s share was $165 million. That year he cofounded the space firm SpaceX, and in 2004 invested in Tesla Motors, whose goal was to produce a commercially successful, fully electric car. Tesla had been incorporated in 2003, and in addition to cars planned to design and manufacture highly efficient bat- tery packs, charging stations, and powertrain components. In 2007, SpaceX won a $1.6 billion contract to transport cargo to the International Space Station. A busy person, Musk and his first wife Justine together raised five sons.23 Using a factory in Fremont, California, known as Nummi that had once been used by Toyota and General Motors, Tesla began producing the first fully electric sports car, the Tesla Roadster.
Risk entails the potential for failure as well as success. Tesla presold the Roadsters for a price of $92,000, but was having difficulty getting the cost below $95,000. The firm’s bank balance declined through 2008 and was going to need a large cash infusion to survive. Both Daimler and Toyota were considering investing in the firm, but had not yet done so.
Musk faced a choice between investing all of his re- maining personal wealth in Tesla, $20 million at the time, or walking away and allowing the firm to fold.24 Musk’s brother, and former partner in Zip2, asked him if it was rational for him to go for broke, and he decided that it was. At that stage, his marriage to Justine had broken up, and he needed to borrow money from friends in order to pay his living expenses. He described that time as eating glass every day and staring into the abyss of death.
In late 2008, Musk became CEO of Tesla in order to implement a strategy that would see the firm complete deals with Daimler and Toyota and allow the firm to move forward on the next phase of his plan, which was to de- velop a new model, to be called Model S.
This period was not only difficult for Tesla; it was also a very difficult time for the automotive industry. The Great Recession was underway, and demand for ...