The Quick Report

Elon Musk’s Worst Financial Decisions

Billionaire Elon Musk is a divisive figure, with many of his fans saying he’s a business genius and his detractors countering that he’s been lucky to be in the right place at the right time. He’s had his fair share of setbacks, too. Today, we’re taking a look at some of Musk’s worse business decisions and how they’ve panned out for him.

Zip2 Merger and Aftermath

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Those who know a bit about Musk’s early life know that he left South Africa for Canada and started a Mapquest-like company with his brother Kembal, calling it Zip2. The two of them aimed to market the map software to consumers. Investors, instead, wanted to market it to businesses as a directory. The company merged with Compaq Computer, landing Musk a cool $22 million. He used part of that money to buy a McLaren, and, in Musk’s own words, he wrecked it while driving it recklessly on the highway.

X.com

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Most of Musk’s Zip2 money went into creating X.com. No, not the new name for Twitter, but an online banking solution. A complicated series of corporate ousting and mergers led to X and PayPal merging, and Musk getting booted from his role as CEO. Online auction site eBay bought PayPal, netting Musk $250 million, but the entire ordeal is much messier than just a summary makes it sound. People who worked with X and PayPal at the time have unkind things to say about Musk during this era.

SpaceX

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After the PayPal merger and sale to eBay, Musk went on honeymoon to South Africa and became dangerously ill with malaria. He lost 45 pounds from the illness and nearly died. This experience shook him greatly and he poured much of his money from the PayPal acquisition into SpaceX, a private space exploration company that has gone on to become one of the foremost rocket manufacturers in the world. However, this begins Musk’s reputation as a hard man to work for.

Management Style

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Steve Davis, an engineer for SpaceX under Musk, wrote that he once accomplished a seemingly impossible task at Musk’s behest. Musk wanted a $120,000 part made in-house for less than $5,000. After months of work, Davis got the thing made in-house for $3,900. Musk’s reply to this Herculean feat of engineering? An email that read “Ok.”

Ousting Tesla Founders

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Musk was the first investor in Tesla, but he wasn’t initially listed as a founder. In 2008, he had the board oust Martin Eberherd as CEO after convincing them that the company falling behind schedule with its first wave of cars was partly due to his incompetence. Musk is now listed as a founder of the company, despite Eberherd and Marc Tarpenning originating the idea for Tesla.

Moments from Disaster

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Musk made an extremely risky gamble with Tesla and SpaceX just after he took over as the CEO of Tesla. Both companies were flagging badly and nearly went out of business, and Musk had enough personal capital to save one or the other. He bet that NASA would extend a government contract to SpaceX and poured his finances into Tesla. This panned out in the end, as NASA did in fact bail SpaceX out, but that either company needed bailing out at all under his leadership raises some serious questions for Musk’s detractors.

Google Handshake Deal

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Musk almost had to sell Tesla to Google just five years after the SpaceX contract went through. In 2013, Tesla was once again in dire financial straits and Musk made an informal deal with Google to sell them the company. However, in the eleventh hour, before any paperwork was signed, Tesla’s sales team beat quarterly expectations and the company’s stock price soared. Once again, through sheer luck, one of Musk’s companies was saved.

Twitter Deal

person holding space gray iPhone X
Marten Bjork

Something similar happened in early 2022, when Musk proclaimed his intention to buy Twitter for $44 billion. He tried to back out of the deal after determining that Twitter had too many bot accounts for his liking, but Twitter’s board of directors sued him to compel the deal to go through. This has become something of a sore spot for Musk.

Read More: How Did Elon Musk Get Rich to Begin With?

Twitter Revenue Craters

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The revenue for Twitter, which Musk has renamed “X”, has crashed by 84% since Musk took over. He’s tried to right the ship by charging users for verification, shrinking the company’s costs, and other measures that haven’t quite made his $44 billion purchase make any sense. X still hasn’t become the “everything app” Musk seems to want it to be, and advertisers are leaving the site in droves due to the extremist content that X allows to proliferate.

Read More: Facebook Sues FTC for Ability to Monetize Children’s Data

Suing Advertisers

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In perhaps Musk’s most questionable business decision, he also recently deigned to sue former X advertisers for pulling their ad money from the site. While he’s trying to compel them to continue their ad spend, such a move is certain to drive away potential advertisers by showing them that Musk will simply sue them if they choose to stop doing business with him.  

Read More: What the Twitter Revenue Collapse Means for Musk