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Elon Musk Selling His Homes Could Indicate Tesla Texas Pivot

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Whitney tilson’s friend speculates on Elon Musk selling his homes and what his next move is for Tesla Inc. (NASDAQ:TSLA).
My friend (below) nailed it, based on this tweet:
From a friend:

I read the articles talking about Musk selling his homes in the context of him being “cash poor” and that it’s somehow a strain on his leveraged stock position.

I think this theory is completely wrong, and I have a different theory as to why he is doing this.

First of all, he owns close to $100 million of personal real estate. There’s a reason, apparently, that he needs to control (not necessarily own) that much real estate, and he explained it on the Joe Rogan podcast, as if it weren’t obvious anyway: Just like Mark Zuckerberg’s numerous consecutive houses in Crescent Park in Palo Alto, he needs a “buffer” worth of houses, for security and privacy purposes.

In other words, he can’t just live in one house, and have a regular person living next door. He needs his security team to control at least one house in each direction around him, to keep the tourists and the nutcases from coming to close.

That may not be necessary for every single property one could buy for $10 million to $40 million each, but in these specific cases he chose over the last decade or so, it apparently is.

That means that if he were to rent a similar constellation of properties, instead of owning them, it’s not like he could pay $50,000 a month and somehow replicate his setup. His annual rent may be in excess of $10 million.

Furthermore, security becomes a bit of a problem if you’re renting. The home’s maps will be known to more people — the landlord, the landlord’s architect, construction people, etc. If you’re renting, you can’t construct your safety bunker, panic room, escape pod, special electrical features, etc., without too many people finding out. That’s why you own in the first place, not rent.

For a person with such security needs, renting makes it extremely hard to find the right kind of place, including the broader setup. You have to take what’s available. That’s hard to find and it will cost an insane amount of money in rent.

The choice for Musk is especially suboptimal because he already owns the houses. As we all know, the equation shifts a bit to the side once you already own something. If Musk didn’t already own these houses, the case for renting wouldn’t be as poor as it is if he has to first sell what he’s already got, presumably with an ideal setup for him as it has been finely honed over a decade.

For someone of his net worth, the difference between paying $10 million (or more) in rent, versus having to sell close to $100 million in assets, is essentially irrelevant. It will make no difference to him economically.

So why do it?

I just stated the case why the media explanation for Musk selling his homes makes no sense. So why would he do it?

To understand why, you have to remember when he said he would do it. He said it almost in the same breath — a day or two after — the Q1 earnings call. He continued to tweet after the call about his displeasure with California’s anti-business laws. And he called California unconstitutional and “fascist.” For the record, I agree 100% with Musk on this point. I have rarely agreed with Musk on anything under the sun, but finally the stars have aligned: Musk and I are in full agreement.

Musk selling his homes and Texas

Musk also talked about holding “battery day” in Texas. This was mentioned earlier in the conference call, and was somehow ignored/forgotten in the commentary, which focused on the “fascist” comment and related talk, several minutes later in the call.

I think Musk is starting to prepare for a complete exit from California. This would involve:

  1. Himself selling all of his homes (would make perfect sense in this context).

  2. Building the next factory in Texas (that’s a given).

  3. Moving the Tesla HQ to Texas (Nissan moved its HQ from CA to Nashville almost a decade ago, and Toyota from CA to Dallas half a decade ago). Easy — it’s just office space.

  4. Building the new factory in TX so large that he can and will entirely shut down the factory in Fremont, CA. Remember, that would be somewhat poetic given that he got that Fremont factory from Toyota for around $50 million in 2010. He will simply follow in Toyota’s footsteps, a decade later. Toyota saw that it was impossible to run a car factory with an acceptable level of profitability given California’s deteriorating business climate.

It would be the ultimate “give California the finger” from Musk. He just needs to find a way to finance and survive the transition, especially of the factory. That would take well over a year. He may have to bridge it with output from China, exporting Model 3 and Y cars from China to the U.S., while Fremont is being shut down and the Texas factory is being constructed.

That’s the plan. Expand the Shanghai factory to the point where it can export 200,000 cars a year to the U.S., while Musk builds the factory in Texas. Then, shut down Fremont.

I think it could happen around the end of this year, when Shanghai is ready to export to the U.S.