Elon Musk, the multimillionaire CEO of luxury green-auto startup Tesla, billed the money-losing company $175,000 for several flights aboard his own private jet, including trips to Washington, D.C., to secure the project's nearly half-billion dollar taxpayer loan.Musk charged Tesla for D.C.-bound flights he took aboard his Dassault Falcon 900 -- trips intended to secure the $465 million Department of Energy loan. Details of Musk's private-jet flights were first reported by private-equity industry newsletter peHUB, citing Federal Aviation Administration flight records. Wired.com followed with its own report.
The Big Three Detroit CEOs, you'll recall, provoked a stern rebuke from Congress when they flew to Washington by private jet asking for government help. Given that controversy, one wonders why Tesla and Musk didn't anticipate how such flights might be perceived.
The dozen flights in question were all for Tesla business. During the last four months, Musk's jet has flown to almost 100 locales including Cancun and Nice, France, FAA records show. Why did the multimillionaire CEO need to bill his own money-losing startup when he spends millions flying around the world on his own? Especially while asking for a nearly half-billion dollar taxpayer loan?
"Tesla has no corporate jet," company spokesperson Ricardo Reyes told DailyFinance in a statement. "When traveling on business Elon and other Tesla employees have used his private airplane, especially for urgent or unscheduled travel, other times they fly coach. Tesla has paid for expenses such as fuel charges and landing fees on some of the trips."
"Really Not Normal"
In a U.S. Securities and Exchange filing last week, ahead of its proposed $100 million IPO, Tesla disclosed that it paid $175,000 in "fuel charges and landing fees" associated with Musk's private jet.
While that sum isn't astronomical, it does beg the question: At a time when the public is highly sensitive to corporate excess, especially involving companies receiving government help, couldn't Musk, a multimillionaire, have picked up that tab?
There's no suggestion that Musk ran afoul of any laws because the flights were all for company business. As peHUB notes, it's hardly unusual for CEOs to fly on private jets funded by their companies. Apple (AAPL) paid $16,000 for Steve Jobs's Gulfstream during the first nine months of 2009. And Google (GOOG) spent $106,201 for "costs related to aircraft chartered for Google business on which family and friends" of CEO Eric Schmidt flew in 2008.
The difference? Apple earned $14 billion profit last year, and Google made $10 billion. Tesla lost $31 million in the first nine months of last year and $236 million since its inception.
PeHUB quoted one venture capitalist who called the fight expenses inappropriate. "It's really not normal, and I don't think it's actually right," Ho Nam of Altos Ventures told the site. "It's okay to expense what it would have cost to fly commercial, but the difference should be covered by the person using it. It's really about the culture and the message it sends to the rest of the company."
Taxpayer Loan Needed for Survival -- and a Big Payout
Tesla has argued that the $465 million taxpayer loan is critical to the company's future. That means it's also critical to a potentially lucrative payout for Musk and other Tesla investors when the company raises $100 million in a forthcoming IPO. Musk owns nearly 40% of Tesla.
"Other big shareholders include Al Wahada Capital Investment, a wholly owned subsidiary of the government of Abu Dhabi, which owns 22 million shares of Tesla's pre-IPO stock (10.5%) and an investment fund 40% owned by German automaker Daimler and 60% owed by the government of Abu Dhabi, which also owns 22 million shares (10.5%)," according to peHUB.
The company's wealthy venture-capitalist backers are also poised to win big if Tesla goes public. According to peHUB, "VantagePoint Venture Partners owns 21 million shares (10%), Valor Equity Partners own nearly 15 million shares (7.1%), Draper Fisher Jurvetson owns 8.3 million shares (4%) and Technology Partners owns 8.2 million shares (3.9%)."
Tesla's still a young company. But as it gears up for an IPO, it knows increased scrutiny is coming its way. Moving forward, it may see the benefit in devoting more attention to the propriety of Musk's private jet costs -- as well as its own public image.
Small Cap Investing
Learn now to invest in small companies the right way.View Course »