The Prince of Bel Air
The shutters are lifted in Bel Air, high above Los Angeles. Through the window of his $17 million villa, Elon Musk glances momentarily around. It’s 7 August 2018. His partner, the singer Grimes, née Claire Boucher, is still asleep. After his morning exercise routine, the 47-year-old entrepreneur sinks into a Tesla Model S and drives onto the road that winds between mansions. No time for tennis class, no time to play his treasured video games. His schedule is full. The father of five children recently admitted to the New York Times that he works almost 120 hours a week. “This year was the most difficult and painful in my career,” he complained. “It was unbearable.”
On the way to the airport, Musk still finds a few minutes to open Twitter. “Am considering taking Tesla private at $420,” he typed with shocking frankness. “Funding secured.” Within an hour, the company’s stock rose seven points. At the close of the Nasdaq, the New Technology Exchange, Tesla published a letter from its president officially confirming his desire to withdraw from the market and offer investors a share of the capital. That day, company stock rose a total of 11 points, raising the suspicions of the Securities and Exchange Commission, the American financial police. Until now, its value had plummeted under the weight of public failures.
Normally, this kind of announcement has the gleam of formality. It is prepared extensively internally, detailed, published via official channels. Normally, it’s not launched online by a hasty tweet. Musk’s method was surprising, even for Tesla, whose board of directors was furious. Now, the South African engineer boarded a private jet for Nevada, where he visited the gigantic Tesla factory known as Gigafactory. After that, he got back on the plane for San Francisco bay for a series of meetings with members of the company.
Six days later, a blog post was finally published to clarify the situation. “Going back almost two years,” Musk wrote, “the Saudi Arabian sovereign wealth fund has approached me multiple times about taking Tesla private. They first met with me at the beginning of 2017 to express this interest because of the important need to diversify away from oil. They then held several additional meetings with me over the next year to reiterate this interest and to try to move forward with a going private transaction. Obviously, the Saudi sovereign fund has more than enough capital needed to execute on such a transaction.” On top of that, the press had revealed several days earlier that he already owned nearly 5% of company shares. According to the CEO, that wasn’t enough. “I left (a) July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed.”
The deal was not an obvious one. Saudi Arabia owes its fortune to fossil fuels while Musk promises “to accelerate transition towards renewable energies.” As Musk notes, however, Riyadh intends to change its model. “The Saudi government and the FBI think that investing in new technologies are good levers to do this,” says Ellen R. Wald, president of the consulting firm Transversale and author of the book Saudi, Inc.: The Arabian Kingdom’s Pursuit of Profit and Power. In the end, it wasn’t enough for Tesla: on his blog, Elon Musk backtracked Friday 24 August, deciding to keep Tesla on the market.
In any case, the FPI has more arrows in his quiver. He also has capital in Uber, Virgin, SoftBank, and even Snap, Inc. And that’s just the beginning.
Saudi Arabia 3.0
In the Saudi night, the tense smile of Evan Spiegal sparkles in the light of small desk lamps. For his venue, on 25 May 2018, prince Al-Waleed Talal has installed an entire living room outside. Snapchat’s owner is enjoying the comfort of a green and yellow sofa while inviting a falcon to perch on his left arm. He seems happy but slightly unsettled, as if afraid of becoming the kingdom’s prey. Given the critical situation of his company, the prince’s $250 million (2.3%) investment was more than welcome. But the Californian knows he’s losing autonomy.
“Snapchat is one of the most innovative social medias in the world, and we believe it’s just starting to reach its potential,” Al-Waleed said. “We’re pleased to participate in its venture.” The week before, the billionaire announced that he’d injected $267 million in the French music streaming company Deezer. In a sense, it was his return to business, after three months of detention. In November, he’d been arrested in a massive “anti-corruption operation” launched by the regime’s new strongman, Mohammed ben Salman (MbS). From then on, Al-Waleed’s strategy seemed to be modeled on the FPI. “He’s invested for a long time in tech, hospitality, and other sectors,” Ellen R. Wald says. “His goal is always to increase the wealth of his company, Kingdom Holdings.” Especially if it aligns with the interests of power.
Since he was named crown prince on 21 June 2017 by the king, MbS has tried to put the whole world to battle, at the risk of upending the country’s economy. According to him, Saudi Arabia needs to distance itself from the oil that made its fortune and find new sources of revenue. It’s not only that the price of oil has dropped steadily since the end of 2014; resources are running out, and the kingdom’s energy needs are rising. While it only used 5% of its production in the 1970s, the country consumed 25% of its 2012 production. In just five years, from 2008 to 2013, the share of oil sold abroad went from 93% to 84% of its total exports. At the present rate of extraction, the country could become an importer of petrol by 2037. There would be nothing left of the $2 trillion pulled from the earth from 1973 to 2002.
The Vision 2030 plan aims to bring in the same sum by selling 5% of its shares in Saudi Aramco, the national oil company. Except no one seems to want to put his nest egg in a sector that appears to be collapsing. “It seems complicated to sell while we’re talking about a future oil shortage,” notes Clarence Rodriguez, author of Saudi Arabia 3.0. “Would you invest knowing that in a decade there will be a rarefaction?” For the moment, no one has committed, and the sale has been postponed to 2019. And yet, the manna earned would have to be returned to the FPI. Without it, Saudi Arabia lacks the funds to take a major share of Tesla. “It’s unlikely that Saudi Arabia will invest in Tesla at the costs that Musk is talking about, because it would be a tough financial effort for the FPI,” Ellen R. Wald says.
Unfortunately for Elon Musk, Riyadh is now turning to one of its smaller competitors, Lucid Motors, according to Reuters. “At its current valuation, Tesla is a risky investment without a lot of growth potential,” Ellen R. Wald says. “A lot of people say its overworked. A startup like Lucid Motors, on the other hand, has the growth potential that the FPI wants.” Its directors have reportedly promised a billion dollars, of the $250 billion at its disposal, to the smaller of the two automobile manufacturers. They plan to double their assets by 2020, while, at the same time, $7 billion should be invested in renewable energy projects in Saudi Arabia. In other words, they’re walking the walk.
Between two waters
Before reaching the Suez Canal in Egypt, the Red Sea divides into two arms that envelop the Sinai Peninsula. To the east, it lines the Saudi coast, going to die before the Jordanian village of Aqaba to which the preceding gulf owes its name. An arid mountain range escorts it to this dead end. Under Riyadh’s impulse, this lunar landscape will be sprinkled with blue and white, as pools and other restaurants sprout up. The coast will more or less resemble Bel Air, where Elon Musk lives.
In pulling $500 million from their sovereign wealth fund, Saudi authorities want to construct an economic and touristic pole on the coast of the Red Sea. The site, called Neom, will be powered by clean energy and equipped with an army of robots of all kinds. The expertise of tech companies is indispensable to its development, but that‘s not all. “There are other sectors that are developed like industry, finance, entertainment, and logistics,” Ellen R. Wald says. “The idea is to increase the number of Saudi companies and to bring foreign actors into the kingdom to hire Saudis.” Today, “65% of the population is under 25,” Clarence Rodriguez notes.
Riyadh is flirting with Amazon and Lockheed Martin, calling both to invest in Neom. In doing so, Saudi Arabia is following Dubai’s example. Like the emirate, the kingdom is levying only light taxes on companies and, like the emirate, it wants to create free zones where foreign companies can thrive. But again, its margin for maneuvering is limited. Half of the state’s resources coming from oil, the price of a barrel is presently too low to stabilize the budget. In 2018, it will report a deficit of $52 million, or 7.3% of GDP. The country instituted a value-added tax.
Another potential example for Saudi Arabia, Norway has capitalized on offshore oil subsidies to constitute the deepest sovereign pockets in the world. It has also favored the electric automobile industry, earning the reputation of being one of the world’s greenest countries. Unlike Norway, the Wahhabi kingdom has the good fortune of getting 300 hours of sunlight per month, which lets it harvest a huge amount of energy from solar panels.
To take advantage of it, Riyadh must escape from oil like a bird from an oil spill. Failing to find investors, Aramco aims to buy shares that the FPI holds in the petrochemical giant Saudi Basic Industries Corp (Sabic). That would improve the sovereign fund’s coffers but would compromise the sale of part of Aramco’s capital. The maneuver is as perilous as Tesla’s. But they’re both taking their chances.