Musk looking to privatise Tesla

by Chris Becker

Elon Musk has “surprised” the market by laying out a tentative plan to privatise the currently publicly listed Tesla electric car/solar energy company with a $420 per share price offer. Shares lifted nearly 11% to finish at just below $380 per share in response, following a similar surge after the Q2 earnings report.

This is really no surprise, given his other major endeavour – SpaceX – is privately owned and is likely never going to be listed publicly. Followers of SpaceX know the main reasons behind, namely the ease with which the company has been able to raise capital from private investors and the longer term goal settting that a lack of public scrutiny allows, giving rise to massive multi-hundred million investments in infrastructure and new projects like the Falcon Heavy and Big Falcon Rocket, which have multi-year or even decades long payoff timelines.

Now the question is, is this a similar move, taking the pressure off the public performance that Musk disdains each quarter, combined with some hubris over decimating the multitude of short positions. Or part of a conspiracy to save a failing company as the FUD headlines are exalting, sidestepping the responsibility that comes with owning a public company?

Or is it part of a wider phenomenon, combined with crowdfunding, seed/Angel venture capital and billionaire philanthropy whereby the primary and secondary public share market functions are being truly subverted.

It’s no joke that particularly in the US and here in Australia, public companies are using share markets more for capital subversion, tax minimisation and corporate capture  rather than truly creative, risky capitalistic endeavours.

 

Full statement here via Reuters:

Earlier today, I announced that I’m considering taking Tesla private at a price of $420/share. I wanted to let you know my rationale for this, and why I think this is the best path forward.

 First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best. As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.

I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve.

This is especially true for a company like Tesla that has a long-term, forward-looking mission. SpaceX is a perfect example: it is far more operationally efficient, and that is largely due to the fact that it is privately held. This is not to say that it will make sense for Tesla to be private over the long-term. In the future, once Tesla enters a phase of slower, more predictable growth, it will likely make sense to return to the public markets.

Here’s what I envision being private would mean for all shareholders, including all of our employees.

First, I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or they can be bought out at $420 per share, which is a 20% premium over the stock price following our Q2 earnings call (which had already increased by 16%). My hope is for all shareholders to remain, but if they prefer to be bought out, then this would enable that to happen at a nice premium.

 Second, my intention is for all Tesla employees to remain shareholders of the company, just as is the case at SpaceX. If we were to go private, employees would still be able to periodically sell their shares and exercise their options. This would enable you to still share in the growing value of the company that you have all worked so hard to build over time.

Third, the intention is not to merge SpaceX and Tesla. They would continue to have separate ownership and governance structures. However, the structure envisioned for Tesla is similar in many ways to the SpaceX structure: external shareholders and employee shareholders have an opportunity to sell or buy approximately every six months.

Finally, this has nothing to do with accumulating control for myself. I own about 20% of the company now, and I don’t envision that being substantially different after any deal is completed.

Basically, I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible.

This proposal to go private would ultimately be finalized through a vote of our shareholders. If the process ends the way I expect it will, a private Tesla would ultimately be an enormous opportunity for all of us. Either way, the future is very bright and we’ll keep fighting to achieve our mission.

 Thanks,

Elon

Comments

  1. Ronin8317MEMBER

    I wonder how many hedge fund will get wiped out if it goes ahead? Rumour is that the Saudi is going to fund this.

    • I reckon Musk has lost the plot and is making up stories. But this is the kind of thing he could get in some serious trouble for if it proved to be untrue.

      I’d be selling this about now if I held shares, keep away from shorting though, too crowded.

  2. Nice, I hate shareholding. It introduces numerous moral hazards into organisations, with everything becoming second to shareholder value.

    Screw the planet, screw decency, screw democracy, screw the law, screw the people, screw long term innovation…

    and then to think it was us Dutchies who introduced it to the world. :/

    • Corporations have no responsibility to shareholders… its a trope…. shezzzz

      They only have a responsibility to not go broke.

      “Further confirmation comes from a must-read article in American Prospect by Steven Pearlstein, When Shareholder Capitalism Came to Town. It recounts how until the early 1990s, corporations had a much broader set of concerns, most importantly, taking care of customers, as well as having a sense of responsibility for their employees and the communities in which they operated. Equity is a residual economic claim. As we wrote in 2013:

      Directors and officers, broadly speaking, have a duty of care and duty of loyalty to the corporation. From that flow more specific obligations under Federal and state law. But notice: those responsibilities are to the corporation, not to shareholders in particular…..Equity holders are at the bottom of the obligation chain. Directors do not have a legal foundation for given them preference over other parties that legitimately have stronger economic interests in the company than shareholders do.

      And even in the early 1980s, common shares were regarded as a speculative instrument. And rightly so, since shares are a weak and ambiguous legal promise: “You have a vote that we the company can dilute whenever we feel like it. And we might pay you dividends if we make enough money and are in the mood.”

      However, 1900s raiders who got rich by targeting companies that had gotten fat, defended their storming of the corporate barricades by arguing that their success rested on giving CEOs incentives to operate in a more entrepreneurial manner. In reality, most of the 1980s deals depended on financial engineering rather than operating improvements. Ironically, it was a form of arbitrage that reversed an earlier arb play in the 1960s. Diversified corporations had become popular in the 1960s as a borderline stock market scam. Companies like Teledyne and ITT, that looked like high-fliers and commanded lofty PE multiples, would buy sleepy unrelated businesses with their highly-valued stock. Bizzarely, the stock market would value the earnings of the companies they acquired at the same elevated PE multiples. You can see how easy it would be to build an empire that way.”

      https://www.nakedcapitalism.com/2017/02/why-the-maximize-shareholder-value-theory-is-bogus.html

      Every time someone utters the shareholder value trope it gives it validity, don’t use it.

      • Yes, unfortunately big shareholders wield.significant power to topple CEOs from their cushy jobs…

      • CEO basically pick all their board members, most hold more than one chair these days imo. Sure if a major holder feels their equity is at risk might sack a CEO, but largely this is not done due to the aforementioned. Better to concoct come story and move them along. Then we have the whole issue with currant market fashion with the regards to hiring [outsourced] and incentives to over pay [again various psychological factors and group think lead to fear of not paying high – might bring questions about the state of things and how that would reflect on equity prices – not to mention the out side firms make more money due to their incentives], do you see what I’m getting at.

        Dimon got an up grade after handling a 13B settlement….

  3. Its the same as every other share buy back – all US companies are doing it – CLO’s – the single biggest issue facing corporate / executive fiscal America today.

    People need to take a primer on whats going on – explains everything.

    .

  4. This reminds of Charles E Mitchell and his attempts to stop the crash of 1929

    as production of model 3 reaches planed levels Tesla will soon have to admit that they are going to make a loss on every model 3 they produce.

    Such ”news” would crash Tesla shares to zero, but also start tech bubble melt. It’s better for everyone in Silicon Valley to chip in a billion or two to save the ponzi scheme for a year or so

    • Cheer up – it might never happen! (seeing as it’s dependent on Tesla 3 production reaching planned level)

  5. dissonanceMEMBER

    There is only one ‘money’ more stupid than Chinese money looking to get out and buy vanity assets and that is Middle East oil money. Congrats and well played if Musk has sold his vision and this dog to the Saudis for $70Billion. It won’t change the ultimate outcome I suspect except that once pregnant the Saudis will feel obliged to keep doubling down on this cash devouring beast to save face getting ever more in the hole.

    Who knows the difference between driving/buying a nice car at good value verses owning the loss making company subsidising the nice car?…… Not the Saudis, not many people it seems.

    Disclosure: I was very modestly short waiting for the peak rise of this trading cycle. Saw the news live last night and decided not to cover but not to risk instigating more shorts either. Crazy stuff, full of inside trading by Musk since March Saudi visit to review Tesla facilities it seems but not so crazy it might not be true.

    There will be a movie made about this guy one day, but wondering if it will be a happy adventure or tear jerker at the end?

    • Nothing changes, the company is still a dud. Mercedes / Audi / any of the majors will wipe Tesla off the floor. Private or public, Tesla will still fail.

    • I have learnt one lesson in life, and that is to bet on the action-oriented doer over the arm-chair critic, short seller. Mr Musk may have his challenges, but he is a winner. He will win yet again, even if it means changing the rules so he can win. The arm-chair critics will be left licking their wounds, saying he cheated, but truth is, he just won, again.

      • dissonanceMEMBER

        This arm chair critic has booked $90k profits shorting TSLA and is now 200 shares short at average entry of $355. At $420 I will lose $15k and still be up quite nicely. Very much enjoyed the ride, most fascinating stock.

        Why so cocky btw. He has not won yet, the fat lady has not sung and if TSLA ends up in Chapter 11 down the track in private hands has he still won?

        Schadenfreude from an armchair critic…. I prefer playing that watching from the armchair lol.

    • Timmeh, could be vested interests or just plain sceptics.

      But Musk is wrong about colonizing Mars – humans are not made for the gravity field of Mars. And should we not develop a cure for back pain instead?

      • Did you get your flying car yet – ???? – we were promised flying cars decades ago….

        You don’t seem to understand that you can’t scale car manufacturing like software, though heaps of investors didn’t do their homework and only could see the pretty pretty numbers. Lots of PR marketing with terms like smart, innovative, disruptive, new, green, and the future was now.

        Remember AOL…. chortle…

        He should have stuck to building sports cars for the well heeled.

    • Tall Poppy Syndrome.

      Australia is full of them, since this country hasn’t produced any real innovation or creative output since, well Federation.
      Besides Cochlear implants maybe…

      Nice pies though.