Tesla board evaluates taking firm private

SAN FRANCISCO • Board members at Tesla Inc. are evaluating CEO and chairman Elon Musk’s Us$72 billion proposal to take the electric-car maker private.

Six of nine members said in a prepared statement Wednesday that Musk began talking with the board about the move last week. This included discussing how being a private company could better serve Tesla’s long-term interests. Board members met several times and also addressed funding for the move, according to the statement.

Musk announced the bombshell move Tuesday on Twitter, writing that he had secured funding to buy Tesla Inc.’s shares at US$420 each.

Shares rose 11 per cent Tuesday but fell nearly two per cent at midday Wednesday to US$372.38.

At US$420 apiece, buying all of Tesla’s shares would cost about US$72 billion, but Morgan Stanley analyst Adam Jonas wrote in a note Wednesday that he expects about US$50 billion in additional net debt. Musk owns about 20 per cent of the Palo Alto, Calif., company’s stock, so that likely would reduce the cost of the buyout. Musk also said he intends to give Tesla’s existing shareholders the option of retaining a stake through a special fund.

Jonas wrote that he understands Musk’s desire to avoid the pressures of quarterly earnings as a public company. But he thinks that could be outweighed “by the risks of added financial leverage, which can be even more strategically limiting.”

There still are near-term execution risks around ramping up Model 3 production and the ability to generate cash, Jonas believes. “Adding as much as $50 billion of net debt to the capital structure would clearly intensify the outcomes of such an action,” he wrote.

Musk, his brother Kimbal and director Steve Jurvetson were not included in the statement from members Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice, and James Murdoch.

By taking Tesla private, Musk believes the company will be able to sharpen its focus without having to cater to investors’ fixation on how the business is faring from one quarter to the next.

Making money has proven elusive for Tesla. The company has only posted a quarterly profit twice and has never made money during an entire calendar year, something Musk has been trying to change by cutting costs, including recent layoffs that trimmed Tesla’s workforce by nine per cent. Tesla lost another US$717.5 million in its most recent quarter.

Musk has promised a sustained net profit starting in the third quarter.

Elon Musk