Tesla’s big question: Better or worse off as private company
ELON Musk is betting that a privately held Tesla Inc would free his company of distracting scrutiny. But going private could also complicate Tesla’s effort to build a mainstream electric car by removing the easy access to capital the Wall Street darling has enjoyed.
Musk on Tuesday proposed taking Tesla private at US$420 a share, about 11% higher than the day’s closing stock price. He called the funding “secured” for what would be the biggest-ever corporate buyout, but he hasn’t disclosed details. The board on Wednesday said it is still evaluating the plan. Tesla’s stock was down 2% to US$371.35 in Wednesday afternoon trading.
Taking Tesla private would end one of the fiercest debates in recent years between bulls and bears, with Musk frequently sparring with detractors and short sellers. It would also shield Tesla’s financial health and other competitive information from rivals racing to catch up with their own electric vehicles.
In a memo to employees and several Twitter messages on Tuesday, Musk said he believes a private capital structure will allow Tesla to tap its full potential. “We are at our best when everyone is focused on executing, when we can remain focused on our longterm mission,” he wrote in the memo.
Still, analysts say a key to Tesla’s success has been its ability to use the high profile and promotional skills of its CEO and the loyal investor support it engenders to easily raise fresh equity. Since it went public in 2010, Tesla has raised nearly US$4bil from public stock offerings to help fund operating losses, in addition to more than US$13bil from the debt markets.
“Tesla has hugely benefited from supportive public markets and from abnormally low cost of capital, which may not be sustained privately,” Jefferies analyst Philippe Houchois wrote in a research note.
The billionaire CEO has never fit the mold of public-company CEO. He often has shrugged off badly missed financial forecasts or production targets and has jousted with analysts and short sellers.
The pressure mounted in the past year as Musk twice missed self-imposed production deadlines, even as he sometimes slept on the factory floor to meet them.
Leading a private company could allow Musk greater latitude to run Tesla the way he wants, analysts say, pulling off his unorthodox moves without the penalty of an immediate stock hit.
Tesla’s shares tanked in 2016 when he merged Tesla with solar-panel company SolarCity Corp, of which Musk was the largest shareholder. Some investors viewed the deal as a bailout of a firm that had struggled to raise capital.
Musk said in Tuesday’s memo that he has no plans to combine Tesla with his other company, rocket maker Space Exploration Technologies Corp.
“He seems to be most excited and operating at his best when he’s afforded the opportunity to simply focus on the company,” Jamie Albertine, an analyst with Consumer Edge Research, said.
For automotive competitors, the move would reduce visibility into a company that has captured the collective attention of a once-skeptical industry. — WSJ