Bullish investor says Tesla shouldn’t go private

Elon Musk has insisted that taking Tesla private would allow the company to achieve its potential.

On Thursday, one Tesla investor took issue with Musk’s argument.

In a public letter, Catherine Wood, the chief investment officer of ARK Invest, beseeched Tesla’s chief executive not to go forward with his plan.

On Aug. 7, Musk proposed in a tweet taking Tesla private at $420 a share, which would value the company at about $71.6 billion. He did not elaborate on any sources of financing that day but said he expected about two-thirds of Tesla’s current shareholders to “roll over into a private Tesla.”

In a blog post on Tesla’s website, Musk explained his reasoning.

“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,” he said.

Wood — whose firm owned a roughly 0.26 percent stake in Tesla as of June 30, according to public filings — argued in her letter that the public markets would better support Tesla’s growth over the long term.

From her letter:

“If you do not take Tesla private, you will be surprised and gratified at investor reaction once they realize and understand the scope and ramifications of your long-term vision and strategies. With time, I believe that truth always wins out in the public markets, as has been the case for Apple, Amazon, Netflix, Salesforce, and other companies with visionary leaders.”

Wood said that over time, Tesla would become less of a hardware company and more of what she called a “mobility as a service” provider. That includes providing autonomous cars and trucks on demand, similar to what Uber and other companies are racing toward. By her firm’s calculations, that could lift Tesla’s gross margins from 19 percent to 80 percent.

But that kind of transformation would be more difficult to do as a private company, she wrote, given how much harder it would be for Tesla to tap public markets for financing.

ARK’s hyperbullish valuation rests on a surge in Tesla’s revenue to more than $180 billion over the next five years from $13 billion. Of course, Tesla has attracted plenty of investors with starkly different views of its prospects. They point to the company’s production delays, cash burn and increasing competition to explain their bets against the stock.

ARK would want to stay invested in Tesla if Musk succeeded, Wood said in a statement. Doing so might require revamping the rules of ARK’s mutual funds that are invested in the company, and its exchange-traded funds would have to sell their holdings.

If Musk keeps Tesla public, her firm’s forecast for what the company’s shares could be worth: between $700 and $4,000 in five years.