Musk has bold plan: take Tesla private
Eight years after Elon Musk took electric car startup Tesla public, the mercurial CEO on Tuesday said he wants to turn the automaker back into a private company — at least for a while.
Musk, in a series of public tweets and an email to employees, said he had lined up the financing to take Tesla private, with stockholders to receive $420 per share.
The move, he said, would free Tesla from the public market’s emphasis on quarterly results. It would rid the company of the “short sellers” who have bet that Tesla’s lofty stock price will fall, Musk added — people he has accused of spreading misinformation about Tesla and its cars.
The Palo Alto company, he said, might return to the public markets later, once it enters a period of “slower, more predictable growth.” The plan to go private, Musk said, would have to be approved by shareholders.
“I fundamentally believe that we are at our best when everyone is focused
on executing, when we can remain focused on our longterm mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve,” he wrote in the email, which the company later posted on its blog.
Musk’s announcement stunned investors and analysts, in part because many weren’t sure at first whether to take it seriously.
His first comment on the plan came in a tweet at 9:48 a.m., mentioning the proposed $420 per share offer. Musk has been known to kid with his Twitter followers, and because that number is common slang for marijuana, many commenters questioned whether he was making an odd pot joke. He wasn’t. Tesla stock jumped. The Nasdaq exchange halted trading in Tesla stock for 97 minutes, sending traders a note indicating that the company had requested a hold in advance of making a material announcement. Trading resumed after Tesla posted Musk’s full explanation to the company blog, with shares closing the day up 11 percent, at $379.57.
“I think in many ways, it’s a genius move, because it ends the drive-by shootings from the shorts and the critics,” said Eric Schiffer, CEO of the Patriarch Organization, a private equity firm. “He’s a big-vision guy. He’s much more of a marathon guy than a sprinter.”
Founded in 2003, Tesla went public on June 29, 2010, offering shares at $17. Tapping the market gave the company an infusion of cash to open its Fremont factory and begin production of its electric Model S sedan, which launched in 2012.
Since the IPO, Tesla stock has soared, even though the company has reported just two profitable quarters. Musk has predicted for months that Tesla would finally reach sustained profitability in this year’s third quarter, as production of its Model 3 sedan — officially introduced last summer — finally ramps up.
The company’s losses and cash burn, however, have made it one of the most hotly debated of stocks. Musk — whose rocket business SpaceX and tunneling startup the Boring Co. are both private — has often chafed at the intense scrutiny Tesla receives, particularly during the difficulties scaling up Model 3 production. And he has frequently fired back at the short sellers.
Musk wrote Tuesday that any current shareholders who wanted to remain with Tesla would be able to do so if it goes private.
The company would create a special purpose fund for them, similar to one already in place at SpaceX. Under federal rules, that fund would count as a single Tesla shareholder, allowing Tesla to remain under the legal limit for the number of shareholders a company may have before it must file financial reports with the Securities and Exchange Commission.
“Am super appreciative of Tesla shareholders,” Musk tweeted. “Will ensure their prosperity in any scenario.”
Without that assurance, the offering of $420 per share probably would be too low, said Quint Tatro, managing director of the Joule Financial investment management firm. With it, the plan looks far more appealing. Tatro owns Tesla stock, and his company holds the stock in its clients’ portfolios.
“It’s a very attractive price point to stop all of the shortselling press attacking the company and all that Elon’s trying to do,” Tatro said. “You invest in Tesla not because of the fundamentals — the company’s losing money every quarter. You invest in Tesla because of the entrepreneur and the visionary who is Elon Musk.”
Tesla’s employees, Musk wrote, would remain shareholders, able to exercise their stock options and periodically sell stock. That’s already the case at SpaceX, he wrote.
Musk argued that SpaceX operates more efficiently than Tesla, in part because it is privately held. He said that he did not want to merge the two companies.
“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,” he wrote.
Many Wall Street analysts have insisted for months that Tesla will need to raise more funding sometime this year, to avoid running short on cash. Although Musk insists that isn’t necessary, Schiffer said that a newly private Tesla would be able to raise money from private equity firms. And they may have more of a long-term focus than some current investors.
“There’s plenty of capital there,” he said. “And frankly, they’d expect less.”