Musk moots a private buyout and Tesla’s stock soars

8 Aug 2018

Tesla CEO Elon Musk. Image: Phil Stafford/Shutterstock

Will Elon Musk really take Tesla private? And if he does, will Tesla have more space to manoeuvre?

Blame Michael Dell. The founder of Dell dealt with the vagaries and unpredictable nature of public markets by engineering a massive private buyout with equity investor support, leading to one of the biggest acquisitions/mergers in tech industry history, the Dell-EMC merger.

Perhaps that has been the inspiration behind Tesla CEO Elon Musk’s latest declaration on Twitter that he might take the carmaker private.

This followed reports that one of Saudi Arabia’s sovereign wealth funds, the Public Investment Fund, has taken a $2bn stake in Tesla.

In a terse tweet, Musk said he was considering taking Tesla private at a price of $420, a 20pc premium on the price last night of $355. “Am considering taking Tesla private at $420. Funding secured,” he wrote.

The markets responded favourably with Tesla stock surging by $15 to $370 per share. At a share price of $420, Tesla’s total stock would be worth more than $70bn.

Sometimes it is hard to gauge if Musk is actually serious considering he tweeted earlier this year that Tesla was bankrupt as part of an April Fools joke. But, in fact, he has written a blog post for employees explaining his rationale.

Musk wrote: “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.”

Musk also said that the intention is not to merge SpaceX and Tesla.

Room to vroom may be Musk’s real goal

Going private could give Musk and his colleagues the space they need to concentrate on achieving their ambitions without worrying about investor sentiment.

Tesla has endured a rough 2018 so far with investor sentiment riding on whether the company would reach production goals.

At the official launch of the Model 3 last year, Musk said that Tesla would build half a million cars in 2018, a fivefold increase from 2017. Musk had promised investors that Tesla would make 5,000 Model 3s per week.

What followed was a litany of teething problems and, in April, Tesla hit a production run high of 2,270 Model 3 vehicles per week.

In total, 53,339 vehicles were built in Q2 2018, a 55pc increase from the previous quarter.

Last month, the company revealed plans to up the production ante, intending to increase production to 6,000 Model 3s per week by late August. It also confirmed that it expects to be profitable in the third and fourth quarters of this year.

If Musk indeed takes Tesla private, it will require investors with deep pockets who are in it for the long term.

Musk himself owns 20pc of the company and his unconventional style of leadership wins him fans and critics in equal measure. And it seems he is not letting go of this going private idea. In a later tweet, he said: “My hope is all current investors remain with Tesla, even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity’s SpaceX investment.”

Elon Musk pictured at the debut of the Tesla Model X in 2012. Image: Phil Stafford/Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years