Musk considering taking Tesla private with Saudi investors

Musk considering taking Tesla private with Saudi investors

CEO says he has funding lined up to take electric car maker off the stock exchange.

August 13, 2018
By Robert Schoenberger
Cars/Light trucks Electric vehicles Manufacturing

Cleveland, Ohio – Tesla Motors CEO Elon Musk says he is considering taking the electric car maker private and that he has the funding to do so.

The $420 purchase price would be a massive premium to the company’s stock, but in follow-up tweets and notes, Musk said he’d rather keep most shareholders invested in the company through various financial instruments.

Following Musk’s initial tweet, Telsa’s board of directors issued a brief statement saying that the CEO had begun discussions about taking the company private and how such a move would be funded.

“The board has met several times over the last week and is taking the appropriate next steps to evaluate this,” board members said.

Going private could offer positives and negatives for Tesla. The biggest positive is freedom from quarterly earnings reports, a ritual that Musk has made a spectacle this year by insulting analysts and complaining about the stupidity of the questions received.

And, Tesla is the most-shorted stock in the U.S., meaning many investors are betting against the company. In a letter detailing his thinking on taking the company private, Musk complained that “there are large numbers of people who have the incentive to attack the company.” In the past, he has blamed negative attention on Tesla on short-sellers trying to drive the stock price down, rather than the company’s high-profile string of missed profit and production targets.

On the negative side, the public markets have been extremely supportive of Tesla’s growth. The company’s rising stock price has allowed Musk to fund new factories and research and development initiatives by selling new stock. Several Wall Street analysts have predicted that Tesla will need to sell more stock this year to keep running as it continues to lose money on operations, though Musk has said the company won’t need fresh capital this year.

Without being able to use stock to raise capital, Tesla will need to start turning a profit or find deep-pocketed investors to keep investing in new designs and production technologies.

“I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve,” Musk said in his letter to employees.

About the author: Robert Schoenberger is the editor of Today's Motor Vehicles and a contributor to Today's Medical Developments and Aerospace Manufacturing and Design. He has written about the automotive industry for more than 18 years at The Plain Dealer in Cleveland, Ohio; The Courier-Journal in Louisville, Kentucky; and The Clarion-Ledger in Jackson, Mississippi.

Update: 8/13/2018 11:45 a.m.

With questions swirling following Musk's tweet, the CEO penned a lengthy blog post, saying that Saudi Arabia's sovereign wealth fund would fund his proposed takeover of Tesla's common stock.

In his post, Musk says managers from the fund have talked to him in the past about taking Tesla private, and those talks became more serious after it bought 5% on the company's stock. On July 31, 2018, he met with fund managers who again offered to back a buyout. Musk brought those plans to Tesla's board of directors on Aug. 2, 2018, and they agreed to to reach out to existing institutional investors to see if they'd be willing to stay invested in Tesla as a private company.

Musk says he then decided to tweet his intentions instead of meeting with large investors individually "to be completely forthcoming with them about my desire to take the company private. However, it wouldn’t be right to share information about going private with just our largest investors without sharing the same information with all investors at the same time."

Financial news services have questioned how solid the "funding secured" line was in Musk's tweet. Having the Saudi fund as its backer shows that deep enough pockets exist to take the company private. But the "secured" line may have been premature.

Following the tweet, Musk says he spoke with fund managers and that they were generally supporting of the announcement and possible deal "subject to financial and other due diligence and their internal review process for obtaining approvals."