Musk says taking Tesla private is the best path forward

Elon Musk’s tweet in which he was thinking aloud about taking Tesla private had seen the stock markets surge then crush last night. His rationale however is a long-term one he says and in line with the CEO’s actions to curb speculation.

++ Please find all the latest developments as updates at the bottom of this page. ++

The news came in late last night for Europeans but right in time for a hot day in trading on the West Coast. All started with Elon Musk taking to Twitter once more to announce a plan that could change a lot if not everything for Tesla in the near future. He wants to take the company private, thus putting an end to the volatility Tesla is exposed to when traded publicly on the stock market.

The proposal saw stock prices swing wildly. Shares went up 7 percent after the announcement but with an official decision outstanding, Nasdaq was forced to halt trading later that afternoon. When reopening the trade of Tesla shares, they surged by 12 percent. At the time of writing this trend had continued and was up 11 percent at $379.57.

Am considering taking Tesla private at $420. Funding secured.

— Elon Musk (@elonmusk) August 7, 2018

Since then, Tesla had published Musk’s email to employees in its entirety on their website. And, the above mentioned swings prove the point of the Tesla boss. Writes Musk: “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. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.”

These “people” are short sellers who Musk had addressed previously. The Tesla CEO had been taking a firm grip on the reigns of the electric carmaker. An internal “reorg” extended to a tough stance on said short sellers. The Tesla boss had been buying shares en masse and had warned against betting against Tesla reportedly.

Moreover, less than an hour before Musk published his initial tweet, the FT had reported that oil-fuelled Saudi Arabia had acquired about 5 percent of the EV maker through its sovereign wealth fund PIF. They now hold a close to 3 billion dollar stake in Tesla.

A final decision to take Tesla private has not yet been made and “would ultimately be finalized through a vote of our shareholders,” writes Musk in his email. However, he expects the vote to go through and also named Space X as an example of a private company working very well. Says Musk: “SpaceX is a perfect example: it is far more operationally efficient, and that is largely due to the fact that it is privately held. This is not to say that it will make sense for Tesla to be private over the long-term. In the future, once Tesla enters a phase of slower, more predictable growth, it will likely make sense to return to the public markets.”

In the short-term however, the Tesla CEO has already laid out his idea of how he would like to take Tesla private and what this would mean for shareholders. Essentially, all would be offered to make their existing shares private or else be bought out at a price of 420$/share. At the current value, this is about 20 percent over the stock price.

All Tesla employees would remain shareholders. All investors would be able to sell their shares and exercise their options about twice a year.

He failed to give any detail on how exactly he would fund a deal or when he hoped to make the buyout offer. However, the latest tweet on the matter reads: “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.” Moreover, the latest development is the Tesla board saying that they had discussed Musk’s desire to go private since last week. Until a decision will go through, trading will be volatile, to say the least.

Update, August, 09: The Securities and Exchange Commission (SEC) is probing into the statements of the Tesla boss. They need to see whether Elon Musk was truthful when he tweeted, that he had secured funding. The latter is a matter that needs proof or else may be seen as a misleading or false statement.

The SEC generally allows companies to use social media to disseminate news as long as they have told shareholders they might use those channels in addition to regulatory filings. Tesla told investors in a November 2013 filing to follow Mr. Musk’s Twitter feed for “additional information” about the company, WSJ reports.

It is unclear whether the SEC has opened formal proceedings and neither the regulators nor Tesla responded for comment.

tesla.com (Elon Musk email), ft.com (Saudi Arabia), cnbc.com (Tesla board), Tesla Q2 earnings, wsj.com (SEC probe), fortune.com