What If Tesla Goes Private?

Elon Musk

Tesla CEO Elon Musk said on Twitter Tuesday he was considering having the firm purchase all outstanding shares and return the maker of electric cars to a privately held company.

It would cost about $71 billion to take Tesla private at $420 per share. "No way Elon, I'm keeping my stock", he said on Twitter.

At US$420 per share, a deal would be worth US$72 billion (S$98 billion) overall.

Musk's tweet came nearly simultaneously with a new report from the Financial Times that revealed for the first time that Saudi Arabia's Public Investment Fund has been quietly buying up about five per cent of the electric vehicle company over the last few months to the tune of $US2 billion ($2.7 billion). They later rose to $379.57, up 11 percent for the day.

The plan would need shareholder approval, but Musk's tweet sent Tesla stock spiking by nearly 9%. 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.

Musk has been in a very public battle with these shorts for years.

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The decision to go private would have to be approved by shareholders, but Musk believes taking Tesla private would be an "enormous opportunity for all of us". Musk has complained repeatedly about short-sellers, who profit when Tesla stock drops.

"Musk does not want to run a public company", said Gene Munster of Loup Ventures, as Tesla's ambitious mission makes it "difficult to accommodate investors' quarterly expectations". "I own about 20 percent of the company now, and I don't envision that being substantially different after any deal is completed". He said in his letter to employees that he did not seek to expand his ownership. Short sellers borrow shares from other investors and then immediately sell them on the premise that they will be able to buy them back at a lower price later to replace they stock they borrowed.

"My hope is all current investors remain with Tesla even if we're private", Musk tweeted.

Because 420 is the universal number indicating it's time to smoke some weed, it was easy to laugh off Musk's tweet as just one of his weird jokes.

Greentech Media senior analyst Allison Mond gave her view on Tesla going private, with a careful eye to its solar business.

What on earth is happening to Tesla stock today? Taking Tesla private would be an extreme albeit effective way of muting Tesla's bears, according to Michael O'Rourke, chief market strategist at JonesTrading.

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Musk in a letter to employees August 7th, 2018, "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".

The most obvious equity partners for Musk would be a sovereign wealth fund such as Saudi Arabia's Public Investment Fund (PIF) or major technology investment funds such as SoftBank Group Corp's Vision Fund, bankers said. The report said that the Saudis had acquired a significant $2 billion to $3.2 billion stake in Tesla. It now yields 6.75 percent versus more than 7.7 percent in early April.

The stock was trading at about $342 when Musk hit the Tweet button.

The SEC declined comment on Musk's tweet.

Musk has been under intense pressure this year to prove he can deliver on his promise to turn his money-losing company into a profitable higher-volume manufacturer, a goal that has propped up Tesla shares and resulted in a market value higher than that of General Motors Co.

The unusual step taken early Tuesday afternoon came shortly after Musk dropped a bombshell on his Twitter account by announcing he had lined up the financing to buy all of Tesla's stock at $420 per share.

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