Myth of Musk at odds with reality of taking Tesla private
Entrepreneur’s heated rhetoric increasingly contrasts with Wall Street scepticism
Tesla founder Elon Musk’s tweet about taking the company private may see the US Securities and Exchange Commission get involved. Photograph: Brendan Smialowski/AFP/Getty Images
Elon Musk is a talented guy. The South Africa-born entrepreneur is the founder of not just one disruptive and innovative technology company, but four. One is SpaceX, which is pioneering the privatisation of space travel. Another is Tesla, a maker of electric cars valued by the stock market at roughly the same as Daimler-Benz. Musk, who is 47, is worth $20 billion, according to the Forbes rich list.
Musk is a visionary. The goal of SpaceX is “enabling people to live on other planets”. He wants to build a “hyperloop” that would cut the travel time from New York to Washington DC to 30 minutes by using pods in friction-free tunnels. He has created a start-up, Neuralink, to develop “brain-machine interfaces”. Some of these ideas sound far-fetched, but that’s entrepreneurs for you.
Musk is a also publicity junkie. He achieved the almost unimaginable feat last month of inserting himself into the drama of the boys trapped in the cave in Thailand. Then he slandered one of the rescue co-ordinators when his offer of assistance, in the form of an unsuitable mini-submarine, was rejected.
And Musk is a bully. He has a reported 22 million followers on Twitter. When he tweets – and boy, does he tweet – he sometimes attacks female journalists who cover the technology industry. In a recent rant, he accused one of them of being in cahoots with the short-sellers who have laid siege to Tesla, and who are driving him to distraction, and his company’s share price down.
Musk can dish it out, but he can’t take it. When analysts on earnings calls query Tesla’s cash flow and missed output targets, he tends to lose it. “Bonehead”, he snapped during one such call in May. (He has reportedly since apologised.)
Now Musk has taken the latest and most dramatic step in his quest to bend the world to his own reality. Earlier this week he announced – first on Twitter, needless to say, and then, perhaps under pressure from his board, which appeared to be blindsided by his tweet, by a more traditional blogpost – that he was “considering” pulling Tesla off the stock market and taking it private.
It may be feasible to take Tesla private, though with a valuation of roughly $80 billion it would be by far the biggest public-to-private move. But Musk made two commitments in his fateful tweet that could yet make him a prisoner of his impetuousness, and may see the US Securities and Exchange Commission get on his case.
First, he announced the price at which he might take Tesla private – $420 a share. At the time, the company’s shares were trading at a bit under $360, having had a boost that morning from a report in the Financial Times that the sovereign wealth fund of Saudi Arabia had bought a $2 billion stake. Now Musk has set a minimum buyout price for any take-private deal, and investors who want out of his little adventure are unlikely to settle for anything less.
Second, Musk said he had “funding secured”. Bankers on Wall Street had apparently no inkling of any such arrangements, and they ought to know. Of course, Musk may have sounded out private-equity houses and sovereign wealth funds, both of which have cash. But whether or not he has secured the funding, he has created the impression that he can secure it. If he fails, he will look like a fool.
Musk set out some rationale for taking Tesla private, which amounted mostly to escaping the financial discipline – such as it is – of a stock-market listing, including such irritants as quarterly reporting. He complained that these deadlines put pressure on Tesla to make decisions “that may be right for a given quarter, but not necessarily right for the long term”.
Fair enough, though since he owns just 22 per cent of Tesla, other shareholders might beg to differ. Then he gave the game away. “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,” he said.
Tesla is the target of short-sellers betting that his company’s share price will fall. Short-sellers borrow shares from investors in a particular company, for a fee. Then they sell the shares at a high price in the expectation that they can buy them back at a lower price (and return them to the original holders) because they believe the shares are overvalued, or the company is about to stumble, or its business case is too good to be true.
In Tesla’s case, it appears to be all three. Some investors refuse to buy into the founder’s myth that is such a potent factor in the ascent of Musk and Tesla, and in the self-image of Silicon Valley. Musk is mightily put out by that fact. He has found his Greek chorus on Twitter. On Wall Street, not so much. Taking Tesla private is a gamble on fixing that glaring rent in the universe of Elon Musk.