Venture: Elon Musk Is Making Plans For A Private Tesla

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When Martin Eberhard and Marc Tarpenning founded Tesla in 2003, both men wanted to make electric vehicles to be the top commodities in the auto industry since General Motors canceled production of the EV1 car in 1999. However, it was only after the appointment of Elon Musk to the position of Tesla CEO after the 2008 financial crisis that Tesla was on its way to becoming the dominant electric vehicle brand that it is today. 

As the co-founder and CEO of Tesla, Musk is considered as one of the richest people in the world according to the World’s Billionaires list from Forbes with a net worth of $20.8 billion. Musk’s wealth should attribute to the successes that Tesla’s products have achieved over the past decade, especially with recognition given to Tesla’s flagship vehicle, the Model, and its S, X and 3 models.

On Tuesday, Aug. 7, Elon Musk surprised the world when he tweeted that he was hoping to privatize Tesla at $420 per share, which later caused Tesla shares to increase by 10 percent. If that were to happen, the total value of the company would be about $71 billion.

Musk published a blog post on Tesla's website on Monday, Aug 13, that specified his reasons on why he wanted to take Tesla private. He stated in the blog post that by taking Tesla private, he can bring more discussions and collaborations between the company and its largest shareholders in the long-term interest of both parties, particularly when Tesla had frequent negotiations with a Saudi Arabian wealth fund over a year ago over talks about taking Tesla private, which later lead to the Saudi fun buying 5 percent of Tesla’s stock through the public markets.

That same Saudi Arabian wealth fund had also taken a $2 billion stake in Tesla shortly after Musk’s tweets last Tuesday regarding his plan to privatize the company. According to an email that Musk sent out to the company’s employees after his tweets, Musk clarified his position on Tesla’s probable privatization by stating, “First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best.”

In that same email, Musk also specified that Tesla continuing to be private subjects the company to the quarterly earnings cycle, which puts an enormous pressure on the company to make critical decisions that have to be beneficial in the long term. Musk believes that transitioning from public to private along with the frequent changes in the stock cycle will distract Tesla's shareholders and limits chances to "attack the company."

The aforementioned wealth fund from Saudi Arabia is named Public Investments Fund and is considered to be one of Tesla’s eight biggest shareholders. It had amassed a 3-5 percent stake this year even though its $2 billion stake was still below the 5 percent that was required for public disclosure. Public Investment Fund also has more than $250 billion in assets and has made some notable investments in American companies in the past, with one particular investment being the fund buying a $3.5 billion stake in Uber in June 2016.

Public Investments Fund wasn’t the only foreign firm to express interest in the investment of Tesla as Musk admitted to have held negotiations last year with Japan’s premier multinational holding conglomerate, SoftBank Group. At a time when Tesla was trading at over $300 per share, SoftBank had engaged in talks with Tesla in April 2017 to not only invest in Tesla but also help make it private too, especially with SoftBank’s implementation of its $100 billion Vision Fund that pays large stakes in technology companies.

According to the Financial Times, Musk’s aforementioned blog post had generated reports that the U.S. Securities and Exchanges Commission was conducting an investigation on whether or not Musk’s tweets were accurate and that there are expectations of investors who bought or sold Tesla’s shares after his tweets to take legal action. However, a Wall Street lawyer mentioned that if Musk’s tweets and statements were found to be false and misleading, then he would be found in violation of the Securities Exchange Act of 1934, which clarified that. 

If Tesla were to go private, some pressures from the company are likely to be alleviated, including no longer being required to report any quarterly earnings along with expectations for profit around the 3rd quarter of 2018. Tesla’s stock in 2017, however, has been reported in polar opposites as its lowest stock was traded as low as $244.59 in April and its highest stock was traded as high as $389.61 in December.

As a result of Musk’s tweets from last week, Tesla’s board committee had begun to explore the possibility of privatizing Tesla, with a special committee formed with three independent directors, Brad Buss, Robyn Denholm and Linda Johnson Rice, that will assess any move to make Tesla a private company. Even if Tesla were given the approval to go private, Musk still expressed his hope that he can maintain his 20 percent stake in the company.

According to the Business Insider, David Whiston, an equity strategist at Morningstar, believed that Musk should’ve waited until a deal to privatize was confirmed because if the deal fell through, he would have to explained to the public why he was highly confident on Twitter about privatizing Tesla. A privately-owned Tesla can help the company focus on what's best on the company and which products they will produce next instead of being distracted by external pressure.

If Tesla were to become private, it would be considered one of Elon Musk's greatest achievements, alongside the unveiling of the Tesla Model vehicles and also the announcement of his old 2008 Tesla Roadster being sent to space as an artificial satellite for the Sun. A privately-held Tesla may increase the probability of more vehicles to be produced and sold to the general market in the near future.