Musk stirs up the market with talks of taking Tesla private
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Musk stirs up the market with talks of taking Tesla private

What a week for Tesla. Fresh off controversy over production targets, profitability and more, CEO Elon Musk tweeted that he was considering taking Tesla private at $420 a share - something he claims he already has backing for. But does he? Analysts are split directly down the middle. If it’s true, then Musk is teasing the largest ever leveraged buyout in the least likely of ways. Usually, when publicly traded companies announce something of this magnitude, they halt trading, release statements, and manage their messages carefully. Tesla seems to prefer tweeting.

Tesla’s share price has been on a rollercoaster ride for the last 30 days

graph 1308 musk

SOURCE: Yahoo Finance

Of course, the disparity between Elon Musk’s behavior and those of a “normal” CEO at a publicly traded company is part of the problem: Musk, a serial entrepreneur, genius polymath, and notorious attention hog, does not want to be bound by little things like public convention or investor expectation. And he is so divisive a figure – lauded by some, disparaged by others – that it’s genuinely hard to know whether that would be a good or a bad thing.

This latest revelation comes just weeks after Musk oversaw the building of a giant, tented, external production line in order to meet a target which Tesla failed to meet multiple times previously: high enough production of its lower-end models to approach profitability. Musk did pull it off, but plenty of analysts still have questions. Can he do it without the bizarre tent in the parking lot? Is the quality good enough? Is it sustainable?

graph 1308 musk2

For most companies, production struggles and privatisation stories would be enough news for a year. For Tesla, it’s not even enough for a month. This latest story follows a spate of press over its CEO’s “bad behavior.” After his attempts to aid with the rescue of a children’s Thai football team and their coach from underground caves were disparaged by one of the divers involved, Musk insisted on referring to him as “peado guy”. When analysts challenged his vision on a recent earnings call, he flat out insulted their intelligence. Whichever way you look at it, Musk’s attitude lends itself to volatility.

That’s one more reason it might make sense for Tesla to go private. Gene Munster, managing partner at venture capital firm Loup Ventures, certainly seems to think it’s a realistic option. He said: “Elon Musk does not want to run public companies. His missions are big and make it difficult to accommodate investors’ quarterly expectations. Our guess is there is a 1 in 3 chance he can actually pull this off.”

Disclosure

Dominion holds Tesla in its Global Trends Luxury Fund.


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