CEO Elon Musk wants to take electric vehicle-maker Tesla private, with “funding secured” at $420 per share according to his Tuesday morning tweet, which caused the NASDAQ exchange to temporarily halt trading in the company.
“Am considering taking Tesla private at $420. Funding secured,” reads Musk’s tweet. As his critics on Twitter posited that the per-share figure referred to something he might be smoking, Musk later followed this up with an email to Tesla employees that “the reason for doing this is all about creating the environment for Tesla to operate best.”
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
He notes that “a final decision has not been made,” and is subject to a shareholders’ vote. There are no details on the source of funding for the proposed buyout.
The initial tweet was considered serious enough to boost Tesla’s stock from an opening price of $343.84 per share to more than $371. NASDAQ exchange trading in the stock was halted at $367 per share early afternoon New York time, but resumed before close. By 4 p.m. Eastern, Tesla stock was $379.57 per share, up 10.99 percent for the day and just $10.04 per share short of its 52-week high.
Tesla’s stock had slid well below $300 per share prior to the company’s August 1 Second Quarter financial analysts’ conference call, during which Musk apologized to analysts for his boorish remarks in his First Quarter call.
With Tuesday’s bullish close, Tesla’s market cap reaches $64.45 billion, compared with $53.05 billion for General Motors and $40.2 billion for Ford Motor Company. Musk has been critical of stock market day traders, having told them in the First Quarter 2018 analysts’ call to stop trading Tesla stock.
“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,” Musk writes in his Tuesday email. “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.” [Thanks to The Wall Street Journal’s Charlie Grant for re-tweeting the email.]
Short-sellers make money by “borrowing” the stock at a high price, and then paying for it when the stock loses value or crashes, and there seem to be as many Tesla short-sellers as adoring Wall Street bulls.
Musk leans on corporate-speak boilerplate a bit when he writes, “I fundamentally believe that we are at our best when everyone is focused on executing,” and notes that his private space exploration company, SpaceX “is a perfect example”…”it is far more operationally efficient, and that is largely due to the fact that it is privately held.”
However, Musk doesn’t consider this permanent. Once Tesla “enters a phase of slower, more predictable growth, it will likely make sense to return to the public market.”
One Tesla critic on Twitter noted it would have made more sense for Musk to proposal a stock buyout when a share’s value was about $270 just a month earlier. But Musk says he wants to structure the move so current shareholders have a choice of holding on to Tesla after going private, or selling their shares at $420, a 20-percent premium over the post Q2 earnings call value. He expects all Tesla employees would remain shareholders, with the ability to “periodically sell shares and exercise their options.”
Musk says he does not intend to merge SpaceX and Tesla, and that “this has nothing to do with accumulating control for myself. I own about 20 percent of the company now, and I don’t envision that being substantially different after any deal is completed.”
Tesla has lost $1.4 billion in the first half of this year, but Musk says he expects the company to be in the black by the third and fourth quarters, as weekly production of the Tesla Model 3 soon reaches 6,000 per week, on its way to 10,000 per week by the end of the year.