- Tesla CEO Elon Musk is likely misinforming Tesla devotees about plans to go private, one analyst says
- Taking Tesla private could destroy Musk’s ability to produce the Model 3
- Tesla faces catastrophe if regulators find out the company and Musk are misleading shareholders
Tech entrepreneur Elon Musk’s suggestion to take Tesla private brings with it a significant level of risk for shareholders and activists who are often described as fanatical devotees of the automaker.
Musk dropped a proverbial bomb on Twitter Tuesday when he tweeted out his willingness to take the 15-year-old company private. The message also surprised federal regulators. Yet green energy activists have the most to gain and lose if Tesla’s shareholders move forward with the suggestion — they must put their trust in Musk and forgo any public scrutiny of the company.
Private company management is not subject to the usual public monitoring and scrutiny of those that go public — analysts, short sellers and regulatory agencies, for instance, provide people information about Tesla before they purchase shares. Musk’s online behavior, inability to hit important deadlines and criticisms of the media might give future shareholders pause.
Analysts are skeptical that Musk and Tesla will go ahead with the suggestion. “The probability that tesla goes private is extremely low,” John Thaler, a market analyst and founder of JAT Capital Management, a multi-billion dollar global equity investment firm, told The Daily Caller News Foundation.
“One of the direct flaws in Musk’s suggestion is that the people currently holding public stock will continue being able to hold stock,” he said, referring to Musk’s comments in a Tesla blog in which the California billionaire suggested those who currently hold shares in the company can roll over their shares when the company goes private.
“Most shareholders won’t be able to roll their shares over if the company goes private,” Thaler noted before giving the Tesla CEO credit for putting the electric vehicle market on the map. “That statement causes me to believe that there is little validity to his (Musk) tweet.”
Musk knows that not everyone who currently holds shares with the company will be able to seamlessly move into the private side — there are different tiers of shareholders, Thaler said. “We will likely come to learn that Elon was misspeaking in his tweets. If the board supported his statements, and we find that both the board and Elon were misleading, then that could be catastrophic for the company,” he added.
Regulators are also raising red flags about Musk’s Twitter pronouncements. Harvey Pitt, a former Securities and Exchange Commission chairman, for instance, told CNBC Tuesday that the tweets “might constitute fraud if any of the facts he disclosed are not true” or if there is any indication he composed the tweet to boost Tesla’s stock. (RELATED: Tesla Is Begging Suppliers For Cash As Elon Musk Mouths Off On Twitter)
Musk’s tweets came shortly after Saudi Arabia’s Public Investment Fund (PIF) bought 5 percent of the electric vehicle maker’s shares this year. The PIF’s position is worth between $1.7 billion and $2.9 billion at Tesla’s current share price. PIF instead acquired the position through secondary markets with the help of JPMorgan. The exact date of the purchase likely happened while the Crown Prince Mohammed bin Salman was touring the U.S. in March.
Tesla breezed through $1.8 billion in the first half of 2018, yet the paltry showing doesn’t appear to have dragged on Musk’s spirt. The beleaguered CEO maintains the electric carmaker will be cashflow positive in the final two quarters of the year. The company’s shares rose 4.7 percent following the report.
Tesla represents a third of the U.S. market for plug-in vehicles, which could seriously hurt the company’s ability to elevate electric vehicles to the top of the auto market. Musk’s success also relies upon his ability to mass produce the Model 3, a supposedly inexpensive vehicle that can appeal to a large audience.
Tesla will need billions of dollars in capital to mass produce Model 3s. Taking the company private would likely prevent Musk from attracting the kind of investments needed to produce the 300,000 vehicles necessary to compete with the likes of Ford and BMW, both of which are ratcheting up their electric vehicle presence.
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