Elon Musk once again sent heads spinning with a bombshell tweet Tuesday, saying he’s “considering” buying up shares of electric car maker Tesla.
The deal contemplated by Musk, who has had a contentious relationship with Wall Street, would amount to the largest private buyout ever. If he paid shareholders the suggested $420 a share, Tesla would be worth $70 billion to $80 billion — more than any other U.S. car company.
But Musk, Tesla’s largest individual owner with 20% of fully diluted shares, might have to come up with $60 billion to buy out other shareholders.
Left unclear was whether Musk has lined up the financing — and if so, from whom. Earlier, the Financial Times newspaper reported that Saudi Arabia's sovereign wealth fund has taken a significant stake in Tesla.
Musk’s initial tweet included the phrase “funding secured.” It sent Tesla stock soaring 11%, to $379.57, before trading was halted on U.S. stock exchanges. But a later post on the Tesla site made no mention of secured funding or where it might come from. Musk said in the post that “a final decision has not yet been made.”
Although news of pending buyouts sometimes leaks, chief executives rarely discuss them until the deal itself is done.
A tweet like Musk’s is “definitely abnormal,” said Efraim Levy, stock analyst at CFRA Research. “This is the Elon Musk universe and the Donald Trump universe. Tweets have taken on a new role.”
The fact that no actual deal was announced or funders identified sparked questions about whether the billionaire entrepreneur had improperly manipulated the company’s share price.
“The CEO announced a tender offer for the company, and the stock closed up 11%. If I were at the SEC, I’d definitely have some questions for Mr. Musk,” said Justin Hibbard, senior forensic accountant at Code Accounting. (The Securities and Exchange Commission declined to comment.)
Rob Majteles, who runs Oakland investment firm Treehouse Capital and has a short position in Tesla, was even more blunt. “In the real world, this is fraud. No announced halt, no communication, shares trade with no info.… In today’s world? Who the hell knows?”
Short sellers bet that a company’s stock price will plunge. Tesla is the market’s most-shorted stock based on dollar value. If the deal goes through, short sellers would be wiped out.
Musk regularly tangles with short sellers and other critics on Twitter. In May, he tweeted, “Oh and uh short burn of the century comin soon. Flamethrowers should arrive just in time.”
Mark Spiegel, who runs Stanphyl Capital, a hedge fund with a short position in Tesla, said he’s not worried.
“I can't imagine how this could be financed considering the market cap, debt and other liabilities, and ongoing losses,” Spiegel said. “Pretty soon we'll find out if this stock is 'a $420' or a zero."
Ross Gerber, chief executive of Santa Monica investment firm Gerber Kawasaki, which holds Tesla shares, told The Times “this is legit.” He said he emailed a top executive at Tesla’s investor relations department who verified that Musk’s tweet was real and that a deal to take the company private is in the works. He said he was told more information would be released “potentially later.”
Asked about the proposal itself, Gerber said, “love it.”
In his blog post, Musk said he’d structure the deal so that existing shareholders could retain their shares and become owners of the private enterprise, or sell for $420. The value of those remaining shares would depend on the terms of the deal.
Those who stick with Tesla would be allowed to sell shares “periodically,” Musk said. Private shareholdings aren’t traded on stock markets and thus are harder to turn into cash.
The total dollar price of the deal itself, if it occurs, would be influenced by the number of shares that remain with the new company.
Musk explained his preference for private ownership on the Tesla site:
“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. 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.”
Musk’s other high-profile company, rocket-maker SpaceX, is already private.
Tesla faces a cash crunch as it tries to ramp up production on its make-or-break Model 3 sedan. After suffering what Musk called “production hell” at its car factory in Fremont, Calif., and its Sparks, Nev., battery factory, the company is far short of churning out the 500,000 cars it said would be produced in 2018. In the first six months of the year, the company has produced about 88,000 cars of all models — the Model S, the Model X and the Model 3.
The company burned through more than $1.5 billion in cash in the year’s first half and had $2.2 billion in cash remaining.
Musk said recently that the company’s cash flow will be enough to fund the company going forward and that he didn’t plan to raise new funds through stock or debt issues. But some analysts doubt Tesla’s ability to post significant growth without new outside capital.
According to the Financial Times report, Saudi Arabia’s sovereign wealth fund bought a 3% to 5% stake in Tesla over the last several months, at a cost of $1.7 billion to $2.9 billion. The report said the state-run Public Investment Fund first approached Musk seeking to participate in a new issue of Tesla shares.
By buying existing shares on the open market, any Saudi purchases to date would prop up the stock price but not contribute to Tesla’s cash account.