Will Elon Musk's masterplan to take Tesla private succeed?

The risks and rewards of the tech mogul's $70bn bid to turn his company into a “reverse unicorn”. 

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In June 2010, the US tech giant Tesla held its Initial Public Offering, raising $226.1m for the company. With his family and his then wife Talulah Riley surrounding him, and with his fists in the air, it was a good day for the company’s mercurial head Elon Musk.

But since the IPO, Tesla’s road to commercialisation has been strewn with obstacles. The first problem Musk encountered followed the IPO. The aim was to use the funds to plug a financial hole in the company created by its excessive use of cash to prop up the Model S electric car. Eight years later, Tesla is afflicted by similar problems and is burning through $7,430 per minute, this time in a bid to fix the production woes of its mass market Model 3 car.

This has created the impossible dilemma that the superstar entrepreneur now faces, as Musk has articulated himself. Does he make “decisions that may be right for a given quarter, but not necessarily right for the long-term profits”, or work on his vision of becoming the king of mass-market electric cars? Musk knows what he wants and has told his shareholders explicitly that Tesla has “no interest in satisfying the desires of day traders. I couldn't care less. Please sell our stock and don't buy it”. Such a phonecall with shareholders is typical of Musk’s approach: for a 2018 April Fool’s joke he announced on Twitter that Tesla had gone bankrupt, causing the share price to drop by 12 per cent and wipe $2.5bn off the company’s value. Indeed, the share price has fluctuated over the year from a high of $389.57 to a low of $244.60. 

Yet for all that Musk toys with his sharedholders, his automobile dreams are being hampered – in the same phonecall, the shareholder Baird's Ben Kallo pushed back, suggesting that everyone has a “short-term focus in some ways”. To the outsider, there are obvious ways Tesla could improve its chances of making a profit, starting with reducing its ballooning employee numbers, which have risen from 899 in 2010 to 40,000 today. Meanwhile, Tesla has endured significant woes: 20 chief executives have departed in two years, its autopilot system was found to be faulty and caused crashes including the death of Walter Huang a 38-year-old Apple Inc. engineer.

So on 7 August 2018, when Musk candidly announced via a tweet that he planned on “taking Tesla private at $420”, no one was sure if he was serious. On the one hand, he could genuinely want to make the company a “unicorn” once more: a privately-held start-up valued at over $1bn. On the other, he might just be making a joke referring to a popular time to smoke weed. Despite the widespread suspicion it was the latter, over the following days Musk legitimised the tweet and wrote a detailed blog post expanding on the idea.

 

If he is successful, in what would be the largest private takeover of a company ($70bn), it would prevent him from having to release valuable information to rival firms and strengthen his control. 

Musk’s strategy is mirrored by that of other companies, who yearn to escape the diktats of the US Securities and Exchange Commission. Helen Adams, the managing partner of Haskell & White, has said: “There are specific SEC financial statement filing requirements on a quarterly and annual basis, and many periodic legal reporting requirements, including those for material transactions and for stock trading by senior executives and board members.

The attractions of unicorn-status may seem irresistible. But it won't be easy for Musk: the probability of Tesla succeeding privately is perhaps close to that of seeing an actual unicorn. The last few years, however, have brought us a series of seemingly inconceivable events.

And this is not the first time Musk and unicorns have come together. The Tesla head recently had to settle a trade dispute with a Colorado potter who accused Musk of using a farting unicorn motif without his permission. Judging by past relationships, then, fractious times lie ahead.