In June 2010, the tech giant Tesla held its Initial Public Offering, raising $226.1m for the company. With his family and then-wife Talulah Riley surrounding him, and with his fists in the air, it was a good day for the company’s boss Elon Musk.
But since the IPO, Tesla’s road to commercialisation has been strewn with obstacles. The first problem Musk encountered was after raising capital via 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 car. Eight years later, Tesla is still afflicted by similar problems and is burning through $7,430 per minute, according to analysis by Bloomberg, this time in a bid to try to fix the production woes of its mass-market Model 3 Sudan.
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 Musk is successful, it would be the largest private takeover of a company, costing $70bn [DO YOU HAVE A SOURCE FOR THIS INFORMATION? IF SO CAN YOU PROVIDE A LINK?], it would prevent him from having to release valuable information to rival companies and strengthen his control.
Musk’s strategy will be envied by other start-up founders, who yearn to escape the diktats of the US Securities and Exchange Commission. Helen Adams, the managing partner of Haskell & White, a California-based accounting firm, 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.” [DID SHE SPEAK TO YOU OR DID YOU FIND THIS QUOTE SOMEWHERE? IF SO YOU NEED TO EXPLAIN WHERE]
If Tesla does become a unicorn, the company will join 279 others in the USA with a combined value of $1 trillion. However, unicorns come with another set of their own problems. The largest and best known of the herd is Uber. However, although private, it still has been subject to huge scrutiny by the media, the public, drivers’ unions and regulators. Being a unicorn, therfore, does not guarantee privacy.
Moreover, there is widespread scepticism among investors about the value of unicorns is large, with some suggesting companies are overvalued by as much as 48 per cent, in turn stoking fears of another Dot Com-style bubble. Musk might succeed in transforming into a unicorn, but should he ever want to become CEO of a large listed company again, the route back may be harder.
This is, incidentally, not the first time Musk and unicorns have come together. The Tesla boss recently had to settle a trade dispute with a Colorado potter who accused Musk of using a farting unicorn motif without his permission.