Elon Musk has a history of getting into trouble with his tweets. His recent one on taking Tesla private, which sent the company’s share price soaring 11%, has not gone down well with regulators. By not disclosing this important strategic line of thinking on the usual channels, giving advantage to a smaller set of investors, he might have flouted norms set by the US capital market regulator.
Besides, there were concerns it might not be true: the number 420, which has a different connotation in India, is used to refer to cannabis in the US. The Tesla board released a statement saying it had met several times to discuss the issue, but that hasn’t stopped the Securities and Exchange Commission (SEC) from probing his tweets, and their ramifications beyond.
Musk has stated his reasons why he wants to take Tesla private. The volatility in share price distracts employees, many of whom are shareholders too; the quarterly reporting cycle might put pressure on managers to ignore long-term interests; and most importantly, it would save Tesla from being attacked by short-sellers, who have incentive to beat down the company. Musk might have already extracted some revenge. Short sellers lost $1.3 billion on paper after Musk posted his tweet.
Tesla has often been criticised for missing production targets. While Tesla has an enviable brand value and cult following—similar to that of Apple—its inability to deliver cars on time might undermine its advantages. It is worth noting that Apple CEO Tim Cook earned his stars in operations, by ensuring that Apple’s supply matched demand. Latest quarterly results of Tesla suggest the electric car maker is ramping up fast: its production went up 55% to 53,339 vehicles in Q2 of 2018.
Assuming the regulatory probes will not cause much damage, the big question is how will Musk take Tesla private. With a 20% stake, Musk is not a majority shareholder. Musk had tweeted that he had secured funding. Given that the market capitalisation of Tesla is about $63 billion, and it is consistently making losses, taking the company private would mean either raising a lot of money from outside or some innovative structuring that gets the buy in of a lot of existing investors. Either way, it won’t be easy. And it will invite the minutest of scrutiny for a business that has seen the best and worst of public glare.
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