Elon Musk's latest big idea is daring even by his standards: He wants to turn Tesla into a private company.
He stunned investors on Tuesday with a tweet saying he had already lined up the funding, and he told employees that it would relieve the electric car company of the "enormous pressure" of Wall Street's expectations.
In a letter to Tesla workers that was posted on the company's blog, Musk called his idea the "best path forward."
"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," he wrote.
He also said trading its stock publicly "means that there are large numbers of people who have the incentive to attack the company." Musk has complained repeatedly about short-sellers, who profit when Tesla stock drops.
Musk, the CEO and largest shareholder, said on Twitter that the private funding valued Tesla at $420 per share. Tesla is already the most valuable automaker in the United States.
Musk's tweet caused shares to spike
The plan would need shareholder approval, but Musk's tweet sent Tesla stock spiking by almost 9%. Trading in Tesla was later halted for more than an hour before Tesla posted Musk's letter to employees on its blog. It finished up 11%, at $379.
The stock had climbed slightly earlier in the day after the Financial Times reported that Saudi Arabia has quietly built a big stake in the company.
At first, Tesla had declined comment on Musk's tweet, even as he casually engaged Twitter followers with more posts about his plans.
Musk said that he hoped all current investors would stay with Tesla even if it went private. He said he would create a special fund to allow that. Fidelity, the investment firm, has such a fund for its stake in SpaceX, a separate private company also run by Musk.
He pledged to hold on to his stake in the company, about 20%, no matter what. He said he was "super appreciative" of Tesla shareholders, and vowed to "ensure their prosperity in any scenario."
Tesla (TSLA) has burned through cash while struggling to produce the Model 3, its lowest-priced electric car. That has driven the stock lower and raised concerns about whether Tesla will need to sell more shares to pay for expansion. Musk has insisted Tesla has no such need.
Am considering taking Tesla private at $420. Funding secured. — Elon Musk (@elonmusk) August 7, 2018
'Musk does not want to run a public company'
Musk has also clashed repeatedly with critics, especially investors who have taken short positions on the stock, meaning they benefit when the price falls. He clashed with analysts on a contentious call after Tesla reported earnings three months ago.
Gene Munster, managing partner at Loup Ventures and a top tech analyst, said the odds that Musk will take Tesla private were about one in three. But he said the idea made a certain amount of sense.
"Musk does not want to run a public company," Munster wrote on his website. "His mission for Tesla (to accelerate the globe's adoption of sustainable energy) is both grand and long-term, making it difficult to accommodate investors quarterly expectations."
It would cost about $71 billion to take Tesla private at $420 per share. Before Musk's tweet, Tesla had a market value of $58 billion, already higher than that of General Motors (GM) or Ford (F), even though those companies are significantly larger and more profitable.
In fact, Tesla has turned a narrow profit in only two quarters since it became a public company in 2010. Musk has vowed that the company will start turning a regular profit in the second half of this year.
In a 2013 report, the SEC said companies can use social media outlets to announce important information, so long as they comply with regulations and "investors have been alerted about which social media will be used to disseminate such information."
The SEC issued that report after Reed Hastings, the CEO of Netflix, used a Facebook post to congratulate Netflix's chief content officer on record-breaking viewership. Netflix stock moved higher as a result.
Tesla said in a regulatory filing in 2013 that investors interested in keeping up with Tesla should follow Musk's account.
The SEC declined comment on Musk's tweet.
Musk has a history of outrageous behavior on Twitter.
On April 1, amid rising market concerns about a cash crunch at Tesla, he tweeted an email announcing that Tesla would have to file for bankruptcy. The tweet was apparently an April Fool's joke.
Tesla Goes Bankrupt
Palo Alto, California, April 1, 2018 -- Despite intense efforts to raise money, including a last-ditch mass sale of Easter Eggs, we are sad to report that Tesla has gone completely and totally bankrupt. So bankrupt, you can't believe it. — Elon Musk (@elonmusk) April 1, 2018
Musk also faced intense public criticism after he suggested in a tweet that one of the rescuers of the Thai soccer team trapped in a cave was a pedophile.
He later deleted that tweet and apologized for that exchange, but at least one analyst suggested Musk needed to get off Twitter to restore investor confidence in the company.
After Musk, the next largest shareholders in Tesla are the mutual fund giants T. Rowe Price and Fidelity, with stakes of more than 9% and 8%, respectively, according to Thomas Reuters Eikon.
Scottish money manager Baillie Gifford, which recently urged Musk to focus less on tweeting and more on running the business, is the fourth-largest shareholder, with a nearly 8% stake. Chinese tech giant Tencent owns almost 5%.
James Anderson, a Baillie Gifford fund manager who recently called out Musk's tweeting in an interview with Bloomberg, had no comment about Musk's tweets on Tuesday. Fidelity and T. Rowe Price also declined comment.
— CNNMoney's Donna Borak contributed to this report.
The following email was sent to Tesla employees today:
Earlier today, I announced that I’m considering taking Tesla private at a price of $420/share. I wanted to let you know my rationale for this, and why I think this is the best path forward.
First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best. 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.
I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve.
This is especially true for a company like Tesla that has a long-term, forward-looking mission. SpaceX is a perfect example: it is far more operationally efficient, and that is largely due to the fact that it is privately held. This is not to say that it will make sense for Tesla to be private over the long-term. In the future, once Tesla enters a phase of slower, more predictable growth, it will likely make sense to return to the public markets.
Here’s what I envision being private would mean for all shareholders, including all of our employees.
First, I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or they can be bought out at $420 per share, which is a 20% premium over the stock price following our Q2 earnings call (which had already increased by 16%). My hope is for all shareholders to remain, but if they prefer to be bought out, then this would enable that to happen at a nice premium.
Second, my intention is for all Tesla employees to remain shareholders of the company, just as is the case at SpaceX. If we were to go private, employees would still be able to periodically sell their shares and exercise their options. This would enable you to still share in the growing value of the company that you have all worked so hard to build over time.
Third, the intention is not to merge SpaceX and Tesla. They would continue to have separate ownership and governance structures. However, the structure envisioned for Tesla is similar in many ways to the SpaceX structure: external shareholders and employee shareholders have an opportunity to sell or buy approximately every six months.
Finally, this has nothing to do with accumulating control for myself. I own about 20% of the company now, and I don’t envision that being substantially different after any deal is completed.
Basically, I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible.
This proposal to go private would ultimately be finalized through a vote of our shareholders. If the process ends the way I expect it will, a private Tesla would ultimately be an enormous opportunity for all of us. Either way, the future is very bright and we’ll keep fighting to achieve our mission.
Thanks,
Elon
Tesla (NASDAQ:TSLA) shares were halted at 2:08 p.m. today following a series of tweets by Elon Musk on taking the company private. Live updates follow.
4:08 p.m. - Tesla closes with a 10.99% gain after trading as high as $387.46. Volume was 29.8M shares vs. average daily volume on Tesla of 8.71M shares. Several short sellers have gone on CNBC and Bloomberg TV to rail against the lack of clarity on how a go-private deal for Tesla would be financed.
3:48 p.m. - Musk tweets that the only reason the go-private deal is not certain is that it’s contingent on a shareholder vote. It's another indication that funding is in place for the deal at $420 per share.
3:46 p.m. - Tesla resumes trading up 12.82% to $385.07.
3:37 p.m. - Musk's letter also indicates that there is no plan to merge Tesla and SpaceX. Musk envisions keeping his stake in Tesla at around 20%.
3:36 p.m. - Tesla shares will begin trading again at 3:45 p.m. Hang on.
3:32 p.m. - Tesla posts a letter (read full letter) sent to employees. Musk says he's considering taking the company private at $420 per share, although a final decision hasn't been made. "I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or they can be bought out at $420 per share, which is a 20% premium over the stock price following our Q2 earnings call (which had already increased by 16%). My hope is for all shareholders to remain, but if they prefer to be bought out, then this would enable that to happen at a nice premium," writes Musk.
3:21 p.m. - CNBC reports that none of the Wall Street banks it contacted were aware of any transaction or had committed to funding a leveraged buyout of Tesla.
3:14 p.m. - An interesting tidbit to consider as investors wait for the Tesla news is that the Saudi sovereign wealth fund invested $3.5B in Uber (UBER) back in 2016 for a stake of around 5%.
2:55 p.m. - Bloomberg Intelligence reports that Tesla's 5.3% notes due in 2025 have a 101% change of control covenant. The notes are trading up $0.0075 at $0.9225.
3:04 p.m. - Musk tweets that under a private Tesla scenario, investors could still buy shares through liquidity events every 6 months or so similar to the set up with SpaceX (SPACE), which has run up to a valuation of around $27B.
2:53 p.m. - The Nasdaq trading halt on Tesla is now at 45 minutes. There's no guarantee shares will resume trading today.
2:39 p.m. - At $420 per share, Tesla would be valued at $71.3B. That amount dwarfs the $53B market cap for General Motors (NYSE:GM) and $40B cap for Ford (NYSE:F).
2:33 p.m. - Circling back to Musk's Twitter replies: "My hope is *all* current investors remain with Tesla even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity’s SpaceX investment."
2:30 p.m. - Oppenheimer warns that a Tesla buyout from a foreign entity could draw attention from The Committee on Foreign Investment in the United States.
2:26 p.m. - Ross Gerber of Gerber Kawasaki says the company has confirmed to him the information in the Musk tweets are accurate.
Previously: Tesla jumps on report of Saudi wealth fund stake (Aug. 7)
Previously: Tesla jumps again as Musk floats private offer on Twitter (Aug. 7)
Image copyright Getty Images Image caption Tesla chief executive Elon Musk also runs the SpaceX rocket venture
Tesla boss Elon Musk is considering taking the electric-car firm private, a move he claimed was the "best path forward" for the company.
Mr Musk said de-listing from the stock exchange meant Tesla would no longer be pressured into making short-term decisions to appease investors.
In an unusual move, Mr Musk first made the announcement on Twitter rather than via an official regulatory disclosure.
Mr Musk said investors backed the plan which requires a shareholder vote.
He said shareholders would be offered $420 per share - around a fifth higher than the current price.
However, he also warned that "a final decision has not been made" about the move.
Tesla shares ended the day 11% higher at almost $380 per share - close to their all-time high.
Trading in the shares was initially suspended after Mr Musk's tweets which immediately pushed the share price higher.
While the tweets were an unconventional way to make a market-sensitive announcement, the US market regulator, the Securities and Exchange Commission, allows firms to use social media outlets like Facebook and Twitter in this way provided investors have been told which social media outlets will be used.
Image copyright Tesla Image caption Tesla reported a record loss in its most recent quarter
The firm subsequently shared a message from Mr Musk to employees that explained the thinking behind his announcement.
Mr Musk, who owns almost 20% of the company, said he hoped the move would shield the firm from distracting swings in the share price and the pressure to meet quarterly financial targets.
He also said he wanted to end "negative propaganda" from short sellers, investors who bet on the shares of a firm going down.
"Basically, I'm trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible," he wrote.
Largest deal ever?
If Tesla were taken private at $420 per share, it would be one of the largest such transactions in history - a deal worth more than $80bn, including the firm's debt.
Mr Musk's plan would allow investors to choose to retain their holdings. He planned to hold onto his shares and hoped to continue as chief executive, he added.
Gene Munster, an analyst at Loup Ventures, said Mr Musk had a "one-in-three chance" of managing to succeed with his plan.
"The 16% premium to the current share price may not be high enough to incentivise existing shareholders to support the sale," he added.
Skip Twitter post 2 by @elonmusk I don’t have a controlling vote now & wouldn’t expect any shareholder to have one if we go private. I won’t be selling in either scenario. — Elon Musk (@elonmusk) August 7, 2018 Report
Skip Twitter post 3 by @elonmusk My hope is *all* current investors remain with Tesla even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity’s SpaceX investment. — Elon Musk (@elonmusk) August 7, 2018 Report
Image copyright Getty Images Image caption Tesla is facing a cash crunch
Analysis by Kim Gittleson in New York
Elon Musk has had a difficult relationship with stock market investors - and been particularly angered by so-called short sellers, who have made record bets on the ultimate collapse of Tesla.
On Tuesday, those same short sellers were threatened with big losses after he tweeted that he was considering taking the electric car maker off the market and back into private ownership.
The messages sent the share price surging before trading was halted. But it bears noting that Mr Musk is known both for his erratic outbursts and for his quirky sense of humour.
Both have been frequently on display as Tesla has struggled to hit production targets. That's briefly left some wondering if this is all just another way of turning attention away from the fact that Tesla has yet to turn a profit.
Mr Musk's disclosure stirred further speculation about Tesla's future.
The firm is spending heavily as it ramps up production of its latest car, the Model 3.
It reported a record loss in its most recent quarter, and some analysts say it will need to raise money in order to survive.
However, Mr Musk has said he has no plans to do so and promised that the firm will be profitable in the second half of the year, barring any unforeseen events.
The tweets came after a separate report in the Financial Times that Saudi Arabia's sovereign wealth fund had taken a 3%-5% stake in Tesla, a holding worth at least $1.9bn.
The article said the state fund, overseen by the powerful crown prince Mohammed bin Salman, had been interested in buying newly issued shares.
