“Am considering taking Tesla private at $420. Funding secured.”
Thus tweeted Tesla founder and CEO Elon Musk on Tuesday, promptly sending the stock market, the internet, and business journalism into a collective tizzy. The markets even temporarily halted trading in Tesla stock until the initial dust settled.
Taking Tesla private is a pretty wild idea. Observers are still scratching their heads as to how exactly Musk could pull this off. No one has ever taken a public company private at this scale or under these circumstances before.
But taking Tesla private is probably the right move.
Public companies face profoundly different (and often worse) pressures than privately held companies do. With a public company, ownership stakes are constantly and speculatively traded on the public stock market. A big company usually has many, many investors — or big institutions representing many, many investors. The churn in ownership is tremendous, and the reason for buying or dumping a stock is often quite capricious. That creates enormous and often counterproductive volatility.
“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,” Musk wrote in a memo to Tesla employees. “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.”
This situation is a particularly poor fit for a company like Tesla.
Whatever you may make of Musk, he clearly has a vision beyond simply making a quick buck. He wants to revolutionize our energy and transportation systems and make them renewable and carbon free, so they no longer threaten the climate or the planetary ecosystem. That’s a massive, transformative project — one that will demand big risks and investments that could only pay off a long way down the line.
The electric carmaker has been mired in a Herculean effort to begin mass manufacturing of the Model 3, Tesla’s offering for the middle-class market. The company is burning through mountains of cash, and its stock is laden by more and more predictions of doom.
Musk owns about 20 percent of Tesla. Insiders and individual investors own another 17 percent. The rest is owned by major investment institutions. In other words, most of Tesla’s owners likely don’t really care about Musk’s mission and are just there for some payouts. A lot of Musk’s cantankerous and erratic behavior can probably be explained by the frustrations resulting from that collision.
Obviously, no shareholders are going to put up with no return on their investment forever. But insiders and direct private investors — rather than drive-by stock buyers — are much more likely to have bought in, to some degree, to Musk’s vision, and thus to give him a lot more patience and leeway.
The details of Musk’s plan haven’t really been fleshed out yet. It sounds like he’d prefer …read more
Source:: The Week – Tech