Musk Just Said Tesla Will Remain a Public Company. Why?

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Tesla CEO Elon Musk in a blog post earlier today threw another curveball, this time saying that he and the Board of Directors at Tesla agreed that “the better path is for Tesla to remain public.” The post comes 17 days after the unexpected tweet from Musk that he had plans to take the company private and that he had the “funding secured.”

A copy of the letter is posted at the bottom of the article, but for our readers’ convenience we’ve extracted the highlights of why Tesla will remain public:

  1. Musk has been sounding out current investors to see if they agreed on the take-private deal being a “good strategic move.”

  2. The decision was partly based on advice received from Silver Lake, Goldman Sachs and Morgan Stanley, and partly from large and small shareholders in the company.

  3. Most of the shareholders believe that Tesla would be “better off as a public company.”

  4. Institutional investors were worried about violating internal compliance that limits ownership in a private company.

  5.  There is also “no proven path for most retail investors” to stay on as investors in a private company.

  6. The processing of taking the company private “would be even more time-consuming and distracting than initially anticipated” and could have taken the focus off Model 3 production and being profitable as a company.

  7. Musk categorically stated: “We will not achieve our mission of advancing sustainable energy unless we are also financially sustainable.”

Opinion

Musk still believes that funding would have been more than adequate had the company taken that route, but that was never the issue. We’ve written several pieces this month on the abundance of potential investors in a private Tesla, and we still believe – as Musk does – that funding would not have been an issue.

This is one of the many concerns that existing investors may raise as Tesla’s take-private plan heats up. Expect more to come, because there is certainly a huge group of people who think that Tesla shares are worth way more than $420 and still prefer the liquidity and regulatory comforts offered by a publicly listed firm.

It’s just the beginning. Expect more opposition to roll after the buyout proposal is released publicly. –  Shankar Narayanan , 1redDrop

 

The more immediate matter to be addressed is making sure that the Model 3 production ramp up doesn’t take a hit, and that may have happened if Musk were involved in a take-private deal at this point.

The company has already committed to being consistently profitable starting in Q3, and Tesla might already be there since we’re a little more than a month away from the end of the quarter. With VIN registrations, production numbers and deliveries tracking each other very closely, being in the black come quarterly earnings report time is not an unrealistic goal.

We wish you all the very best, Elon. There’s much work to be done.

“Earlier this month, I announced that I was considering taking Tesla private. As part of the process, it was important to understand whether our current investors believed this would be a good strategic move and whether they would want to participate in a private Tesla.

Our investors are extremely important to me. Almost all have stuck with us from the time we went public in 2010 when we had no cars in production and only a vision of what we wanted to be. They believe strongly in our mission to advance sustainable energy and care deeply about our success.

I worked with Silver Lake, Goldman Sachs and Morgan Stanley, who have world-class expertise in these matters, to consider the many factors that would come into play in taking Tesla private, and to process all the incoming interest that we received from investors to fund a go-private transaction. I also spent considerable time listening to current shareholders, large and small, to understand what they think would be in the best long-term interests of Tesla.

Based on all the discussions that have taken place over the last couple of weeks and a thorough consideration of what is best for the company, a few things are clear to me:

Given the feedback I’ve received, it’s apparent that most of Tesla’s existing shareholders believe we are better off as a public company. Additionally, a number of institutional shareholders have explained that they have internal compliance issues that limit how much they can invest in a private company. There is also no proven path for most retail investors to own shares if we were private. Although the majority of shareholders I spoke to said they would remain with Tesla if we went private, the sentiment, in a nutshell, was “please don’t do this.”

I knew the process of going private would be challenging, but it’s clear that it would be even more time-consuming and distracting than initially anticipated. This is a problem because we absolutely must stay focused on ramping Model 3 and becoming profitable. We will not achieve our mission of advancing sustainable energy unless we are also financially sustainable.

That said, my belief that there is more than enough funding to take Tesla private was reinforced during this process.

After considering all of these factors, I met with Tesla’s Board of Directors yesterday and let them know that I believe the better path is for Tesla to remain public. The Board indicated that they agree.

Moving forward, we will continue to focus on what matters most: building products that people love and that make a difference to the shared future of life on Earth. We’ve shown that we can make great sustainable energy products, and we now need to show that we can be sustainably profitable. With all the progress we’ve made on Model 3, we’re positioned to do this, and that’s what the team and I are going to be putting all of our efforts toward.

Thank you to all of our investors, customers and employees for the support you’ve given our company. I’m incredibly excited to continue leading Tesla as a public company. It is a privilege.”