Tesla’s Private Test Drive

Would you lend $70 billion to buy a cash-needy car company?


Tesla’s Private Test Drive

Elon Musk is known for disrupting convention, and his midday tweet Tuesday that he may take his Tesla car company private is a classic. Many people have lost money betting against the Tesla CEO. Then again, nearly $70 billion is a lot to borrow to escape the needling of short sellers and stock-analyst grunts.

But that does seem to be Mr. Musk’s overriding motivation for wanting to go private, judging from his email to employees that Tesla released after his tweet.

“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,” Mr. Musk wrote in his memo. “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.”

If Mr. Musk does go private, he’d face no more questions from stock jocks, journalists and other pains in the posterior who ask about the Tesla Model 3 production line and cash flow. He could put a sign out front that says “Genius at Work” and tell everyone to buzz off unless they want to test drive one of the cars.

Everyone, that is, except the lenders who finance what would be the most expensive leveraged buyout in history. Calculating from the 20% or so of Tesla shares that Mr. Musk already owns, and his target LBO price of $420 a share, he’d have to raise tens of billions of dollars. Mr. Musk tweeted that he has “funding secured,” without naming the sources.

One theory is that Mr. Musk is trying to flush out a strategic buyer with ready cash (Google or Apple ?) or auto manufacturing expertise (Daimler?). If Mr. Musk intends to lure bond investors, he may find they can be even more annoying than journalists. With so much leverage, Tesla would need the Model 3 to be a consumer hit and a long enough economic expansion to generate cash to pay down debt. We wouldn’t bet against him, but lenders will need a high tolerance for ego.

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