Shortly after an article by the Financial Times confirmed that the Saudi Arabia’s Public Investment Fund had amassed a $2 billion stake in Tesla, Tesla CEO Elon Musk announced that he was considering taking the company private with a share buyback at a $420 price point. His initial tweet was confirmed within a few hours with a new blog post on Tesla’s website, where the company shared an internal email from CEO Elon Musk to all Tesla employees sharing his logic for the move.
He started off the email noting that “a final decision has not yet been made,” but that the move was being seriously considered to insulate the company from a few specific issues that have been distracting the company of late. Elon hopes the move would reduce the internal swirl caused by the massive stock swings it experiences as a publicly traded stock. Having worked in a large publicly traded company that experienced both stock highs and lows for nearly two decades, I can attest to the change in internal morale of a company when employees are vested in the success of the company on Wall Street.
Elon also commented specifically that taking the company private would disconnect it from the commitments it is currently held to on a quarterly basis for its quarterly earnings reports and calls. Looking back just a few weeks, Tesla pulled out all the financial stops to achieve its publicly committed goal of producing 5,000 Model 3s per week by the end of the quarter. Hitting targets is important, but when they come at a cost of flying in a new general assembly line from Germany and bringing in employees from all over the world in support of Model 3 production at Tesla’s Fremont factory, the imperative may go to far.
Finally, private companies are not subject to the attacks of those shorting Tesla’s stock. The incessant attacks from those shorting Tesla compound an already difficult business environment, as Tesla is challenging the status quo in the automotive industry, the energy generation industry, and the petroleum industry simultaneously. Adding the noise of those simply seeking to benefit financially from Tesla’s failure in the form of shorting the stock just makes a bad situation worse.
The move to privatize the company would require a shareholder vote, but with so many investors having an interest in the goals above, and Tesla short sellers not getting a vote, it seems likely that a vote would pass.
On the logistical front, Elon shared that he planned to buy back shares at $420/share, which, with 169.79 million shares outstanding, represents a valuation of $71.3 billion. He shared that if the deal is approved, he would give shareholders a choice of selling at $420 per share or converting to private shares.
On the internal side, employees would continue to own stock and have options every six months or so to sell them. Every Tesla employee is a shareholder, with one employee telling us that she/he received $10,000 worth of stock on the first day of employment at Tesla. Options would also be able to be exercised periodically.
To quell some of the swirling rumors inside and outside of Tesla, he also shared that the intent of the move is not to enable a merger of Tesla and SpaceX or to allow Elon to take over the company.
This has all exploded into the public sphere without much notice, but it is clearly the result of a well thought out plan that would insulate Tesla from some of the crazy external pressure in recent months. The team believes it is the right move for the company, for employees, for current and future shareholders, and ultimately — for the planet. That’s not just irrational exuberance speaking — that’s literally why Tesla was created and why it has embarked on the “impossible” journey to change the way humans get around and how the power they use is generated.
Below is the full text of the internal email from Tesla’s website.
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.