Taking Tesla Private
tesla.com
tesla.com
> SpaceX is a perfect example: it is far more operationally efficient, and that is largely due to the fact that it is privately held.
Something that I can very well understand.
isn't that successful there?
That's the intended question. Though I don't know what GP's definition of "success" is.
https://www.investopedia.com/news/spacex-will-fly-astronauts...
Or this:
https://arstechnica.com/science/2018/07/nasa-commercial-crew...
(I clarified my original comment)
Having 2 years worth of production in the backlog is not successful?
Ok then.
I'm not going to look it up right now, but for now and the past several years, most of SpaceX's income has come from sources outside of NASA. That is, commercial launches.
The government is a customer of space x but they still compete against other companies for that business.
On the other hand, German carmakers have a longstanding gentleman‘s agreement to electronically limit their cars to 250 km/h. Seems they can live with limits.
That prompted me to look for polls.
> (2015-10-15) 56% of those polled would support a speed limit of 150 km/h on all German Autobahnen
Representative survey by YouGov, source: http://www.faz.net/aktuell/politik/inland/umfrage-mehrheit-d...
> (2018-01-26) A slim majority of Germans (52%) supports a general speed limit of 130 km/h.
Representative survey by Forsa, source: https://www.tz.de/auto/tempolimit-autobahn-knappe-mehrheit-d...
> (date unclear) "Are you for or against a general speed limit of 120 km/h?" - 35% for, 62% against
Source: https://de.statista.com/statistik/daten/studie/258757/umfrag... (they won't disclose source, survey method or date unless you cough up your personal data)
So it appears that a speed limit would be supported by the majority if it starts out reasonably high. (That's the same way the Swiss did it: They started with a relatively high speed limit, and then lowered it as the majority mindset shifted towards higher energy efficiency.)
The reality, I think, is that there is sufficient support for the speedlimit-free Autobahn from Germans.
GM and Ford were propped up by the government during the Great Recession to protect tens of thousands of jobs. Both companies have since repaid those loans...though GM discharged much of its loan through bankruptcy.
All automakers are eligible for this support...if they build electric cars. Ford and Tesla are the only automakers to have never declared bankruptcy. These are tiresome arguments that hold no water.
Yes, the message here is almost all large industries in all countries receive substantial government support.
The amount of goverment subsidy for fossil fuels that normal cars run on, for instance, is much higher than for renewables.
https://www.thebalance.com/auto-industry-bailout-gm-ford-chr...
https://www.reuters.com/article/us-autos-gm-treasury-idUSBRE...
GM was effectively nationalized (at a reported cost of $11b) and the creditors lost their shirts.
Also, I mixed up GM and Chrysler on which of them repaid the loan.
What did you mean to say here?
That GM eliminated (not repaid) the loan through bankruptcy?
Or that GM discharged the loan then repaid it anyway?
So in theory a loan can be completely paid off through a bankruptcy. In the case of GM, it did not happen, IIRC.
There is absolutely nothing special about a Tesla BEV other than that unlike most automakers, it's extremely unprofitable. Go read Tesla's financial statements.
[1] https://en.wikipedia.org/wiki/Tesla_US_dealership_disputes
(Just off the top of my head, tiffs between Costco and distributors when Costco wanted to sell liquor.)
I remember when Sarbanes Oxley was passed in 2002. I was in college and one of my professors was advocating becoming a SAP engineer specializing in SOX compliance. The cost of compliance was estimated to be gigantic, which meant lots of highly paid (but boring) work for enterprise programmers.
I admire his ambition and he is great for Tesla in general but as far as managing a public company his approach hasn't been very successful.
That's about as fair as saying there's a cabal of billionaires shorting Tesla stock and using their media companies to drive the price down every chance they get. Either way, going private eliminates the noise.
He's called a rescue diver a pedo and cried "fake news" when journalists have questioned Tesla's financials.
https://twitter.com/elonmusk/status/1026872652290379776?s=19
Bezos?
That could be Softbank. They already have $200 billion in investment lined up.
And apparently they are to some extent disillusioned investing in internet companies.
Also, even if there are rumors, why would that necessarily logically go from bankers talking to each other to immediately blabbing to the press?
There is a difference between not telling a reporter and denying it to a reporter.
They wouldn't have to come up with the full valuation, only need enough to buy out those who wish to sell.
Articles/Bylaws would likely give Musk control, even though he only holds 20%.
But Articles and Bylaws can be rewritten at the whim of the majority shareholder, no? I don't doubt that's how it would be initially structured (otherwise it would just be a hostile takeover) I'm just saying it's putting Tesla's future in the hands of whoever holds the most shares.
For FB, Zuck holds a class of shares where each of his counts as 10 vs. the common shares.[2]
[1] https://www.investopedia.com/articles/markets/052215/goog-or...
[2] https://www.cnbc.com/2018/03/20/shareholders-wont-force-zuck...
On the other hand... he seems to be somewhat an idealist and may reason that his performance will stand on its own merits. I.e., the shareholders would be right oust him if they felt that was the right course of action. Will be interesting to see how this plays out.
(~34 million short shares outstanding * $420/share = ~14 billion dollars to cover. Is my math wrong?)
If there aren’t enough shares available to cover, could the price exceed $420?
Until Tesla's economics become obvious to all in the market, this is probably the best decision; this allows them to be more focused on the long run.
Short-selling is what makes almost zero expense mutual/index funds available to mom n' pop investors. Fidelity are about to offer ZERO TER funds on the basis that short-sellers pay heavily to borrow stock from them.
It seems analogous to expressing hatred for umbrella sellers because you don't like rain.
When I lived in Ireland before the GFC banking collapse, I remember bank executives whipping up public support for a government ban on short-selling bank stocks on the basis of "protecting decent companies from shady speculators and evil gamblers". In terms of cost to society, it was the bank executives who inflicted massive damage and bankrupted the country, not short-sellers of bank stock.
Since then, I've been quite skeptical when people blame speculators and short-sellers for the behavior of markets. There's usually some basis for shorting.
In the middle ground, you have a company like NFLX where some investors like Bill Nygren are long and advocate the position due to his belief the company has room to raise prices in the future from say $12/month to $15/month, shifting the PE ratio from 150 to 20. My assumption would be that a short thesis would have much less impact on scaring the market to instigate a death spiral for NFLX.
So with Telsa, it is in a vulnerable position due to being in a highly capital-intensive business, negative cash flow, and significant liabilities. But, it also is the only car company ever to presell hundreds of thousands of cars and a CEO who has delivered on big visions and promises before.
I have no personal investment in Tesla, but I hope Elon succeeds as I appreciate his ambition.
https://teslamotorsclub.com/tmc/threads/elon-musk-vs-short-s...
Now, the stock is the product, not the company. It's become a game in itself. It adds nothing to the real world outside of finance.
Seems like two sides of the same coin. I can't see where an argument against one doesn't work against the other.
For instance, investors can't short in India, and it happens to be one of the countries with a reputation of a high proportion of companies with accounting irregularities.
First you throw out a tweet, later in the day you halt trading, then you make an announcement that you're "considering" something major, but that you haven't decided yet.
Not only that, but Musk seems a tad bit paranoid. He's regularly talking about all those evil greedy short-term traders that attack the company -- which is a little silly since traders have given Tesla a larger market cap than GM and Ford.
Now as I think of it, most likely authors of these stories did it to cause stock to dip so they can purchase at lower price and once it recovers sell.
The traders that are actually help the company purchased stock a while ago and are just keeping it. The get-rich-quick traders are the ones that are ones that are hurting the company.
His announcement mentions that they are thinking to leave option to hold private stock or purchase at $420/share. I think the idea is basically to get rid of those bad investors, since if you would opt to the private stock you wouldn't be able to sell it easily.
"Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote." https://twitter.com/elonmusk/status/1026914941004001280
If public equity markets don't work, the alternative is more and more of wealth creation happening privately, in startups funded by VCs, private equity, or family owned businesses. The public won't get to participate.
It's already partly to this point. The general public can participate in a meaningful way, so long as they start to scrimp and save directly out of school.
I say that's a fair point, for the reasons you describe, that there's less oversight, and more mammoth capital sources that have an appetite for VC at nearly any stage.
The "aren't encouraged to think long term" is an odd bit. You are right but at the same time it seems to be at least imo that we (the market) want these ownership structures. We want Page and Bezos and Zuckerberg and Musk, but we want to own it too. Snapchat and its S&P denial would be the battleground there.
So I think to paraphrase you latter idea "we might to formalize a public equity model that is more flexible around a founder/visionary, or we might need to be more explicit about who controls a company, and what can be done to change that control."
I suppose the balance to me is between making the burden of public markets lighter on companies with longer term vision, and exposing retail markets to a wild frontier that is imo only appropriate for more sophisticated parties.
Incidentally, Tesla has a free-float of 127.5 million shares. At $420 a share, that would cost you $53.6 billion. The company already has net debt of of $8.8 billion and an adjusted net leverage ratio of 13 times. Were it to be bought in a management-led LBO, a back-of-the envelope calculation would give it a leverage ratio of over 90 times, worse on a trailing 12-month basis. You can't run a company on math like that.
So, either it's happening based on persuasion and belief (with Saudis as rumoured) or it's an attack against shorts and a bluff in which case SEC's rule 10b-5 might come into play and then... In any case, interesting.
How does paying off the obligation with stock work?, whose shares would Tesla assign the bond holder?, if it assigns shares after market closes and when market opens if it's below $360, won't the bond holders sue?
If I'm right and Musk pulls this off, short sellers are in for a world of pain. They will likely have to scramble to cover their short positions in the face of a limited supply of shares before delisting.
Retail investors can decide to go private, but tesla free float is very small, so they don't matter much in a grand scheme of things.
I don't think Softbank could finance this, it would be well over half their entire fund.
Saudi maybe - but still quite a chunk of change for them.
Cash reserves mean they can.
> Hard to imagine any board signing off on that deal.
Right, conservative (appropriately so!) corporate decision making means they likely won't, not can't.
There is a limit to the number of shareholders a privately held company can have. It's apparently 2,000.
http://blog.gust.com/limiting-the-number-of-shareholders-in-...
https://www.investopedia.com/terms/5/500-shareholder-thresho...
I'd not want to be an investor in a private Tesla. It would seem way to volatile.
How does this work as a private company?
Some companies do periodic buybacks. Private shares can generally be sold at any time to accredited investors.
Typically companies in those situations have investors from earlier rounds that want to increase their holdings, and the board doesn't have a problem letting get a percentage or two of extra shares, so they create some kind of liquidity opportunity, with the company serving as an intermediary between the employees and the investors.
2. If this acquisition goes through, each one of your stocks will be worth $420. Congrats.
3. You can't really dissent to shareholder majority agreeing to this deal.
4. $70bn is a lot of mulla, so I would guess this will not be all Musk's personal funds.
5. Theoretically, through some sort of a private equity venue. Just like any other private company.
I'm curious how this will work if you hold TSLA in retirement accounts (all of my TSLA is in a Roth IRA).
All of the short-sellers would lose every penny they gambled.
After the very ugly financial news over the last months (but probably true — nobody has credibly refuted them), it‘s not hard to see why Musk and the less rational part of his supporters would love to see short sellers disappear, and „punished“.
Billions on the line create a nasty incentive and a publicly traded company is more at risk of negative attacks when they're not yet profitable.
Every time when TSLA stock was down last year it was some material news regarding missing Model 3 production estimates previously provided by Elon Musk himself or something like that.
https://electrek.co/2018/07/24/tesla-troll-short-doxxed-oil-...
I don't think the media portrays this battle appropriately. Tesla is the #1 enemy of the combustion engine supply chain and that is no small thing.
Every single auto parts store, every car manufacturer that does not sell EV's, and especially the oil & gas industry is at risk of Tesla's success.
This is a titanic battle. Don't anyone ever forget that.
Tesla cannot manufacture at scale - they do not have the experience or capital to execute on this. Their financial statements demonstrate as much, and the build quality/reliability issues that are prevalent on forums/reddit/twitter demonstrate this.
If Musk gets the funding to go private, gets the 2-4 years of runway he needs to make the business work, that's a good thing.
I'm not a fan of businesses that run red year after year, but in some cases, there are societal benefits that vastly outweigh those concerns. A successful mass-production battery and EV business is something that can have a massive impact on reducing CO2 emissions.
So a lot of people and investors are less concerned about making money and financial models than they are about moving from fossil fuels to renewables. And if Tesla gets a few more years, the profits will come.
If you're only concerned with the bottom line, why are you investing in or against a startup? That seems like gambling to me and if you lose, that's on you, not on Tesla.
For example, the bids on $430 call options expiring in January and June 2019 were down ~20% and ~25%, respectively. If Elon's plan goes to fruition, those options can (probably) never be exercised.
The further out the expiry and the higher the strike, the worse it gets. Liquidity just evaporated, and the spreads are getting wider.
Super heroes rock when they really do super things, but Elon flew off the handle with the last one when he called the master diver a pedophile all because his idea wasn't the one they used.
Having someone at the helm that is volatile like this is bad for a public company, but a private company would be able to shrug off embarrassing events such as these much easier.
Elon might be doing it to save his job.
Usually his tweets send stock down, this one sent it up but may be in violation of SEC rules.
I imagine shareholders must be getting pissed whenever he goes off on a Trump like tirade on Twitter.
The other article is more substantive, since it's based on at least some facts, and the thread is correspondingly better. This one, by contrast, is really just an announcement of a possible future announcement. So it seems clear the first URL should win. If and when they actually take steps to go private, there will certainly be much discussion on HN.
If you're a short seller, beware the "squeeze." If you're not a short seller, this article can be an amusing read:
https://www.reuters.com/article/us-volkswagen/short-sellers-...
I am sure hes already been lining up those who would want to do something - and it should be a clear sign about the Saudi position that was announced...
Basically, he's likely got House of Saud involved as they are flamboyant gamblers and would love to be associated with this if it succeeds, because the fame of this is worth more to them than the money at this point... so I am sure he already has the major financing arranged.
If he can't prove guaranteed financing for this deal, that's securities fraud and SEC investigation is the next step of this drama. Imagine... well, SNAP CEO tweeting "Some rich folks are going to take us private at $50 per share lmao ayee, cover your shorts". This is a market manipulation.
Examples of offenses that would violate rule 10b-5 would be: executives making false statements in order to drive up share prices ... interestingly, it's as serious as ... or a company hiding huge losses or low revenues with creative accounting practices.
That is pretty big risk; if this plan isn't real or falls through, the stock is going down hard.
These are all completely true, and very reasonable, but do show (at least to me) that the near-term promises regarding profitability he made at the last earnings call are probably in jeopardy.
Thank you for asking for a clarification rather than just knee-jerk down voting, though. :)
The short sellers just got taken to the cleaners, badly.
By taking the company private, he's under less public and regulatory scrutiny.
It's probably easier for him to raise money privately, and there seems to be sufficient interest.
Tesla's employees, who are probably pretty much worn out, got a nice pay day.
And, of course... he's the hero again.
Edit
Pure speculation, but could it be that this announcement might actually backfire on the $420 price?
Tesla's is one of the most shorted stocks, ever. The short sellers stand to lose immensely, so they'll try to close their short position as quickly as possible, thereby driving the price up higher -- possibly higher than the $420.
I admit that I've never scrutinized his actions very closely, but I've never gotten that impression. Would you be willing to elaborate on why you feel that way?
From what I've seen/read of him as a person, he sounds like someone i would actively avoid in a social setting.
I agree this move is brilliant, and could be a huge competitive advantage when self-driving bad press liability kicks in.
Occasionally childish relationship with his investors. Unfoundedly calling a diver a pedophile after he attacked Musk's rescue submarine as a dumb idea. He thinks he's an expert in any field he touches. Has an overall tendency on social media to promote Trump-style tribalism--you're either on team Elon or you're an idiot. There is no such thing as valid criticism of anything he does.
Some of these things also make him great. He assumes that everyone who looked at a problem before him was just too incompetent, corrupt, or complacent to solve it right, which can be a useful trait because it's often true. But when it's false it just makes him look like an asshole.
To be honest a lot of the hate just seems to come from how he responds to haters, so it's a bit of a vicious circle. If he just took a break from Twitter it'd probably benefit his image considerably.
Maybe I've just become weary of him, but it feels like his personality has devolved into something so narcissistic that his primary motive is no longer the technological advancement itself, but to be worshiped as a Messiah on Twitter for it.
Case in point: at a time at which he claimed he had so much work at Tesla that he slept in his office at the factory, he suddenly needed to be at the front of the Thai cave rescue, he needed to pick a pointless fight with one of the rescue divers, he needed to fix the water in Flint, Michigan, etc., and all of this naturally on Twitter.
>I am always surprised that people could have a net negative opinion on someone who is trying hard to push technology forward in multiple directions
What he has done with SpaceX is just... incredible. There are no other words for it.
However, to me, it seems as if he's taken his success at SpaceX as a life lesson to mean "If I attempt something very hard, and if everybody is telling me I'm doing it wrong, I'm actually doing it right". I think he actually considers himself infallible now. At least, we know how he reacts to criticism, especially from within his own ranks.
In effect, it's not moving technology forward. It's subjecting technological progress to a single person's whim, and results in the technological mess that we have seen at the Fremont plant, for a technological problem that others have already solved a long time ago.
Case in point: how long do you think it would take VW to build a plant that can build 10.000 cars a week?
The shorting and general negativity around the company are a morale drain on a scale that few companies have ever experienced before, let alone any companies that push their employees as hard as Tesla. I have friends who work very, VERY VERY hard at Tesla to help achieve their overall goal, and all of the hate really drags them down and makes them question why they work so hard, let alone the anxiety over the value of their shares. The cloud of negativity is a huge productivity sap and I suspect it is a contributor to the legendary rates of turnover at Tesla as well.
I agree. I didn't call it one.
does this squeeze beats the VW one?
>First, I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or ...
given the potential number of shareholders wouldn't there still be pretty tough information disclosure requirements - isn't such required disclosure is among the major factors pushing companies into public market?
I do think Tesla will be better served as a private company as long as Musk is CEO. He isn't public CEO material.
As the page is erroring out.
Anyway, since I own some shares will miss their stock, since I truly believe in them, but I guess this is better for the company.
> Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.
"And yet it also left many questions unanswered, namely how Musk -- who owns almost 20 percent of the company -- would be able to come up with the $66 billion necessary to complete the transaction. At $420 a share, Tesla would have an enterprise value of about $82 billion including debt. To take it private, the billionaire would have to pull off the largest leveraged buyout in history, surpassing Texas electric utility TXU’s in 2007."
$66B is inaccurate, Tesla would only need to buy from the shareholders that wish to sell at $420.
https://www.thestreet.com/investing/stocks/alphabet-autonomo...
I'm talking Enron level stuff, where Musk gets sent to jail.
"Enron Musk" has a nice ring to it, doesn't it?
Being the sophisticated investor that I am, I know a 'buy' signal when I see one.
Here's to Elon and any Tesla employee who ever broke a sweat to deliver the pot of gold at the end of that rainbow.
If they don't keep their promises, the stock will crash, so everyone goes on a production death march close to the end of the quarter under extreme stress, instead of just growing organically at a steady pace. Good estimates are hard, just like in IT. That's why many companies delay going public, for example Uber.
Being private gives them much better control of public information.
>Either they can stay investors in a private Tesla or they can be bought out at $420 per share...