Even by the standards of Tesla and its mercurial CEO Elon Musk, the last few weeks have been strange ones. Ever since Musk tweeted out on August 7, 2018 that he was considering taking the company private there has been rampant speculation about who would fund such a deal, how it would be structured and whether it could even realistically happen. Late on August 24, a post on the Tesla company blog from Musk announced that after consultations with investors and advisors, Tesla would remain a public company and the proposed deal was dead. But how did this all come about? As I often do, I have some thoughts and it involves suppliers wanting to get paid.
When a reporter called me on August 7, just minutes after Musk’s fateful tweet asking for a comment on a privatization deal, I was immediately skeptical. I was skeptical for the same reasons that I have long given when asked about the possibility of any other company launching a takeover of Tesla. Tesla is too expensive and offers too little of value for any other responsible corporate leader to even consider an acquisition. On top of that Elon Musk is too much of a liability.
For a company that builds so few vehicles, has only ever reported two profitable quarters (and just barely at that) and has no fundamental technological advantage that can’t be replicated, paying $50-80 billion would have been insane. The only thing the company has of distinct value is its brand, and while that will probably eventually get acquired, the products are not compelling to competitors.
However, Tesla clearly has believers in investors that have continued to prop up its stock value. Why couldn’t they be counted on to fund a privatization deal. Tesla like most companies is always a bit cagey with what it reveals in its quarterly financial reporting. In most cases, it’s because companies don’t want to give away any potential competitive advantage about how much they spend on certain areas such as key technologies. In Tesla’s case, I believe it’s because they simply want to cast the most positive light possible on its finances.
Musk has continually promoted the progress the company is making on improving production and driving down costs as it aims for sustainable profits. In recent months, he has consistently given guidance that the company would be both profitable and cash flow positive in final six months of 2018 and also going forward into the future.