Elon Musk Tweets Plans to Take Tesla Private

The Tesla CEO's unusual announcement about his desire to take the company private may be a direct dig at short-sellers, according to Morningstar analysts

Glenn Freeman 8 August, 2018 | 7:07AM
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Elon Musk Tesla CEO threatens to take electric car company off the stock market

Tesla CEO Elon Musk has tweeted plans to take the electric car company off the stock market. Morningstar equity analysts say the unusual announcement may be a direct dig at short-sellers, who have caused the stock to be volatile in the past.

In a tweet posted yesterday Musk said: "Am considering taking Tesla private at $420. Funding Secured".

He shared details of a recent letter sent to all Tesla employees that 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".

Morningstar's David Whiston, senior equity analyst and equity strategist, says he "finds it odd that Musk would disclose that he is considering doing a deal and specifying a price, rather than not saying anything until Tesla actually announces it is going private".

"It is possible that he wants to hurt short sellers of Tesla now. He has been very vocal against them recently, including posting a satirical video on Twitter last week."

At $420 per share, a deal would represent a 22.8% premium to Tesla's closing price on Monday, making it one of the biggest go-private deals, with a price tag of about $72 billion.

The company's share price reached at $367.25 by end of trading on Tuesday, up 11% in one day. The electric car company has a market value of $65 billion. Musk owns nearly 20% of the company. Morningstar equity analysts consider the stock to be significantly overvalued, and it has a one-star stock rating to reflect this.

Newswire AAP reports that Musk is under intense pressure to prove he can deliver consistent production numbers for the Model 3 sedan, Tesla's lowest-priced model and key to Tesla's plans to become a mass-market car-maker.

According to Morningstar's Whiston, a buyout price of $420 per share would cost $71.6 billion, based on the July 27 outstanding share count of 170.6 million in the latest filing.

"It's unclear if Musk's roughly 22% ownership stake would be part of the deal, or just converted into equity of a new private company," Whiston says.

"If a deal is announced, and we think its execution is more likely than not, we will raise our fair value estimate to the deal price, but for now we are leaving our fair value estimate of $179 in place."

He also believes Musk's unprecedented Twitter announcement could be part of a desire push the share price above $420. "Otherwise, we would expect him to simply announce he is considering going private with funding secured, and leave the $420 number out of the tweet."

"We speculate that the funding comes mostly from tech investors, such as possibly SoftBank or Tencent – which bought 5% of Tesla in 2017 – along with sovereign wealth funds, and wealthy Silicon Valley investors," says Whiston.

He also refers to comments Musk made during a November 2017 interview with Rolling Stone magazine: "I wish we could be private with Tesla. It actually makes us less efficient to be a public company".

Whiston adds: "We think Musk would prefer to grow the company without having to check in with Wall Street every quarter. He probably instead wants investors who are there for the long run."

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Tesla Inc697.00 USD5.80Rating

About Author

Glenn Freeman  is Senior Editor for Morningstar Australia