Why Elon Musk’s bid to take Tesla private is a good bet
I don’t tweet often and, for the life of me, I don’t understand why serious people, in the most consequential positions, choose Twitter as their medium to communicate breaking news. But they do.
Probably it would be inappropriate for me to name names, but I think you know who I am talking about. The most important twitterer of all:
Musk’s recent Twitter musings about taking Tesla private may have been an expression of his particular sense of humor. They may have been the manifestation of his burning desire to wrong-foot the short interests in Tesla. Or they may just have been mischief aimed at the plodding bureaucrats at the SEC and the New York Stock Exchange to see how they would react to a market-moving tweet launched on a low-volume mid-August trading day. (Admittedly, this last explanation is most unlikely but for the fact that Elon didn’t even wait for the market to close before he hit the "send" button).
I hope not, because I think Tesla going private is a great idea (like my friend Yann Brandt, who thankfully has announced in the wake of Musk’s Twitter pronouncement that he is keeping his seminal solar newsletter, SolarWakeup, private). If Musk has lined up $85 billion of private capital that is intelligent, patient and committed to Musk’s vision of a high-tech clean energy economy with Tesla as its most prominent and powerful corporate citizen, then I think he should do it, and do it now. (Note: This might be a good time for me to give one of those disclaimers that I do not own, nor have I ever owned, Tesla shares).
My reason for supporting a private Tesla is that, in my experience, there simply is no public market appetite for transformation and Elon has expressed a vision for Tesla that goes far beyond being the nascent mass-market alternative engine technology car company that it is today. That means he is leading Tesla on a trail-breaking course where no other publicly traded corporate has gone before.
If and when he gets there — wherever "there" might be — there will be no defined industry segment for institutional investors to group Tesla with. And if I learned one thing in my 13 years as a public company CEO, it is that a peer group comparable company analysis is the oxygen that mutual fund managers breathe.
Plus, corporate history has taught us — and fund managers have learned this lesson — that corporate transformation is innately difficult and most such efforts fail. I always think of Westinghouse’s efforts to transform itself from a heavy industrial to a media company in the 1990s, but that is just anecdotal. Twenty-seven of the 30 companies that make up the Dow Jones Industrial Average have turned over since I entered the workforce (most recently GE, which got the boot, essentially, for failing to anticipate the impact of renewable energy on its power division). If their predecessors could have transformed themselves to capture current business opportunities, presumably they would have.
Tesla, of course, is a different animal — not a status quo entrenched incumbent but an aggressive startup born to disrupt the mother of all static industries, the car industry. All the same, Tesla has stated its intention to be far more than a car company and that unnerves the public markets with questions of what, when and how.
For Musk personally, as Tesla’s CEO, going private must be extremely enticing. More so even than the significant financial costs associated with being public is the management time wasted in relentlessly repetitive discussions with fund managers and sell- and buy-side analysts. And that time burden, I imagine in the case of Tesla, falls disproportionately upon Musk personally. I mean, if you are an institutional investor with hundreds of millions invested in Tesla, who, other than Musk, could you trust to speak authoritatively on behalf of the company? No one. Occasionally edifying for the CEO, but usually stultifying, investor relation duties must drive Musk crazy. And most of the perceived advantages of being a public company — higher profile, greater brand awareness, better access to capital — don’t apply to Musk and Tesla. They have plenty.
If I were Musk, I would have only one concern with going private: $85 billion is unlikely to come with no strings attached. Musk, to date has operated with a unique level of autonomy for a public company CEO, splitting his time with other business ventures (SpaceX, Boring Company), getting personally involved in projects of personal interest (rebuilding Puerto Rico, Thai cave rescues), doing deals which make no economic sense (Solar City), tweeting on whatever topic he feels like. But I would doubt that his private funders will be as indulgent as his current board.
And from the prospective private investor perspective, I wonder how they’ll evaluate their part of the $85 billion investment. While Tesla undoubtedly has excellent executives and a cadre of top professional talent, it seems to me that these funders are making an extraordinarily large bet on one man and his ability to achieve his vision. The problem may be that Musk amply has demonstrated since he came into the public eye more than a decade ago that he is, in fact, a man of many visions, all of which he seems passionate about. How do the new investors ensure that he stays committed to the particular vision that they invested $85 billion in?
So having taken the time to write all of this, all I can say, Elon, is that I hope you are not joking.