Investors Question Elon Musk’s Latest Big Idea

Market Trends - 08/08/2018

Shares of Tesla are down in Wednesday pre-market trading following the stock's biggest one-day gain in close to four years. Investors are increasingly questioning CEO Elon Musk's $72.00 billion vow to take his iconic electric car company private. Musk, in his signature brand of chaos, stunned investors with a Tuesday afternoon tweet stating that he intended to take “Tesla private at $420," far above its pre-tweet price of $355 per share. Adding suspense to the drama, Musk said that he had already lined up funding for the buyout. Investors rushed to snap-up the shares, sending Tesla rocketing 8.00%, before the company suspended trading for 92 minutes to release an official statement. The move prompted blowback from some legal and market experts, who accused Musk of breaking precedent with how companies have traditionally been unveiling such significant news; something for which he may face SEC investigation, or lawsuits from short sellers.
Sceptics are also questioning the viability of Musk’s plan. Taking Tesla private at Musk's proclaimed valuation would likely entail the biggest leverage buyout in US corporate history and prove incredibly challenging for a company that burns roughly $700.00 million in cash each quarter and consistently fails to meet its own production and delivery targets. Having said that, Saudi Arabia's reported $2.00 billion stake and Musk’s association with SoftBank’s tech-focused Vision Fund could be potential sources of debt capital. Elon Musk has long chafed at Tesla’s public ownership, routinely sparring with analysts, critics, and journalists. From that perspective, the idea of taking Tesla private seems like a reasonable one. Then again, Musk has made a habit of doing things the wrong way, even when his stated goal could be right considering this is not how most public companies announce such monumental news.

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