The stock market has been kind to
who has used and abused Wall Street in return. His latest piece of showmanship—an offer to take electric-car maker
private—amounts to a slap in the face for shareholders. Worse, Mr. Musk’s reasoning for abandoning Tesla’s listing is flawed at almost every level. The saving grace is that if the deal goes ahead, shareholders can bail out by accepting Mr. Musk’s offer at a premium of 23% above Monday’s undisturbed price.
The basic argument is increasingly deployed by frustrated executives and self-promoting private-equity groups: Companies are doing dumb things to meet the market’s quarterly expectations, and hurting their long-term prospects as a result. Take the company private and executives no longer have to care about the short term, allowing them to invest for the long run and help the company, their loyal shareholders and wider society.
The trouble is that none of this applies to Tesla.
It is hard to think of a company that cares less about sucking up to Wall Street than Tesla. Mr. Musk earlier this year rejected “boring bonehead questions” from analysts on his quarterly earnings call; the company offers no guidance on quarterly earnings; and it has frequently and unapologetically reported losses far worse than expected (only twice has it made a quarterly profit, both times a surprise).
Tesla is also part of a select group of listed companies whose shareholders are strongly supportive of long-term investment. Tesla shares have jumped from an initial public offering price of $17 in 2010 to $370 on Wednesday, even as Mr. Musk invested or lost billions of dollars of the company’s money, repeatedly sold new stock and diluted investors by paying staff partly in shares. Short-term thinking isn’t compatible with being a Tesla stockholder. Indeed, it is hard to imagine many private-equity or venture-capital groups would have stuck with Tesla for eight years as it burned through so much cash.
Short-termist pressure on management can come through three routes: board members worried about the share price, proxy votes by activists or unwanted bids. Yet, the board appears to be entirely made up of Musk fans, to such an extent that they called him only “Elon” in a statement on Wednesday confirming the take-private proposal. Activists have paid no attention to Tesla, partly because its shareholders are so supportive but also because any switch in strategy would involve ejecting Mr. Musk and surely crush the stock. The idea of a hostile bid for Tesla is fantastical, too: Its market value of $65 billion is higher than
. In short, the only constraint Mr. Musk faces is finding enough cash to keep the business going, and the supposedly short-termist markets have been falling over themselves to help out.
Mr. Musk makes three other claims in his email to staff about the take-private idea, one misleading, one unlikely and one downright daft.
The misleading suggestion is that what he calls “wild swings” in the stock price distract staff, who are shareholders. Going private would change this only by hiding the volatility: Instead of being able to buy or sell every day, they could do so only twice a year. The true value of the company would still swing around wildly, but no one would know. Perhaps the Tesla production line is so far behind schedule because workers spend their time day-trading the stock and gossiping about the latest price moves, in which case going private would solve the problem. But it is hard to believe.
The unlikely idea is that short sellers are damaging the business. Mr. Musk said Tesla is the most-shorted company in history, and everyone betting on a share price fall has an incentive to attack it.
Short sellers spreading false rumors or actively trying to find and publicize problems with the cars could in principle damage the business. But Tesla’s big problems haven’t been secret, with highly public manufacturing difficulties, poor production quality and a constant need for new cash. Mr. Musk hasn’t helped, either, posting an April fools joke on Twitter that the company was bankrupt.
The daft idea was his suggestion that Tesla go private with the same shareholders as today. Right now, shareholders can sell whenever they want and, to Mr. Musk’s chagrin, lend shares to short sellers for a fee. Restricting the option to sell to twice a year might be good for Mr. Musk’s war on shorts, but it should make the stock much less appealing to current shareholders. Selling in Mr. Musk’s offer looks more attractive still.
There is one possible reason for going private that might make sense, but that Mr. Musk can’t mention. The private markets are awash in cash, allowing startups such as Uber Technologies Inc., Airbnb Inc. and Mr. Musk’s own SpaceX to stay private far longer than in the past by raising large amounts of money at high valuations.
Tesla isn’t the right sort of company to appeal to ordinary private-equity groups, which prefer steady profits and economically insensitive industries to which they can add lots of leverage. But the unicorns of Silicon Valley have proved attractive to sovereign-wealth funds and a handful of big private funds that search for growth.
The trouble is, Mr. Musk’s charms may not work the same magic on them as on the public markets.
Write to James Mackintosh at [email protected]
Source : WSJ