Elon Musk has abandoned plans to take Tesla off the stock exchange, ending a dramatic two weeks that focused on the company’s future. The CEO announced late on Friday night that he had decided not to pursue his plans to take the company private, after speaking with investors and considering the effect it would have on projects like Tesla Model 3 production.
Musk, who claimed he met with the board of directors the previous day to abandon his plan, wrote in an open letter that the sentiment from investors “in a nutshell was ‘please don’t do this.’” Musk also noted the process would have been “even more time-consuming and distracting than initially anticipated,” an issue because “we absolutely must stay focused on ramping Model 3 and becoming profitable.” However, he also took the opportunity to note that “my belief that there is more than enough funding to take Tesla private was reinforced during this process.”
“Moving forward, we will continue to focus on what matters most: building products that people love and that make a difference to the shared future of life on Earth,” Musk wrote. “We’ve shown that we can make great sustainable energy products, and we now need to show that we can be sustainably profitable. With all the progress we’ve made on Model 3, we’re positioned to do this, and that’s what the team and I are going to be putting all of our efforts toward.”
The CEO tweeted on August 7 that he was considering taking the company private with a plan to buy back stock at $420 per share, declaring that the funding was secure. The move would mean no more need to report quarterly earnings, and it would end the company’s position as the most shorted stock on the American markets. In follow-up tweets and a later post, he explained the company would create a special purpose fund enabling investors to stay with the company, structured similarly to Fidelity’s mutual funds with exposure to SpaceX. The $420 price also represented a 20 percent higher price than the $350 share price on the day of the announcement, although the number is also common in weed culture.
Questions swirled around Musk’s plan, particularly his reassurance that the funding was secure. A plan to go private at $420 per share would value the company over $70 billion, but Musk claimed that he expected around two-thirds of investors to remain part of the newly-private company. In a follow-up post, Musk explained that he left a July 31 meeting “with no question” that a deal was possible with the Saudi Arabian sovereign wealth fund. A later report claimed that the fund was also considering majority ownership of rival electric car firm Lucid Motors in a $1 billion deal. JPMorgan analyst Ryan Brinkman noted that “our interpretation of subsequent events leads us to believe that funding was not secured for a going private transaction,” while Ivan Feinseth, analyst at Tigress Financial Partners, said that “the lack of process to [Musk’s] announcement has now caused governance and competency concerns which are starting to snowball.”
There are signs that the plan reached an advanced stage of development, though. Tesla’s board announced on August 14 that it had formed a three-person committee to review the proposal and give the final approval, comprised of board members Brad Buss, Robyn Denholm and Linda Johnson Rice. Musk planned to work with Goldman Sachs and Silver Lake as financial advisors on the team, the latter of which helped computer firm Dell go private in a $24.4 billion deal in 2013.
While Musk claims most investors expressed preference for Tesla to remain publicly traded, not everyone will be pleased by this news. Tesla investor Ross Gerber said last week that the move was the perfect time for Apple to invest, bringing in CEO Tim Cook to assist with the company’s operations.
The board issued the following statement:
Over the past several weeks, we put in place a process led by a Special Committee of the Board to evaluate a proposal Elon was considering to take Tesla private. Yesterday, we held a Board meeting, during which Elon reported on the work he and his advisors have been doing in connection with this effort. Elon communicated to the Board that after having done this work and considered all factors, he believes the better path is to no longer pursue a transaction for taking Tesla private. After discussing this, we dissolved the Special Committee. The Board and the entire company remain focused on ensuring Tesla’s operational success, and we fully support Elon as he continues to lead the company moving forward.
Read Musk’s full letter below:
Earlier this month, I announced that I was considering taking Tesla private. As part of the process, it was important to understand whether our current investors believed this would be a good strategic move and whether they would want to participate in a private Tesla.
Our investors are extremely important to me. Almost all have stuck with us from the time we went public in 2010 when we had no cars in production and only a vision of what we wanted to be. They believe strongly in our mission to advance sustainable energy and care deeply about our success.
I worked with Silver Lake, Goldman Sachs and Morgan Stanley, who have world-class expertise in these matters, to consider the many factors that would come into play in taking Tesla private, and to process all the incoming interest that we received from investors to fund a go-private transaction. I also spent considerable time listening to current shareholders, large and small, to understand what they think would be in the best long-term interests of Tesla.
Based on all the discussions that have taken place over the last couple of weeks and a thorough consideration of what is best for the company, a few things are clear to me:
After considering all of these factors, I met with Tesla’s Board of Directors yesterday and let them know that I believe the better path is for Tesla to remain public. The Board indicated that they agree.
Moving forward, we will continue to focus on what matters most: building products that people love and that make a difference to the shared future of life on Earth. We’ve shown that we can make great sustainable energy products, and we now need to show that we can be sustainably profitable. With all the progress we’ve made on Model 3, we’re positioned to do this, and that’s what the team and I are going to be putting all of our efforts toward.
Thank you to all of our investors, customers and employees for the support you’ve given our company. I’m incredibly excited to continue leading Tesla as a public company. It is a privilege.
- Given the feedback I’ve received, it’s apparent that most of Tesla’s existing shareholders believe we are better off as a public company. Additionally, a number of institutional shareholders have explained that they have internal compliance issues that limit how much they can invest in a private company. There is also no proven path for most retail investors to own shares if we were private. Although the majority of shareholders I spoke to said they would remain with Tesla if we went private, the sentiment, in a nutshell, was “please don’t do this.”
- I knew the process of going private would be challenging, but it’s clear that it would be even more time-consuming and distracting than initially anticipated. This is a problem because we absolutely must stay focused on ramping Model 3 and becoming profitable. We will not achieve our mission of advancing sustainable energy unless we are also financially sustainable.
- That said, my belief that there is more than enough funding to take Tesla private was reinforced during this process.