Elon Musk Says Tesla Will Remain a Public Company
Announcement comes just 17 days after the CEO said he was considering taking the electric-car maker private
Tesla Inc. TSLA 0.85% Chief Executive Elon Musk said late Friday that he is giving up on taking the company private in the wake of shareholders’ objections, 17 days after he shocked the business world with a tweet announcing intentions to pursue the idea.
In a post on the company’s website, Mr. Musk said he had informed Tesla’s board Thursday that “I believe the better path is for Tesla to remain public.” Tesla directors around the same time Friday night released a statement saying “we fully support Elon as he continues to lead the company moving forward.”
Mr. Musk said he made the decision to remain public after consulting Tesla shareholders large and small, and after concluding that the undertaking could impair efforts to boost production of its new sedan that are crucial to his strategy for Tesla.
The timing of Mr. Musk’s announcement ending the go-private effort—after 8 p.m. Pacific time on a Friday night, a day after the decision was discussed with the board—echoed the surprise of his initial tweet on Aug. 7.
The stunning reversal follows intense scrutiny of Mr. Musk’s plan, which would have valued Tesla at $420 a share, or more than $70 billion, and how he formulated and disclosed it to investors with an initial claim to have secured funding for such a transaction. Mr. Musk’s subsequent comments made clear that no final deal for financing was in place.
In the days after his Aug. 7 announcement, Mr. Musk and the Silicon Valley auto maker’s board of directors raced to assemble teams of financial advisers and lawyers to help facilitate complex negotiations. The directors last week created a special committee to consider his proposal.
The board statement Friday night, signed by Tesla’s six currently active independent directors, said it had disbanded the committee.
“The Board and the entire company remain focused on ensuring Tesla’s operational success,” the statement said.
Tesla has struggled for the past year to speed up Model 3 production, placing Mr. Musk under intense scrutiny and raising questions about the company’s finances. The sedan is intended to be Tesla’s first midprice vehicle, aimed at transforming the Silicon Valley company from a niche, luxury brand into a mass-market car maker.
Tesla now is trying to keep up the pace of manufacturing more than 5,000 of the sedans a week this quarter to generate cash and turn a profit. Its cash dwindled in the second quarter, and some of its suppliers have voiced concern about the auto maker’s financial strength, though Tesla executives said that strength is improving and relations with its suppliers are good, The Wall Street Journal reported this week.
The Securities and Exchange Commission has been investigating Mr. Musk’s claim to have “funding secured” for a deal, and subpoenaed Tesla seeking information from each of Tesla’s directors, the Journal reported last week.
Nearly a week after his initial tweet, Mr. Musk elaborated on his thinking about the go-private proposal, saying he had made it after discussions with Saudi Arabia’s sovereign-wealth fund, conducted over the course of nearly two years, about providing financial support. In that Aug. 13 statement, he said he had left a meeting with the fund’s managing director on July 31 confident the funding was available, but the statement made clear that there wasn’t a final deal in place.
Mr. Musk’s explanation for scrapping the deal cited reasons that many analysts and others flagged immediately after his announcement, raising questions about why he didn’t better vet the idea before taking it to Twitter.
Mr. Musk, who owns roughly 20% of Tesla, has said that he believed most of Tesla’s current shareholders would remain investors in the company if it went private. Analysts questioned that claim, in part because of rules that limit some institutional investors’ ability to hold stock in nonpublic companies.
In his posting Friday, Mr. Musk said that issue was a factor in changing his mind, as some of Tesla’s institutional shareholders explained to him “that they have internal compliance issues that limit how much they can invest in a private company.”
Mr. Musk’s initial discussion of the go-private plan also talked about creating a special-purpose fund that would let existing investors keep their shares.
His statement Friday said another reason for abandoning the idea was that “there is also no proven path for most retail investors to own shares if we were private.”
Mr. Musk’s target price for taking Tesla private was a roughly 20% premium to where its stock was trading at the time, and Tesla’s shares initially soared on the excitement of his proposal. But shares sank in the days afterward as it became clear the idea was still in the early stages and faced major hurdles. Shares ended trading Friday at $322.82, 23% below the $420 target.
Still, some shareholders applauded Friday’s news.
“ARK Invest is delighted,” Catherine Wood, CEO of ARK Invest, a Tesla shareholder, said in an email to the Journal after Mr. Musk’s Friday announcement. Ms. Wood on Wednesday had issued an open letter pleading with Mr. Musk to stay public, arguing that taking Tesla private at $420 a share would undervalue it. She said ARK Invest believes Tesla could be worth between $700 and $4,000 a share five years from now.
“I believe that more investors understand how transformative Tesla will be to transportation now that they have been forced to think about the long term,” Ms. Wood said Friday.
Ross Gerber, CEO of Gerber Kawasaki Wealth & Investment Management, said on Twitter Friday that the announcement was good news, noting his clients “won’t have to go through a whole process to stay owners of Tesla.”