In this segment from Motley Fool Money, host Chris Hill is joined by analysts Jason Moser, David Kretzmann, and Andy Cross. They attempt to sum up last week’s most bizarre business story: Tesla (NASDAQ:TSLA) CEO Elon Musk’s explosive and surprising tweet that he was looking into taking the electric automaker private, and that the funding was already secured.
In the intervening days, no further details about just where the money was coming from were made available, though after this broadcast was recorded, Musk asserted that the Saudi Arabian sovereign wealth fund was ready to back the play. Where will this saga go from here, and would going private be a better way to run the company?
A full transcript follows the video.
This video was recorded on Aug. 10, 2018.
Chris Hill: We begin with the most compelling daytime drama on Wall Street: As the Tesla Turns. Elon Musk dominated the headlines by tweeting that he’s thinking about taking Tesla private at $420 a share. He did this on Twitter with a single tweet that concluded with Musk stating, “funding secured.” Andy, there’s a lot to unpack here. I’ll start with you. Where do you think we’re going from here?
Andy Cross: Well, the funding has yet to be secured, at least yet to be disclosed, Chris. What a week this was. It’s amazing, story after story. In my mind, this is Elon not wanting to run a public company. He’s fed up, he’s tired. He had his little apology on the conference call, I get it. But he just doesn’t want to run a public company. Maybe he wants to spend more time thinking about his space initiatives, which are super exciting. The fact that it was through a tweet, we’re seeing a little bit of the frustration.
We haven’t heard any information. We’ll see this weekend what’s going to happen. The board has come out and said they’re going to consider it, and they’ve asked Musk to recuse himself, not be involved in those conversations. We’ll have to see what comes from the board. Clearly, a lot of uncertainty.
By the way, the $420 price point that he quoted is not that far off from the all-time high. It’s only about 13% above the all-time high. So, if you’re a shareholder of Tesla, you’re like, “What’s the upside from here?”
David Kretzmann: I think it’s understandable that Musk is frustrated at this point. Tesla is at this relatively early stage of ramping up investment in the Model 3, ramping up production there. So much of the focus from Wall Street has, understandably, been on week-to-week production numbers. Musk is someone who’s thinking in terms of five to 10 years and beyond. So, when Wall Street is forcing him to be so hyper-focused on short-term results, and short-termism in general — then, on top of that, you have close to a third of Tesla’s float being shorted by short-sellers — I think it makes sense that Musk wants to be done with this era of Tesla as a public company and going private.
By the way, I think it’s interesting that he wants to give existing shareholders the ability — assuming the company is able to secure funding to go private — to continue to own shares of the private entity. In that case, if Musk and Tesla can convince existing shareholders to hold their shares, that reduces the amount of money the company needs to raise to take the company private.
Jason Moser: Chris, you may remember, a couple of months ago on Market Foolery, we asked this question, and I answered with Tesla. I was thinking, “Man, I would love to see this company go private,” because of all these reasons we’ve stated. I think it gets this company off of that quarterly radar that Wall Street holds them to and gives him a chance to run the business without having to hit these arbitrary marks. For me, to see Musk get out of the limelight … he’s been able to do it with SpaceX, and I think that has allowed for that business to advance more quickly. I think the same would happen with Tesla, if he’s able to pull this off.
Hill: Andy, I don’t own shares of Tesla. If I think he’s going to be able to pull this off and it’s going to go at $420, why shouldn’t I buy shares just to get that little 13% pop?
Cross: Actually, I think there’s a chance that the price may go up and he may have to raise this price. Again, not that much higher from the all-time high. To David’s point, maybe he can continue to run it as a private company, keep some investors in there. But he may have to raise the price.
But, Chris, still, if you’re going to buy shares, you have to be prepared to hold these as if you were going to be a private shareholder. I would not go into it thinking you’re going to get a little 13% pop.
Andy Cross has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. David Kretzmann owns shares of Tesla and TWTR. Jason Moser owns shares of TWTR. The Motley Fool owns shares of and recommends Tesla and TWTR. The Motley Fool has a disclosure policy.