Musk’s attempt to take Tesla private was his worst decision

  • Tesla has defied all expectations in 2020, minting a market cap of more than $600 billion after an epic stock-market rally.
  • Tesla is now the world’s most valuable carmaker, reminding us that CEO Elon Musk’s 2018 attempt to take the company private was not one of his better decisions.
  • After an SEC investigation, Tesla and Musk were fined $40 million, and the company is now worth far more than that $420 per share that Musk proposed as the buyout price.
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“Funding secured.”

With those two innocuous words, tweeted in 2018, Tesla CEO Elon Musk made the dumbest wager of his entire career as the leader of the world’s most famous electric car company.

It was the opening salvo in a battle to take Tesla private. The company had staged a relatively routine IPO in 2010, raising just over $260 million, but by 2013, its stock price began to ascend rapidly as the upstart automaker launched its Model S sedan and Model X SUV. 

By the time Musk unveiled his take-private scheme, Tesla had seen its stock price rise and fall in wildly volatile patterns; a permanent war had broken out between prominent short-sellers and steadfast Wall Street bulls; the company’s market cap had exceeded established carmakers such as Ford that had been in business for more than a century and sold millions more vehicles; and the Model 3, an attempt to expand into the mass market, had endured numerous delays.

Musk was at the end of his rope, but he did find the wit to offer a pot joke about the go-private, per-share price: $420.

One of those times when the heart outraces the head

His desire to delist Tesla wasn’t news. A wide-ranging 2017 interview in Rolling Stone with Neil Strauss had telegraphed his intentions.

“I wish we could be private with Tesla,” he said. “It actually makes us less efficient to be a public company.”

Sometimes, the heart outraces the head, and for Musk — an often emotional leader, the antidote to the steely MBA types who dominate the business world — this was one of those times. He seemed to think he could wrangle enough money out of a significant source of capital, perhaps the Saudi sovereign wealth fund, to buy out Tesla’s retail and institutional shareholders. He also thought he could avoid discouraging heavy-duty Tesla bulls, who thought that the company’s share price had only begun to fulfill its expectations.

The overarching goal was to focus on the master plan: accelerate humanity’s exit from the fossil-fuel era. Roughly 40,000 people were working for Tesla, and Musk was sick of them being exposed to near-constant negative scrutiny. Notable shorts like Jim Chanos, who correctly foretold Enron’s collapse, had labeled Tesla “structurally bankrupt.” For every Tesla-boosting blog or YouTuber, there was a dogged finance or tech reporter prospecting for the bad news.

Going private would end the madness, Musk thought. The painful quarterly earnings calls with Wall Street analysts, half of whom thought Tesla was severely overvalued, would be no more. Tesla could stop returning to the investment banks twice a year to conduct new capital raises. 

A $40 million SEC fine, but not slowing down Tesla’s momentum

Shortly after Musk fired off his infamous tweet, the stock spiked. Then, over the following days and weeks, a deal that was largely speculative and left plenty of blanks unfilled fell apart. The SEC investigated, determining that Musk used his position as Tesla’s communicator-in-chief to commit fraud; the agency fined him and Tesla $20 million each and forced Musk to give up his chairman title.

In the end, it didn’t matter. Tesla survived the ordeal. In 2020, the stock went on an epic rally, rising over 700% and minting a market cap that, at more than $600 billion, has made Tesla the world’s most valuable automaker. Shares split five-for-one, and by the end of the year, Tesla had joined the S&P 500 Index. With shares trading above $700, that old $420 price looked shortsighted.

Musk conceded in December that taking Tesla private now would be “impossible,” but he didn’t completely reverse his enthusiasm for the idea. As with many Silicon Valley CEOs, he detests the impact that going public can have on a company’s ability to hunker down and innovate. Tasking wild chances simply risk too much revenue and might undermine the narrow profits that have underpinned optimism about Tesla’s future growth.

His motives are understandable, but they should be considered in the context of the many times that Musk has been wrong. His bad ideas — fully automated Model 3 assembly — are usually overcome by his good ones, such as reinventing the design of lithium-ion battery cells

But “funding secured” was a howler because it was out of character. For once, never-surrender Elon was running up a white flag. It was left to Tesla warriors in the wider world to argue that it would be better to watch Tesla’s business, and stock price, grow as a public company. They were playing offense while Musk was folding himself into a battered defensive crouch after witnessing the Model 3 “production hell” debacle almost bankrupt the company for the second time in its history.

Getting away with a dumb move once is OK

Impressive leaders make bad decisions all the time. Napoleon shouldn’t have invaded Russia. Barack Obama allowed high unemployment to hurt the American worker too many years after the 2009 financial crisis.

What’s key is to make peace with the bad choice, assuming it doesn’t lead to endsville. That which does not kill me makes me stronger, to invoke Nietzsche’s notorious aphorism. In Tesla’s case, the market for Tesla vehicles and its stock has shown abundant confidence in what Musk has accomplished — more than Musk, even, as the CEO demonstrated in his hour of darkness.

It was the stupidest move of his life, but he more or less got away with it. But one hopes he thinks twice next time he’s confronted with a crisis of the heart that overwhelms his head.

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