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[dupe] Taking Tesla Private (tesla.com)
347 points by freerobby 3 months ago | hide | past | web | favorite | 273 comments



> As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term.

> SpaceX is a perfect example: it is far more operationally efficient, and that is largely due to the fact that it is privately held.

Something that I can very well understand.


Going private, wouldn't it be a bigger distraction for everyone working at Tesla to wonder whether they can find a private buyer or not for their shares and what their shares are actually worth?


> Second, my intention is for all Tesla employees to remain shareholders of the company, just as is the case at SpaceX. If we were to go private, employees would still be able to periodically sell their shares and exercise their options. This would enable you to still share in the growing value of the company that you have all worked so hard to build over time.


I can't imagine anything more distracting than a big number that goes up and down minute to minute changing the value of the equity they hold


I feel like it mainly does that because Musk fails to set realistic expectations and then goes on tantrums whenever someone is negative about the outlook.

I admire his ambition and he is great for Tesla in general but as far as managing a public company his approach hasn't been very successful.


> I feel like it mainly does that because Musk fails to set realistic expectations and then goes on tantrums whenever someone is negative about the outlook.

That's about as fair as saying there's a cabal of billionaires shorting Tesla stock and using their media companies to drive the price down every chance they get. Either way, going private eliminates the noise.


This is true. For example, deadline for Model 3 was set much lower compare the Bolt. Even though Tesla make money on every sell of Model 3 and GM loses on every sell of Bolt money. Tesla is the one in negative news because of too high expectations.


So how do all the other companies do it then? It is not like Tesla is the only public company where some or all employees hold stock, and it is not the only one with a volatile stock price either.


There are fewer public companies all the time https://www.bloomberg.com/view/articles/2018-04-09/where-hav...


There's a financial crisis of one type or another every 7 years. Each time, more and more regulation is put in place to make sure it doesn't happen again. It's only a matter of time before congress hangs too many ornaments on that particular christmas tree and it falls over.

I remember when Sarbanes Oxley was passed in 2002. I was in college and one of my professors was advocating becoming a SAP engineer specializing in SOX compliance. The cost of compliance was estimated to be gigantic, which meant lots of highly paid (but boring) work for enterprise programmers.


I agree with this. This is the main reason I don't hold cryptocurrencies. I can't concentrate on work when I have to watch the price the whole time.


Won't the company agree to buy their granted shares at a fixed price? (I don't know; there can be wildly different arrangements).


Isn't SpaceX success due to the fact that most of its orders come from the US government while Tesla has to compete in the free market and isn't that successful there?


The free market of automobile manufacturing in which the USA has propped up both GM and Ford, and in the past Chrysler? The one in which the Japanese government is carefully intertwined with their automotive industry?

The government is a customer of space x but they still compete against other companies for that business.


The French government is also a big shareholder of Renault and Volkswagen is partially owned by the regional government where they’re domiciled, if I’m not mistaken, plus the German government itself always putting the interests of the German big 3 (MB, BMW, VW) ahead of almost everything else, even their citizens’ health (see the tax incentives given to diesel vehicles for the last couple of decades).


Correct. Also a large part of the reason why we still don't have universal speed limits on Autobahnen.


That‘s simply wrong. We don‘t have a speed limit because the majority of the people would hate that.

On the other hand, German carmakers have a longstanding gentleman‘s agreement to electronically limit their cars to 250 km/h. Seems they can live with limits.


> We don‘t have a speed limit because the majority of the people would hate that.

That prompted me to look for polls.

> (2015-10-15) 56% of those polled would support a speed limit of 150 km/h on all German Autobahnen

Representative survey by YouGov, source: http://www.faz.net/aktuell/politik/inland/umfrage-mehrheit-d...

> (2018-01-26) A slim majority of Germans (52%) supports a general speed limit of 130 km/h.

Representative survey by Forsa, source: https://www.tz.de/auto/tempolimit-autobahn-knappe-mehrheit-d...

> (date unclear) "Are you for or against a general speed limit of 120 km/h?" - 35% for, 62% against

Source: https://de.statista.com/statistik/daten/studie/258757/umfrag... (they won't disclose source, survey method or date unless you cough up your personal data)

So it appears that a speed limit would be supported by the majority if it starts out reasonably high. (That's the same way the Swiss did it: They started with a relatively high speed limit, and then lowered it as the majority mindset shifted towards higher energy efficiency.)


Wow 250kmh. May as well be limited to C like the rest of the world's auto makers at that speed


Few cars reach that, of course.


It just takes a little longer.


Is the claim here that with a speed limit, the business of the car companies would suffer? How so?

The reality, I think, is that there is sufficient support for the speedlimit-free Autobahn from Germans.


It's a national security interest that the United States has a automotive industry that pushes meaningful (3+ million vehicles a year domestically) volume.

There is absolutely nothing special about a Tesla BEV other than that unlike most automakers, it's extremely unprofitable. Go read Tesla's financial statements.


Tesla has also received a substantial amount of government support, including state and federal EV rebates for buyers of its cars (roughly $300 million), an extremely large handout from the state of Nevada ($1.3 billion), a large handout from New York ($1 billion), handouts from US Government ($500 million), carbon credits ($520 billion as of 2015). Collectively, Tesla's government support actually exceeds the government's bailout of Ford by several orders of magnitude...

GM and Ford were propped up by the government during the Great Recession to protect tens of thousands of jobs. Both companies have since repaid those loans...though GM discharged much of its loan through bankruptcy.


My understanding is that in 2009 Ford rejected the bailout the US automakers were offered (taking instead a loan which they are still repaying, through 2022).

GM was effectively nationalized (at a reported cost of $11b) and the creditors lost their shirts.


Ford received a different bailout.

Also, I mixed up GM and Chrysler on which of them repaid the loan.


> Tesla has also received a substantial amount of government supporting, including EV rebates for buyers of its cars.

All automakers are eligible for this support...if they build electric cars. Ford and Tesla are the only automakers to have never declared bankruptcy. These are tiresome arguments that hold no water.


Which is why I edited my comment to provide more detail. It's not just the EV rebates, Tesla has also received substantial government handouts; on the order of billions.


Can you provide specifics?


> [GM has] since repaid those loans...though GM discharged much of its loan through bankruptcy.

What did you mean to say here?

That GM eliminated (not repaid) the loan through bankruptcy?

Or that GM discharged the loan then repaid it anyway?


Bankruptcy means, among other things, selling any remaining valuables to pay lenders, full or in part.

So in theory a loan can be completely paid off through a bankruptcy. In the case of GM, it did not happen, IIRC.



Yeah I mixed up GM and Chrysler on which of them repaid their bailout.


>Tesla has also received a substantial amount of government support

Yes, the message here is almost all large industries in all countries receive substantial government support.

The amount of goverment subsidy for fossil fuels that normal cars run on, for instance, is much higher than for renewables.


NASA certainly did save SpaceX early on with some funding and contracts, which SpaceX fully delivered on at a competitive price.

I'm not going to look it up right now, but for now and the past several years, most of SpaceX's income has come from sources outside of NASA. That is, commercial launches.


By my count, there have been 25 US Government (including NASA) launches and 38 other launches - about 40% US Government, 60% other.

Ref: https://www.spacex.com/missions


That may be true, but the stability comes from it being privately held -- the SpaceX stock doesn't swing wildly every time some news about their competition with Boeing is released.


A profitable company has no need to be excessively concerned about its stock price. Of course, at some point, shareholders might consider putting on pressure, but that doesn't really seem to have happened even with Tesla. And in closely held companies, that kind of pressure is much stronger — it's not like Musk has $70B of spare change in his couch pillows, so he'll always have to deal with co-owners.


Most importantly, the co-owners are less likely to ask why a particular step to maximize profits in this quarter hasn't been done. To say nothing of activist shareholders who theoretically could sue; such things killed a few still-profitable companies, and Tesla isn't one yet.


Boeing is publicly traded under the ticker BA...


I meant the SpaceX stock doesn't swing wildly every time news like this comes out:

https://www.investopedia.com/news/spacex-will-fly-astronauts...

Or this:

https://arstechnica.com/science/2018/07/nasa-commercial-crew...

(I clarified my original comment)


SpaceX is privately held, unlike Tesla.


Yes, that's the point.


In which "free" market are you "prohibited" from selling your product directly to customers? [1]

[1] https://en.wikipedia.org/wiki/Tesla_US_dealership_disputes


Liquor.


Depending upon one's state of residence, the liquor market can be anything but "free".

(Just off the top of my head, tiffs between Costco and distributors when Costco wanted to sell liquor.)


In many US states, liquor sale is not a free market.


   isn't that successful there?
What?


“Hasn’t yet made any money there” would be more accurate.


>...isn't all that successful in the free market?

That's the intended question. Though I don't know what GP's definition of "success" is.


> and isn't that successful there?

Having 2 years worth of production in the backlog is not successful?

Ok then.


The main question I have is about financing. If Elon owns 20% of the company now, and he doesn't intend for that to change, and he is giving the option of public shareholders to sell at $420, then who is financing this? Usually a private takeover requires a partnership with a huge private equity firm. Wouldn't releasing this without having (or identifying) that partner be premature? And wouldn't the resulting stability be dependent on that partner's exit strategy?


> CNBC reports that none of the Wall Street banks it contacted were aware of any transaction or had committed to funding a leveraged buyout of Tesla.


Does that prove anything though? Let's imagine a bank is working on this deal; why would they tell a reporter? It's common for companies to deny things to the press even when they're true.


It's Wall Street and there would be rumors if someone was shopping the largest LBO ever. It's not like there are a lot of places you can go for this service, Tesla isn't going to back out on the deal because it leaked your bank has met with Elon.


Would there be rumors though, when improper disclosure could potentially be illegal and bring down the SEC on your head?

Also, even if there are rumors, why would that necessarily logically go from bankers talking to each other to immediately blabbing to the press?


It's rare for word of mega deals like this to not leak out in some fashion, doubly so after it's already been tweeted about by the CEO. If they had seriously been shopping this deal it would have already been in the WSJ. Considering the letter mentioned no funding I am under the impression that this is more of an Elon solo project and less of a serious undertaking by the company.


> Let's imagine a bank is working on this deal; why would they tell a reporter?

There is a difference between not telling a reporter and denying it to a reporter.


So there's the real story. Who is this financer (or group) with ~40 billion in capital that is willing to bet long on Tesla? That's really interesting to me, if Musk is being truthful here.


Fidelity or Google comes to mind. I think at some point they were having discussions with Google but then the company overcame the difficult conditions so they halted the talks: https://www.theguardian.com/technology/2015/apr/21/google-al...


Just guessing.

That could be Softbank. They already have $200 billion in investment lined up.

And apparently they are to some extent disillusioned investing in internet companies.


Totally, totally random thought, but I figured I'd record it, even though it doesn't seem to make sense.

Bezos?


I highly doubt it. For starters his wealth isn't liquid enough. He would need to give up shareholder control of Amazon or take on huge debt with his control of Amazon as collateral.


What, timed with an announcement of a merger between Blue Origin and SpaceX? :)


That wouldn't be the worst idea in the world considering the cost of spaceflight to begin with and the duplicate work they're undoubtedly doing.


I could be wrong, but I don't imagine Elon likes Bezos very much.


1. Apple 2. Saudi's 3. China


Google/Alphabet. Larry Page has stated that instead of giving away his billions to charity he would prefer to give it to someone like Musk that is trying to fix world scale problems.


Original tweet said "Funding secured."

https://twitter.com/elonmusk/status/1026872652290379776?s=19


Could be Apple maybe? They have a huge amount of dough and IMO the companies are quite similar; Apple's been rumored to work on a car for forever to compete with Tesla. It would make sense for the companies to cooperate, Tesla doing the mechanics and Apple the software / UX.


Could be anyone from Masayoshi Son to Yuri Milner to Blackstone. Or a consortium of several.

They wouldn't have to come up with the full valuation, only need enough to buy out those who wish to sell.

Articles/Bylaws would likely give Musk control, even though he only holds 20%.


> Articles/Bylaws would likely give Musk control, even though he only holds 20%.

But Articles and Bylaws can be rewritten at the whim of the majority shareholder, no? I don't doubt that's how it would be initially structured (otherwise it would just be a hostile takeover) I'm just saying it's putting Tesla's future in the hands of whoever holds the most shares.


Google has three classes of shares: A, B and C. A shares get one vote, C shares get none and B shares get 10 votes. Brin, Page, Schmidt own all the B shares. [1]

For FB, Zuck holds a class of shares where each of his counts as 10 vs. the common shares.[2]

[1] https://www.investopedia.com/articles/markets/052215/goog-or...

[2] https://www.cnbc.com/2018/03/20/shareholders-wont-force-zuck...


Hmm, interesting. I thought we were just talking about voting shares. Musk has said current shareholders would be able to hold on to their shares. Do you think behind that statement he implied "but will lose voting status"?


Lose or reduce. Musk would be at much greater risk as CEO if there were a small number of large shareholders. They could, in theory, band together against him to make a change. So I'd expect that as part of the deal, he'd make arrangements via voting rights to be in control. So your current 1 vote public shares may become 0 vote private shares. Or, his private shares may carry 10 votes each.

On the other hand... he seems to be somewhat an idealist and may reason that his performance will stand on its own merits. I.e., the shareholders would be right oust him if they felt that was the right course of action. Will be interesting to see how this plays out.


He wouldn't make such an announcement without having backers lined up.


Have you seen his tweets in just the past month or two?

He's called a rescue diver a pedo and cried "fake news" when journalists have questioned Tesla's financials.


Google (directly or indirectly) makes a lot of sense. They have the best self driving tech. Elon is miles ahead in electric vehicles. Perfect combination.


Maybe he is counting on shorters in need of cover to absorb most selling pressure?


As an investor since 2012 I think Tesla would be far more operationally efficient private. Also a bit of schadenfreude but I've personally enjoyed watching Wall Street shorts collectively lose hundreds of millions of dollars over this.


Might be in the tens of billions before this is all said and done.

(~34 million short shares outstanding * $420/share = ~14 billion dollars to cover. Is my math wrong?)


Wouldn't that assume that every short seller would lose $420 per share? They probably purchased their shorts at like ~$350 per share, so they'd only stand to lose 420-350=$70 per share, correct?


I'm a newbie when it comes to calls and puts, couldn't they just fill their shorts now (no pun intended, I seriously don't know the terminology) if they're worried about it? Tesla closed at $370.


What happens when $14bn in short interest tries to buy simultaneously?


It sounds like everyone will be buying TSLA tomorrow. Even the little guy who wants to earn the difference between $379 and $420.


Sure, but they didn't start from zero. If you sold short at $350 the amount to cover is $70. Options are also a common way to hedge, so it's really hard to say what the total loss would be.


True. I guess I was looking at the total purchase needed to cover all shares.

If there aren’t enough shares available to cover, could the price exceed $420?


This would have a side-effect of making all the short-sellers lose, which would be quite satisfactory to Musk.

Until Tesla's economics become obvious to all in the market, this is probably the best decision; this allows them to be more focused on the long run.


It seems just the announcement, if nothing else happens, is twisting the knife on those shorts. The price is +25 today already.


Part of me wonders if it isn't a side-effect, but the goal: put the squeezin' on the shorts. But, man, if that tin-foil hat theory is true, Musk better have someone in the wings at least pretending to want to finance this lest the SEC come a-knockin'. Normally, I'd just pass that off as "haha, wouldn't that be funny!", but given some of Musk's tweets lately, there's still a little part of me that entertains the idea as plausible.


Yeah I'm really wondering whether this was legal - I would've been on his ass if I were the SEC for illegal price manipulation. Even if he doesn't go through with it, it's still bumped the stocks up by a lot. Could've been a move to scare off the shorts?


By the time you had made your post, Tesla had already issued a press release saying the same, and news had come out that Musk had been talking to the board about it for the past week. So, yeah, he was serious and not being manipulative, and AFAICT completely legal.


Not directly related to the thread, but I'm surpised by the extreme anti-short seller sentiment? Why is it important that they suffer?

Short-selling is what makes almost zero expense mutual/index funds available to mom n' pop investors. Fidelity are about to offer ZERO TER funds on the basis that short-sellers pay heavily to borrow stock from them.

It seems analogous to expressing hatred for umbrella sellers because you don't like rain.

When I lived in Ireland before the GFC banking collapse, I remember bank executives whipping up public support for a government ban on short-selling bank stocks on the basis of "protecting decent companies from shady speculators and evil gamblers". In terms of cost to society, it was the bank executives who inflicted massive damage and bankrupted the country, not short-sellers of bank stock.

Since then, I've been quite skeptical when people blame speculators and short-sellers for the behavior of markets. There's usually some basis for shorting.



I think people here aren't saying they hate shorting in general, but that Musk hates people shorting his company. So it's Musk enjoying twisting the knife in the shorters, not these guys on Hacker News.


Also if you're a long term investor you probably hate shorters and traders.


I think it depends. I think long-term investors should still look at short interest and read short thesis to understand counter-arguments. Regarding manipulation and herding, I think it depends. Someone could short Apple on merits of valuation. In this instance, due to the company's strong balance sheet, its a matter of debate and opinion among longs/shorts as a short report will not death spiral the company. In situations where a company has a significant among of debt or a cash flow issue or is a financial company, the company generally has to access capital markets at some point in the near future. This is the danger of leverage, or even proving a business model as a public company.

In the middle ground, you have a company like NFLX where some investors like Bill Nygren are long and advocate the position due to his belief the company has room to raise prices in the future from say $12/month to $15/month, shifting the PE ratio from 150 to 20. My assumption would be that a short thesis would have much less impact on scaring the market to instigate a death spiral for NFLX.

So with Telsa, it is in a vulnerable position due to being in a highly capital-intensive business, negative cash flow, and significant liabilities. But, it also is the only car company ever to presell hundreds of thousands of cars and a CEO who has delivered on big visions and promises before.

I have no personal investment in Tesla, but I hope Elon succeeds as I appreciate his ambition.


Unless you want to buy more shares from the shorters or liquidity from the traders. Markets need sellers and market makers.


What real world value do short sellers add? Owning a stock used to mean that you invested in (a part) of a company. You risk your money to get some of the real world gains the company hopefully makes.

Now, the stock is the product, not the company. It's become a game in itself. It adds nothing to the real world outside of finance.


What real world value to long buyers add? Sure, if you invest and the company takes that investment and does really well with it, the world may benefit from an increase in productivity/wealth. But if you invest and the company does poorly and tanks, then the world loses by something because you could have taken that money somewhere productive. The kind of market that produces the most real world value is one where companies are valued accurately. If you think a stock is undervalued, you go long. If you think it's overvalued, you go short. Both actions affect the market value of a stock.

Seems like two sides of the same coin. I can't see where an argument against one doesn't work against the other.


Honesty.

For instance, investors can't short in India, and it happens to be one of the countries with a reputation of a high proportion of companies with accounting irregularities.


This feels like a rushed announcement.

First you throw out a tweet, later in the day you halt trading, then you make an announcement that you're "considering" something major, but that you haven't decided yet.

Not only that, but Musk seems a tad bit paranoid. He's regularly talking about all those evil greedy short-term traders that attack the company -- which is a little silly since traders have given Tesla a larger market cap than GM and Ford.


I think he is more concerned about actual espionage, sabotage, manufactured bad press etc, than the stock price manipulation. That maybe indeed be paranoia or maybe he has seen it happening enough.


Huge shorts positions give strong insensitive to pay for sabotage or other real harm to the company.


Its a done deal apart from the shareholder vote apparently

"Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote." https://twitter.com/elonmusk/status/1026914941004001280


From the beginning that I got interest in Tesla there were scary stories that they will fail, their cars are crap etc.

Now as I think of it, most likely authors of these stories did it to cause stock to dip so they can purchase at lower price and once it recovers sell.

The traders that are actually help the company purchased stock a while ago and are just keeping it. The get-rich-quick traders are the ones that are ones that are hurting the company.

His announcement mentions that they are thinking to leave option to hold private stock or purchase at $420/share. I think the idea is basically to get rid of those bad investors, since if you would opt to the private stock you wouldn't be able to sell it easily.


It's a sign public equity markets aren't structured well that companies aren't encouraged to think long term. The most successful companies in today's markets don't even allow common shareholders to control the company, ie Google and Facebook with their special classes of controlling shares. We might need to reconsider changing laws around choosing board seats or requiring shareholders to have minimum holding times in order to align incentives better for the long term.

If public equity markets don't work, the alternative is more and more of wealth creation happening privately, in startups funded by VCs, private equity, or family owned businesses. The public won't get to participate.


>If public equity markets don't work, the alternative is more and more of wealth creation happening privately

I say that's a fair point, for the reasons you describe, that there's less oversight, and more mammoth capital sources that have an appetite for VC at nearly any stage.

The "aren't encouraged to think long term" is an odd bit. You are right but at the same time it seems to be at least imo that we (the market) want these ownership structures. We want Page and Bezos and Zuckerberg and Musk, but we want to own it too. Snapchat and its S&P denial would be the battleground there.

So I think to paraphrase you latter idea "we might to formalize a public equity model that is more flexible around a founder/visionary, or we might need to be more explicit about who controls a company, and what can be done to change that control."

I suppose the balance to me is between making the burden of public markets lighter on companies with longer term vision, and exposing retail markets to a wild frontier that is imo only appropriate for more sophisticated parties.


The public won't get to participate.

It's already partly to this point. The general public can participate in a meaningful way, so long as they start to scrimp and save directly out of school.


Interesting. Bloomberg's Sebastian Boyd said:

Incidentally, Tesla has a free-float of 127.5 million shares. At $420 a share, that would cost you $53.6 billion. The company already has net debt of of $8.8 billion and an adjusted net leverage ratio of 13 times. Were it to be bought in a management-led LBO, a back-of-the envelope calculation would give it a leverage ratio of over 90 times, worse on a trailing 12-month basis. You can't run a company on math like that.

So, either it's happening based on persuasion and belief (with Saudis as rumoured) or it's an attack against shorts and a bluff in which case SEC's rule 10b-5 might come into play and then... In any case, interesting.


An interesting perspective on why Elon might be pulling this move: https://www.barrons.com/articles/tesla-stocks-surge-puts-con...


"...which would effectively let the electric-auto maker pay off that obligation in stock instead of cash."

How does paying off the obligation with stock work?, whose shares would Tesla assign the bond holder?, if it assigns shares after market closes and when market opens if it's below $360, won't the bond holders sue?


The shares are created. As the debt are not repaid it's as if the bond holder bought shares in a round of recapitalization instead.


No external financing might be necessary, because virtually all Tesla shareholders today (i.e., people who are net-long the stock) are true long-term believers in Musk's vision unconcerned with the company's short-term financial issues. (People who are concerned with financial issues are either avoiding the stock or shorting it.) These true-believer shareholders will want to hang on to their shares as the company goes private and shares start trading "by appointment" on less liquid, secondary private equity markets.

If I'm right and Musk pulls this off, short sellers are in for a world of pain. They will likely have to scramble to cover their short positions in the face of a limited supply of shares before delisting.


I need to double check it, but some of the largest institutional shareholders, like Vanguard Group, could only hold positions in public companies, so they will have to sell.

Retail investors can decide to go private, but tesla free float is very small, so they don't matter much in a grand scheme of things.


Yes, that's true for Vanguard. But others, like Fidelity, can and will allow shareholders to hold private shares in their brokerage acccounts, sometimes through special purpose vehicles created for the purpose.


That might be how this is actually gets financed :). The shorts borrowed from institutional investors who have 0 reason to make them whole and can now take them to the cleaners.


I would like to make a prediction: the Saudi Royal Family is the funding source. There are very few banks that could back this financially, and they have all said they are not behind it. The only source of this much money and secrecy is the House of Saud. They apparently also snapped up to 5% of public shares, and have expressed lots of interest in investing in the "new" economy.


Good way for them to hedge against a threat to their primary source of income.


Pretty enormous amount of money required. Say half of TSLA shareholders take the $420, that's approx ~$40bn required. Then there's another $10bnish of debt refinancing required, and probably many more billion for future product development and new assembly lines.

I don't think Softbank could finance this, it would be well over half their entire fund.

Saudi maybe - but still quite a chunk of change for them.


Or Apple, Google, maybe even Jeff from Amazon. Musk changes the rules of the game on a regular basis.


Just because those companies have massive market caps and cash reserves doesn't mean they can cut a check for 40B+ to buy a company that is burning cash. Hard to imagine any board signing off on that deal.


> Just because those companies have massive market caps and cash reserves doesn't mean they can cut a check for 40B+ to buy a company that is burning cash.

Cash reserves mean they can.

> Hard to imagine any board signing off on that deal.

Right, conservative (appropriately so!) corporate decision making means they likely won't, not can't.


I would imagine he talked to his institutional investors it could be far less than half.


Looking at ownership summary, loads are held by ETFs, which I assume would have to divest as most track only public shares.


How will Tesla get around the shareholder limit?

There is a limit to the number of shareholders a privately held company can have. It's apparently 2,000.

http://blog.gust.com/limiting-the-number-of-shareholders-in-...

https://www.investopedia.com/terms/5/500-shareholder-thresho...


You would own shares in a private fund that would own Tesla shares.


In the Tesla case I feel that the shareholder concerns are pretty valid and provide an interesting counter pressure to Musk's "This is fine" attitude. Not saying either is right, but the friction is likely valuable.

I'd not want to be an investor in a private Tesla. It would seem way to volatile.


I am a shareholder. I will not be selling after going private. This is really good for me because we can finally stick it to the shorts and the only people who we lose are "traders" - I don't care about what they think. Long term investors only is a good motto :)


If Elon's tweet is motivated by a desire to stick it to the shorts, and he does not in fact have funding lined up to take Tesla public, he could (probably would) face a massive stock manipulation lawsuit that would bankrupt him, in addition to any SEC settlements which would likely result in him being banned from holding an executive or board position in any publicly traded company.


How do you know he doesn't have funding lined up? Usually, if Musk says something like this it's true. (And don't start with he has a history of underestimating deadlines etc., this is totally different)


I think it's a great move. Prevents short term greedy shareholder strategies.


By paying a large premium to the all time high? If he's worried about the stock going down, paying more for it doesn't make a ton of sense. You should wait until the stock is down and then take it private.


By paying a 20% premium he's ensuring that the short sellers will need to buy shares at the premium price guaranteeing that they've lost at least 20% of what they've gambled.


Ah yes, overpay so you can stick it to the big mean short sellers. Might as well go for 50% premium with that logic!


Second, my intention is for all Tesla employees to remain shareholders of the company, just as is the case at SpaceX. If we were to go private, employees would still be able to periodically sell their shares and exercise their options. This would enable you to still share in the growing value of the company that you have all worked so hard to build over time.

How does this work as a private company?


This is not an uncommon arrangement in companies that plan to remain private forever, or just have no rush to IPO. Without some exercise clause, it's hard to compete with public tech companies on compensation: I've seen way too many people stuck in companies that they've worked on for 4-5 years, but when leaving meant throwing away all the stock compensation, as the costs of exercise are not affordable without a seller.

Typically companies in those situations have investors from earlier rounds that want to increase their holdings, and the board doesn't have a problem letting get a percentage or two of extra shares, so they create some kind of liquidity opportunity, with the company serving as an intermediary between the employees and the investors.


Private companies are still allowed to give share to employees. Employees are then allowed to sell their stock periodically (every 6 months in this case).


The main difference though is sell to whom? In the case of a public company, you sell your shares via the market to whomever will buy them. In the case of a private company, you're selling the shares back to the company, and the valuation is formulaic instead of market-based (unless there is some kind of private "market" that continues, but I've never seen that and would doubt its legality).


Right, but with who?


Depends, the company could buy back, or during a founding round, some part of that founding can be reserved to buy employee shares. External investors are also allowed to buy from employees during this period.


Other private investors (typically institutional ones), or if the company has enough cash, the company itself.


Companies have buyback programs or you could sell them directly to other shareholders.


> Employees are then allowed to share their stock periodically (every 6 months in this case)

Some companies do periodic buybacks. Private shares can generally be sold at any time to accredited investors.


I am a bit ignorant as to the mechanics of how this would work. Can anyone with the knowledge elaborate on what this means? Im thinking in terms of a few scenarios here: 1) I read this news and want to get on the Tesla train and throw all my liquidity into the current stock. 2) I already have x number of shares. What happens to them? 3) If I dissent, am I cut a check and told to hit the bricks? 4) is he going to need to raise capital to do this? 5) would the private company/person still be able to buy/sell "shares" on some off the stock market exchange?


If a majority votes to take the company private, you would have the option of selling or accepting private stock (some non-voting class I'd assume) that you can trade. Voting class stock would be only offered to investors with >X% current holdings, probably the 5% the Saudi's just purchased. Employees may have a third class stock. As an investor, you'd be given paperwork to sell or accept the new stock in exchange for your old stock. Rules for buying and selling private stock are pretty common and there are several organized indexes for private stock trades.

All of the short-sellers would lose every penny they gambled.


Thanks. Your last sentence seems to sum up the motive here in my opinion, not so much to screw the short sellers, but to limit/stop the ability of them to influence the value of the company through whatever means.


Oh I wouldn't discount Elon's interest in screwing the short-sellers. There's ample evidence of his disdain for these people and even if you're bearish on Tesla, I think a lot of the short-sellers are fueled by oil & gas interests, so Elon's ire is not unwarranted.

I don't think the media portrays this battle appropriately. Tesla is the #1 enemy of the combustion engine supply chain and that is no small thing.

Every single auto parts store, every car manufacturer that does not sell EV's, and especially the oil & gas industry is at risk of Tesla's success.

This is a titanic battle. Don't anyone ever forget that.


I'm not fueled by oil and gas interests - I know a fraud when I see one. I'm short the equity, since dividends aren't a concern.

Tesla cannot manufacture at scale - they do not have the experience or capital to execute on this. Their financial statements demonstrate as much, and the build quality/reliability issues that are prevalent on forums/reddit/twitter demonstrate this.


Jeff Bezos was a fraud for a number of years too.

If Musk gets the funding to go private, gets the 2-4 years of runway he needs to make the business work, that's a good thing.

I'm not a fan of businesses that run red year after year, but in some cases, there are societal benefits that vastly outweigh those concerns. A successful mass-production battery and EV business is something that can have a massive impact on reducing CO2 emissions.

So a lot of people and investors are less concerned about making money and financial models than they are about moving from fossil fuels to renewables. And if Tesla gets a few more years, the profits will come.

If you're only concerned with the bottom line, why are you investing in or against a startup? That seems like gambling to me and if you lose, that's on you, not on Tesla.


Short sellers aren't the only ones getting screwed. If you had taken a long position by buying call options with a strike price over $420, you're not gonna have a good time.

For example, the bids on $430 call options expiring in January and June 2019 were down ~20% and ~25%, respectively. If Elon's plan goes to fruition, those options can (probably) never be exercised.

The further out the expiry and the higher the strike, the worse it gets. Liquidity just evaporated, and the spreads are getting wider.


Short sellers aren‘t evil. They are a mechanism how the public trade exchange improves its estimate how much a company is worth.

After the very ugly financial news over the last months (but probably true — nobody has credibly refuted them), it‘s not hard to see why Musk and the less rational part of his supporters would love to see short sellers disappear, and „punished“.


I wouldn't say "evil" either. I just think some of the short sellers have motivations beyond straight financial business modeling.


Shorting is fine when you're predicting the stock will go down, it starts leaning towards evil when you try and damage the company to cause the price to go down.

Billions on the line create a nasty incentive and a publicly traded company is more at risk of negative attacks when they're not yet profitable.


There is zero evidence of shorts trying to damage the company.

Every time when TSLA stock was down last year it was some material news regarding missing Model 3 production estimates previously provided by Elon Musk himself or something like that.



1. You can buy TSLA stock as soon as trading them resumes. Lots of people already have.

2. If this acquisition goes through, each one of your stocks will be worth $420. Congrats.

3. You can't really dissent to shareholder majority agreeing to this deal.

4. $70bn is a lot of mulla, so I would guess this will not be all Musk's personal funds.

5. Theoretically, through some sort of a private equity venue. Just like any other private company.


Or an alternative to number 2, the acquisition does not go through and the stock plummets 20% from current price and you're now deeply in the red. I don't know enough about Tesla to predict which one is the mos likely but I have seen this happen in other companies.


> Theoretically, through some sort of a private equity venue. Just like any other private company.

I'm curious how this will work if you hold TSLA in retirement accounts (all of my TSLA is in a Roth IRA).


Elon fashions himself a super hero: Batteries to Australia and Puerto Rico, A pledge to fix Flint's water quality and a submarine to rescue the boys in the cave.

Super heroes rock when they really do super things, but Elon flew off the handle with the last one when he called the master diver a pedophile all because his idea wasn't the one they used.

Having someone at the helm that is volatile like this is bad for a public company, but a private company would be able to shrug off embarrassing events such as these much easier.

Elon might be doing it to save his job.


I was thinking the same thing.

Usually his tweets send stock down, this one sent it up but may be in violation of SEC rules.

I imagine shareholders must be getting pissed whenever he goes off on a Trump like tirade on Twitter.


He tweeted that he had funding and in the email mentions no funding. This is a really weird announcement that feels like an empty pump of the stock. He could have chosen any number...


I don't think it was an intentional pump, I think he needs someone to change his Twitter password, not tell him the new one and post on his behalf, just like Trump also needs.


Not sure I agree with the dupe-flag. The other post was about the Saudi deal and then got changed. So the discussion there is fragmented.


You're right that it's not a precise dupe, but the topics are almost identical and we shouldn't have two of these on the front page at the same time. So we have to decide which one.

The other article is more substantive, since it's based on at least some facts, and the thread is correspondingly better. This one, by contrast, is really just an announcement of a possible future announcement. So it seems clear the first URL should win. If and when they actually take steps to go private, there will certainly be much discussion on HN.


That's fair. Thanks for explaining.


There was a HN discussion a couple of days ago complaining about companies going public much later. Could the short term quarterly horizon of public investors, as pointed out here, be a big reason companies don't IPO sooner?


TSLA up 7% on announcement, high of $370.79

If you're a short seller, beware the "squeeze." If you're not a short seller, this article can be an amusing read:

https://www.reuters.com/article/us-volkswagen/short-sellers-...


If you're a heavy TSLA short-seller, you're already in deep trouble, unless this falls through very quickly. There will be margin calls. Welcome to the losing side of short-selling.


Any experienced non-retail short seller would've bought some long term out-of-the-money call options as insurance for a scenario like this. Most retail shorts know it's best practice... but they're retail after all, so many are going to get burnt if this hype goes through.


> long term out-of-the-money call options I bet $425 calls are about to get real cheap.


It only falls if Elon is bluffing. He’s guaranteed $420 / share.


He’s not guaranteeing anything. He hasn’t mentioned financing to do this, and it’s not a small amount of money to raise. Shareholder approval isn’t a given either. It’s probable that he’d get the votes if he showed the financing necessary for a $420 stock price, but it’s not a guarantee.


If can demonstrate guaranteed financing for this deal from outside investors at $420/share, then he just tweeted material news about his company, and he had all the rights to do so.

If he can't prove guaranteed financing for this deal, that's securities fraud and SEC investigation is the next step of this drama. Imagine... well, SNAP CEO tweeting "Some rich folks are going to take us private at $50 per share lmao ayee, cover your shorts". This is a market manipulation.


That's why I wrote "bluffing." If he is the shorts will come out way ahead as tesla goes below 200.


Lots of things can go wrong with a deal this size, but yes, unless he's bluffing, this most likely will happen.


He has to find financing. There’s not that many entities that can finance a deal of this magnitude.


I wonder who Elon has been having dinner with over the last weeks/months...

I am sure hes already been lining up those who would want to do something - and it should be a clear sign about the Saudi position that was announced...

Basically, he's likely got House of Saud involved as they are flamboyant gamblers and would love to be associated with this if it succeeds, because the fame of this is worth more to them than the money at this point... so I am sure he already has the major financing arranged.


Of course, but everything he says implies he has the funding. Announcing this before funding is in place (the most crucial piece of this puzzle) would be incredibly irresponsible.


And yet here we are, from Elon "You're a Pedo" Musk.


That was the previous high it hit before it was halted for this news to come out. Trading is now scheduled to re-open in 6 minutes (3:45 PM EST). Going to be a very interesting 15 minutes before the market closes for the day.


Wow, look at it go on re-open


If Tesla announces this (causing the stock to rise, since the suggested price is much higher than the current price), and then doesn't go through with it, is it considered stock manipulation? I don't mean to accuse them, I'm sure they covered their bases, but I'd like to understand how it works.


SEC has a rule for that: https://en.wikipedia.org/wiki/SEC_Rule_10b-5 and https://www.investopedia.com/terms/r/rule10b5.asp#ixzz5NWNPZ...

Examples of offenses that would violate rule 10b-5 would be: executives making false statements in order to drive up share prices ... interestingly, it's as serious as ... or a company hiding huge losses or low revenues with creative accounting practices.


My take is he needs to do this in order to keep and attract the talent Tesla needs. Stock was way too volatile while rest of the tech industry has been going hockey stick.


If Elon is guaranteeing a $420/share buyout - are there any downsides to buying as much stock as possible right now? Would the only risk be that this whole plan falls through or that Elon ultimately decides against that price?


As shares are not close to $420 right now, that indicates healthy skepticism that Elon is capable of getting this done. Do you have reason to believe that he is capable of raising $50-80 billion to complete the transaction? If yes, then you have a great arbitrage opportunity.


> Would the only risk be that this whole plan falls through or that Elon ultimately decides against that price?

That is pretty big risk; if this plan isn't real or falls through, the stock is going down hard.


That's not a negligible risk. It's analogous to thinking bonds have no risk because the issuing company guarantees it (forgetting it might well go bankrupt).


Yeah, I think the price now will end up reflecting what people think is the odds of this happening. If you are 100% sure this will happen, you would be willing to buy shares for $419. If you are 90% sure you may stop at $400 etc.


Thats correct. Which is why you see that the current stock price is currently spiking, as people rush to get the "good" deal for free money.... Which means that as the stock gets closer to 420$, the amount of "free" money quickly goes away.


There are many factors that could affect this. There is no words of the source of the fund, although people believe he already has that secured. And all shareholders have to vote. The last and most important is when this would actually happen.


Guess Elon isn't too confident about being able to deliver the earnings he promised on.


Either that or he has realized that the focus on consistent profitability over the next 1-2 years will significantly impact the company's long term prospects.


Can you expand on that, please?


Wall Street investors and analysts focus heavily on the bottom line. Elon believes that the work Tesla is doing requires more time, sustained attention, and focus than public investors have tolerance for. Furthermore, he thinks the volatility demotivates employees.

These are all completely true, and very reasonable, but do show (at least to me) that the near-term promises regarding profitability he made at the last earnings call are probably in jeopardy.

Thank you for asking for a clarification rather than just knee-jerk down voting, though. :)


I agree with your assessment. It seemed clear that Tesla was cutting back investment in new supercharger locations and maybe even service centers to reach profitability. I can't say that now felt like the best time for that kind of slowdown to me.


It means he’d rather not be under the scrutiny of wall st investors. He thinks the volatility is off-putting to his employees. He thinks wall st isnt forecasting correctly or is short-term focused. These are his reasons.


I don't like the guy (and it's obvious from my comments), but this move is brilliant on so many levels.

The short sellers just got taken to the cleaners, badly.

By taking the company private, he's under less public and regulatory scrutiny.

It's probably easier for him to raise money privately, and there seems to be sufficient interest.

Tesla's employees, who are probably pretty much worn out, got a nice pay day.

And, of course... he's the hero again.

Edit

Pure speculation, but could it be that this announcement might actually backfire on the $420 price?

Tesla's is one of the most shorted stocks, ever. The short sellers stand to lose immensely, so they'll try to close their short position as quickly as possible, thereby driving the price up higher -- possibly higher than the $420.


Why don't you like the guy? I am always surprised that people could have a net negative opinion on someone who is trying hard to push technology forward in multiple directions.

I agree this move is brilliant, and could be a huge competitive advantage when self-driving bad press liability kicks in.


> Why don't you like the guy?

Maybe I've just become weary of him, but it feels like his personality has devolved into something so narcissistic that his primary motive is no longer the technological advancement itself, but to be worshiped as a Messiah on Twitter for it.

Case in point: at a time at which he claimed he had so much work at Tesla that he slept in his office at the factory, he suddenly needed to be at the front of the Thai cave rescue, he needed to pick a pointless fight with one of the rescue divers, he needed to fix the water in Flint, Michigan, etc., and all of this naturally on Twitter.

>I am always surprised that people could have a net negative opinion on someone who is trying hard to push technology forward in multiple directions

What he has done with SpaceX is just... incredible. There are no other words for it.

However, to me, it seems as if he's taken his success at SpaceX as a life lesson to mean "If I attempt something very hard, and if everybody is telling me I'm doing it wrong, I'm actually doing it right". I think he actually considers himself infallible now. At least, we know how he reacts to criticism, especially from within his own ranks.

In effect, it's not moving technology forward. It's subjecting technological progress to a single person's whim, and results in the technological mess that we have seen at the Fremont plant, for a technological problem that others have already solved a long time ago.

Case in point: how long do you think it would take VW to build a plant that can build 10.000 cars a week?


I'm overall a fan of Tesla and SpaceX, but there are a number of valid criticisms you could make against Musk:

Occasionally childish relationship with his investors. Unfoundedly calling a diver a pedophile after he attacked Musk's rescue submarine as a dumb idea. He thinks he's an expert in any field he touches. Has an overall tendency on social media to promote Trump-style tribalism--you're either on team Elon or you're an idiot. There is no such thing as valid criticism of anything he does.

Some of these things also make him great. He assumes that everyone who looked at a problem before him was just too incompetent, corrupt, or complacent to solve it right, which can be a useful trait because it's often true. But when it's false it just makes him look like an asshole.

To be honest a lot of the hate just seems to come from how he responds to haters, so it's a bit of a vicious circle. If he just took a break from Twitter it'd probably benefit his image considerably.


I'm not qualified to make a diagnosis of any kind, but this at first glance suggests that he's a narcissist.


Just go ahead and like the guy!


He's smart, and also a monumental dickwad. I'd expect people that dislike him to do so for the latter, not the former. (i'm on that boat too)


Honestly I think he has a mental deficiency, so I try to give him an enormous benefit of the doubt. He's clearly on the spectrum.


> also a monumental dickwad

I admit that I've never scrutinized his actions very closely, but I've never gotten that impression. Would you be willing to elaborate on why you feel that way?


The couple of things that spring to mind is accusing one of the cave rescuers recently of being a pedophile for no particular reason and without any proof, and a fairly well shared article by his first wife on his behavior.

From what I've seen/read of him as a person, he sounds like someone i would actively avoid in a social setting.


do you know him?


While there's some good reasons here, I can't help but think this is more an emotional reaction on Elon's part, to the shorting and general negativity around the company.


I think it's uncharitable to call it purely an emotional reaction. While that is certainly a component, I think this is actually one of the best mission-oriented strategic decisions Elon has made in a while.

The shorting and general negativity around the company are a morale drain on a scale that few companies have ever experienced before, let alone any companies that push their employees as hard as Tesla. I have friends who work very, VERY VERY hard at Tesla to help achieve their overall goal, and all of the hate really drags them down and makes them question why they work so hard, let alone the anxiety over the value of their shares. The cloud of negativity is a huge productivity sap and I suspect it is a contributor to the legendary rates of turnover at Tesla as well.


> I think it's uncharitable to call it purely an emotional reaction.

I agree. I didn't call it one.


I seriously doubt $70bn are changing hands because someone got "emotional". In my understanding, this is a great deal for Tesla, the key question is how Musk got the enormous amount of money to pull this through...


Emotions are a perfectly acceptable reason to initiate a $70 billion deal. It's important that the emotions line up with the logic and reason, but in this case, they do seem to align.


I think that would fall under "major distraction for everyone working at Tesla."


Would an Apple buyout be considered them going private if they are kept as a separate entity? It’s the only one with enough money to buy them that I can think off.


Apple could do it with cash, but a lot of others could do it with some form of financing. A leveraged buyout.


Financing on this scale would require a massive and likely quite lengthy undertaking if this is not a stop gap bluff it looks like they already have a buyer and it looks like all the usual suspects as far as financing goes are not involved.


I couldn't be more supportive of this idea. I am so tired of seeing Tesla scramble to meet shareholder expectations which are almost always short-sighted.


> as the most shorted stock in the history of the stock market

does this squeeze beats the VW one?

>First, I would like to structure this so that all shareholders have a choice. Either they can stay investors in a private Tesla or ...

given the potential number of shareholders wouldn't there still be pretty tough information disclosure requirements - isn't such required disclosure is among the major factors pushing companies into public market?


On the one hand, the challenges of being a public company cited here are the same ones facing all public companies, and they do quite well. On the other hand, there's a ton of negative attention on the street that's probably a huge distraction.

I do think Tesla will be better served as a private company as long as Musk is CEO. He isn't public CEO material.



I can see the cannabis industry investors and other stoner dudes purchasing for that specific amount.


Instead of taking it private, what's stopping Tesla as a company from buying back shares from public market when the price is low? It not only stabilize the price it is also have long term benefit if the company is confident for the future.


Tesla doesn't have money to buy shares back. It's not clear what does he mean by "taking Tesla private" and who would be providing the money.


Tesla lacks the cash to buy its own stock, no matter the price. The cash would come from private equity.


Nothing on financing and an FT reporter said bankers close to Tesla knew nothing about it.


who is gonna finance that 420USD buy-back ?


The difficulty to predict TSLA, especially early on, was one of the main reasons I sold it. It's now about double its value, but that's a recent phenomenon and it was pretty volatile before that.


I made the mistake of trying to trade the highs and lows on other stocks, got burnt out by the unpredictability. After that I just put my money on stocks I trust will grow over the long term(2+ years) and I don't even check their prices daily or even weekly.


LOL at $420/share I think he wants investors to chill out.

Anyway, since I own some shares will miss their stock, since I truly believe in them, but I guess this is better for the company.


Why has the been banned from the homepage and marked as dupe?


I'm wondering about that as well. I don't see any other post about it and this is the official post from Tesla.


Is this common? Would shareholders accept this?


With that premium? I'd say it's a no brainer


I'm surprised given their burn rates that they don't want continued access to public capital markets.


He is bluffing trying to squeeze the shorts, no one rational can value it 82B unless it was waymo level tech.


This thought occurred to me as well. And if this really all is a bluff to raise the share price, and to buy his company a couple extra months of runway, it would be the marketing manipulation crime of the decade.

I'm talking Enron level stuff, where Musk gets sent to jail.

"Enron Musk" has a nice ring to it, doesn't it?


This is no bluff:

> Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.

https://twitter.com/elonmusk/status/1026914941004001280


Yes he is, Where do you get 66 billion $. Investor support dosen't mean he has the financing. Don't quote a tweet, get some real sources.

"And yet it also left many questions unanswered, namely how Musk -- who owns almost 20 percent of the company -- would be able to come up with the $66 billion necessary to complete the transaction. At $420 a share, Tesla would have an enterprise value of about $82 billion including debt. To take it private, the billionaire would have to pull off the largest leveraged buyout in history, surpassing Texas electric utility TXU’s in 2007."


That's an announcement from the CEO of Tesla. The details are still forthcoming but there is no greater source.

$66B is inaccurate, Tesla would only need to buy from the shareholders that wish to sell at $420.


You are saying it isn't a bluff with evidence from the potential bluffer.


He would be liable for Market manipulation and securities fraud if this was not true.


X would be guilty of fraud if this isn't true is only proof of its truth if you treat it as axiomatic that X would never commit fraud.



Clearly you haven't met the Saudis


I'd like to think that back in the day Elon, and Clarence Saunders would have been great friends.


Not sure when it was published exactly but the stock price impact was visible already 2 hours ago.


First anounced a couple of hours by Elon on twitter: https://mobile.twitter.com/elonmusk/status/10268726522903797... Which lead to comments if it being a scam.. It is impressive to see the power of twitter news!


Seems like a good decision for Tesla. They have been pushing way to hard to satisfy the public opinion. The product and the company will continue to do well without being a public company.

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