What Would Tesla Be Without Musk?
We think it would be harmful to investors for the SEC to ban Musk from running a public company.
Tesla (TSLA) CEO Elon Musk issued a blog post late on Aug. 24 saying that after meeting with the board and large and small Tesla shareholders, Tesla will remain a public company. We are not changing our fair value estimate on this news. We are not surprised to read Musk's meetings revealed concerns from shareholders about being able to own equity in a private company. His Aug. 24 post said, "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.'" It also said institutional investors have internal compliance rules limiting private ownership. As we discussed in our Aug. 13 note, it was not clear to us how retail investors who are not accredited investors would be able to keep their equity if Tesla went private. We speculated a special purpose vehicle would be publicly traded for retail investors.
Musk reiterated on Aug. 24 that he believes he has more than sufficient funding to take Tesla private, but this initial claim in an Aug. 7 tweet is reportedly under investigation by the Securities and Exchange Commission via subpoenas to board members. Given Musk said he had a July 31 meeting with the Saudi Arabian sovereign wealth fund, we think it may be difficult for the SEC to say the Aug. 7 "funding secured" tweet was untruthful and purely designed to hurt the short sellers that Musk despises. We also think at this time that it would be harmful to investors for the SEC to ban Musk from running a public company. We think for now Musk is effectively Tesla and without him Tesla is just a capital-intensive automaker burning cash with too much debt due soon. Musk revealed in a recent New York Times interview that the company has searched for a COO in the past to take some pressure off him. We think that is a good idea but we think it will be hard to find someone willing to take the job.
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David Whiston does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.