The biggest ever attempt for Tesla by Elon Musk to take a company private. However, it is unclear that how he’ll pay for it or if it’s really of its worth.

On Tuesday, the chief executive of Tesla, Elon Musk, shocked the investors by tweeting that he was considering taking the company private at a stock price of $420. If he does, it would cost more than $70 billion. The company’s board of directors met several times last week to discuss the idea, and six of its members had issued a statement saying that it is “taking the appropriate next steps to evaluate” it.

Typically, those who are taking a company private would borrow tens of billions of dollars to buy the shares held by public stockholders. However, Musk provided very less details about his plan.

In his first tweet on the transaction, he simply wrote: “Funding secured.” He did not say how much money would be needed or from where it was going to come. When asked for more information on the financing, Tesla has declined to comment.

Investors were not too bothered by this lack of clarity; Tesla’s shares jumped by 11 percent.

Companies that are taken private usually have low valuations and are unloved by investors. Tesla does not fit that description, either, which could prove partly useful.

In theory, Mr. Musk could pull off the transaction without taking on massive amounts of debt. He could persuade as many current investors as possible to exchange their public shares for new ones in the private company. The more that agree, the less debt needed.

Mr. Musk is Tesla’s biggest shareholder, holding 20 percent of its stock. The next four largest hold nearly 30 percent combined. He might not get all of those to buy into his plan.

He could also turn to his individual investors, who own nearly 13 percent of Tesla’s shares. Many of those are incredibly bullish about the company.

To increase the chances of success with all of his investors, Mr. Musk has to convince them that their shares in a private Tesla will one day be worth more than the $420 that the transaction offers them.

Doing so will require convincing them that Tesla will perform better out of the spotlight. Shareholders would also have to be willing to potentially get less information about the company’s performance and have less opportunity to sell their shares if it is no longer publicly traded.

Would Tesla perform better as a private company? Mr. Musk thinks so, on Tuesday writing:

“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. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company

What is more, many of the problems at Tesla are of the company’s own doing. Mr. Musk, for instance, last month described how problems with robots contributed to production problems. When asked how these difficulties had occurred, he told Bloomberg: “Because we were huge idiots and didn’t know what we were doing.”

Investors must now weigh whether giving even more freedom to Mr. Musk, and the extra debt the deal may incur, is worth it. It very well may not be.”

Arguably, though, the public markets have been very good to Tesla. The company has successfully tapped them for capital, and, even when it has racked up losses and consumed cash, its market value has marched higher and higher. Its stock market value currently exceeds that of General Motors.

Investors are, in effect, giving Tesla much the same leeway as it would get if it were private. Big institutional shareholders have remained patient as the company strives to achieve long-term objectives, and have stood by the company even when Mr. Musk’s behavior was unorthodox. They have even tolerated a board that has been criticized for its oversight.

What is more, many of the problems at Tesla are of the company’s own doing. Mr. Musk, for instance, last month described how problems with robots contributed to production problems. When asked how these difficulties had occurred, he told sources: “Because we were huge idiots and didn’t know what we were doing.”

Mia Noles
Mia Noles is a writer at the Ode Magazine. She holds a Bachelor of Arts English Literature Degree from Leeds University. Her specialty is Celebrity News, History, and World News. She is also a life enthusiast who loves traveling the world and taking part in humanitarian courses. You can contact her at mia@odemagazine.com.

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