Musk intends to privatize Tesla, and his real intention is to cash out at a high price

Recently, Musk made another big news. On August 7, local time in the United States, Musk tweeted that he was considering taking Tesla private at a price of $420 per share, and said that "funding is not a problem."

Subsequently, Tesla's stock price surged 11% to close at $379 per share.

Focus on the long term

Musk explained the reasons for going private on Twitter.

Musk believes that privatization can allow Tesla to avoid disclosing information such as the company's production status, debt levels, personnel changes, and executive compensation. This can allow Tesla to reduce the disclosure of information that may give competitors an advantage.

Preventing malicious short selling is also an important reason why Musk wants to privatize the company. Going public means giving short sellers an opportunity, and Tesla is a key target for short sellers.

After Tesla goes private, it can focus on the company's long-term goals without being distracted by short-term corporate goals and quarterly financial reports.

The reasons Musk gave are not without reason.

Tesla is a technology company with a strong sense of mission and pioneering spirit, which has won the respect of many people. Going public has forced Tesla to make some short-term behaviors to cater to the market. If it can be privatized, Tesla can indeed focus more on the long term.

Some commentators believe that Musk did this to inflate the stock price.

Harvey Pitt, former chairman of the U.S. Securities and Exchange Commission, said that if the purpose of the tweet is to drive up stock prices, it would be considered securities fraud.

If Musk really spread false information to boost the stock price, he would face very high legal risks. Musk does not need to take such a big risk just for the stock price.

Moreover, this is not the first time Musk has wanted to go private.

According to people familiar with the matter, Musk and Son met at Tesla in April 2017 and discussed taking Tesla private. However, the two sides did not reach an agreement.

But secrecy and a focus on the long term aren't all the reasons Musk wants to go private.

The market has not treated Tesla unfairly

Although Tesla has repeatedly complained about the disadvantages of going public, it is obvious that it is taking advantage of the situation.

Over the past decade, Tesla's market value has increased by more than 1,100%, an annual growth rate of 36.7%, and its market value is equivalent to 128 times the company's annual revenue. It is self-evident that Tesla has benefited from the stock market.

If Tesla wanted to focus on the long term, why didn't it go private before? In fact, the rising stock price made Tesla reluctant to delist.

There is a reason why Tesla has been repeatedly attacked by short sellers.

Tesla has been losing money, and its latest financial report shows that its losses are further expanding.

However, Tesla's valuation remains high, with a price-to-earnings ratio of 135. In addition, Tesla's money-burning rate is alarming, consuming thousands of dollars per minute, and the problem of mass production has never been completely solved.

The reason why short sellers have been keeping an eye on Tesla is that Tesla has always had the basis for being shorted. Once the short sellers succeed, it will be disastrous for Tesla's current operating conditions.

Tesla's current stock price is high. If Tesla can really be privatized at the "official guidance price" of $420 per share, then Tesla and its shareholders can make a fortune.

For example, Tencent, Tesla's fifth largest shareholder, bought 8.1675 million shares of Tesla in the open market for $1.778 billion last year, with an average purchase price of about $217 per share. If the company is privatized and delisted at $420 per share, Tencent's return will be nearly 100%, and the absolute return will reach $1.66 billion.

Musk himself holds a 20% stake in Tesla, and $420 is indeed a good price.

If Tesla successfully achieves privatization, at a price of $420 per share, Tesla's market value will reach more than $70 billion. Combined with the current debt of more than $10 billion, the scale of Tesla's privatization will exceed $80 billion, setting a record high.

Risk aversion may be the main reason for privatization

Why did Musk publicly announce his intention to privatize the company at this time?

Tesla's production plan in China has been finalized. Musk said that he will invest $5 billion in China to produce Tesla cars, and the cost of building the factory alone is as high as $2 billion. Although Musk said that the funds for building the factory in China will mainly be raised through loans in China, it is still unknown how much can be raised.

After the plan to build a factory in China was finalized, Tesla announced that it would build a factory in Europe. The business expansion in China and Europe has undoubtedly put tremendous pressure on Tesla's funds.

If Tesla can be privatized at a price of 420 yuan per share, its financial pressure will be greatly alleviated.

At present, the electric vehicle market is becoming increasingly crowded. BBA, Jaguar and others are launching new electric vehicles, and the competition in the electric vehicle market will become increasingly fierce.

Although Tesla has finalized the construction of a factory in China, it is still a latecomer compared to BBA.

BBA has already announced plans to build new energy vehicle factories in China. Considering the stronger resource integration capabilities and richer vehicle manufacturing experience of traditional giants, BBA is likely to produce electric vehicles in China earlier than Tesla.

Tesla recently released the Model 3 sedan, hoping to transition from a luxury sedan to a mass-market car and has invested heavily in this effort.

Tesla's production speed is gradually increasing, but if it cannot control costs, it will still lose money, and the more it sells, the more it loses. In terms of large-scale production and cost control, Tesla is far behind traditional car companies.

Traditional car companies such as BBA have strong capital and good financial conditions. Once electric vehicles are launched on a large scale, it is doubtful how long Tesla can maintain its leading position.

Due to the expansion in China and Europe, Tesla will face large-scale investment expenditures in the next few years, and funds will be further tightened. At the same time, with intensified market competition and the blockade of short sellers, Tesla's stock price risk is very high.

Voluntarily delisting and privatizing at this time is a way for Tesla to hedge risks.

Privatization is not easy

However, even if Musk is determined to privatize Tesla, he still faces many difficulties.

First, he has to convince the board of directors and obtain at least 51% approval in the shareholder vote. Tesla's shareholding ratio is very dispersed, which means Musk has to conduct tedious negotiations and games with multiple shareholders.

Tesla shareholders have their own demands. Whether the privatization price can satisfy the board members and how the rights and obligations will be divided after privatization will be the focus of the game.

The Committee on Foreign Investment in the United States has always been strictly guarding against overseas investors purchasing large shares of well-known American manufacturing companies.

Tesla, as a well-known American technology company, is likely to attract national security review if it sells a large number of shares to foreign capital. On August 1, the US Senate approved the Foreign Investment Risk Assessment Modernization Act, which gives the US Foreign Investment Committee greater authority.

However, the most critical issue is funding. Whether Musk can find enough financial backers is the decisive factor in whether this privatization can be realized. Musk said on Twitter that the source of funds for the privatization of Tesla has been confirmed.

But it is still unclear whether this news is true or not. Even if it is true, whether the funds raised are sufficient is another question. If Musk wants to buy out the shares held by Volkswagen shareholders, he will need another $60 billion. This is not a small amount.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.