After more than two weeks of discussions, Tesla CEO Elon Musk says feedback from shareholders and experts has convinced him that “the better path is for Tesla to remain public” rather than becoming privately held.
Musk stirred up the financial world on Aug. 7 when he said he was considering a plan to buy up the electric car company’s publicly traded shares at a premium price of $420 a share. A major source of controversy was Musk’s claim that funding had already been secured for what could have been a multibillion-dollar stock purchase program.
The “funding secured” tweet drew skepticism from stock analysts and heightened scrutiny from federal regulators.
In tonight’s update to Tesla’s website, Musk said that most of Tesla’s existing shareholders wanted the company to remain public, and that going private could have forced some institutional investors to divest their stakes. Retail investors might have been forced to sell their stock due to limits on the number of shareholders allowed for a privately held company.
“The sentiment, in a nutshell, was ‘please don’t do this,’ ” Musk wrote.
Musk had hoped that going private would reduce the sniping from short-sellers and allow Tesla to focus on ramping up production of its Model 3 electric car and becoming profitable. That’s the way things have worked out for SpaceX, Musk’s other major venture, which has always been a privately held venture. But Musk said a closer look at the requirements showed that the process for Tesla “would be even more time-consuming and distracting than initially anticipated.”
All this was too much for Musk, even though he said the analysis reinforced his belief “that there is more than enough funding to take Tesla private.”
“After considering all of these factors, I met with Tesla’s Board of Directors yesterday and let them know that I believe the better path is for Tesla to remain public,” Musk wrote. “The Board indicated that they agree.”
In a tweet, Musk added that most of Tesla’s investors “were supportive of optimizing for long-term value creation over quarterly earnings.”
“This was also a factor in remaining public,” Musk said.
It’s not clear that this is the end of the controversy. SEC regulators might well continue to be concerned that Musk’s initial comments led to a dramatic run-up in share prices, to nearly $380, followed by a drop to as low as $305.50. The stock is currently trading at a little more than $322 a share.
Regulators would want to make sure that there was no intent to manipulate stock prices during the back-and-forth over going private vs. staying public. And Musk’s “funding secured” comment could still get him in hot water. The situation is likely to become clearer when the work week gets going on Monday.
Here’s the full text of Musk’s posting, titled “Staying Public”:
“Earlier this month, I announced that I was considering taking Tesla private. As part of the process, it was important to understand whether our current investors believed this would be a good strategic move and whether they would want to participate in a private Tesla.
“Our investors are extremely important to me. Almost all have stuck with us from the time we went public in 2010 when we had no cars in production and only a vision of what we wanted to be. They believe strongly in our mission to advance sustainable energy and care deeply about our success.
“I worked with Silver Lake, Goldman Sachs and Morgan Stanley, who have world-class expertise in these matters, to consider the many factors that would come into play in taking Tesla private, and to process all the incoming interest that we received from investors to fund a go-private transaction. I also spent considerable time listening to current shareholders, large and small, to understand what they think would be in the best long-term interests of Tesla.
“Based on all the discussions that have taken place over the last couple of weeks and a thorough consideration of what is best for the company, a few things are clear to me:
- Given the feedback I’ve received, it’s apparent that most of Tesla’s existing shareholders believe we are better off as a public company. Additionally, a number of institutional shareholders have explained that they have internal compliance issues that limit how much they can invest in a private company. 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.”
- I knew the process of going private would be challenging, but it’s clear that it would be even more time-consuming and distracting than initially anticipated. This is a problem because we absolutely must stay focused on ramping Model 3 and becoming profitable. We will not achieve our mission of advancing sustainable energy unless we are also financially sustainable.
- That said, my belief that there is more than enough funding to take Tesla private was reinforced during this process.
“After considering all of these factors, I met with Tesla’s Board of Directors yesterday and let them know that I believe the better path is for Tesla to remain public. The Board indicated that they agree.
“Moving forward, we will continue to focus on what matters most: building products that people love and that make a difference to the shared future of life on Earth. We’ve shown that we can make great sustainable energy products, and we now need to show that we can be sustainably profitable. With all the progress we’ve made on Model 3, we’re positioned to do this, and that’s what the team and I are going to be putting all of our efforts toward.
“Thank you to all of our investors, customers and employees for the support you’ve given our company. I’m incredibly excited to continue leading Tesla as a public company. It is a privilege.”