Image credit: Tesla.com
Fairmont Preparatory Academy

Elon Musk’s plan for Tesla

Elon Musk, business magnate and Tesla CEO, may be in trouble. On August 7, the CEO declared that he was considering taking his company private via Twitter. In addition, he claimed that the company had secured the proper funds for doing so.

Once Musk announced his plan, Wall Street banks scrambled to figure out how such a transaction might work. The CEO plans to take the company private at a price of $420 per share, evaluating the company at over $70 billion.

The traditional way for a company to go private is through a leveraged buyout where investors purchase all the outstanding shares.

However, according to Ronald A. Kahn, this is going to be very tough for Tesla. The company has never turned a profit and is burning through cash so quickly that it would be difficult to find banks or bond investors that would lend such a massive amount of money. “The numbers don’t work as it is. Why would anyone give him a few billion more?” Kahn said.

There is another possibility for Tesla: “going dark.” In this case, the company can buy out a large amount of shareholders in order to reduce the total number of investors who hold stock.

Musk could be in trouble, however. Unnamed sources from a Bloomberg report said Tesla is still attempting to gather the financial support necessary for going private. The report states that Tesla is still trying to gain funding from a large number of investors.

Musk tweeted “funding secured.” If this proves to be untrue, the CEO could be facing both civil and criminal penalties for security fraud.

Many believe that going private is a move in the right direction for the company. Musk believes that exposure to public markets makes the company vulnerable to short-term demands and bad-faith investments.

“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,” said Musk. Going private could be good for the mogul. Without the public watching over his every move, Elon could have the flexibility to push the ideas he wishes.

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