Tesla "Going Private" BLOWS UP And The Pressure IS ON — So, Now What?

If you had $72B dollars on hand, would you invest it all to buy out all the outstanding Tesla shares to own 100% of the company? If not then you should probably not own any of the stock. Once the big players get in...it's over.

Model 3 is selling hand over fist. Owners love them. In the end, that's all that really matters. I don't foresee any serious problems.

Tesla SAYS it's selling hand over fist.

I'm glad this plan blew up, really looking forward to the Q3 earnings announcement. Bloomberg has been tracking Model 3 production closely and pretty accurately so far. Looks like they are now over 6,000 Model 3s per week.

It was never really a thought out plan, more the late night musing of a CEO who really should stay away from Twitter (like other leaders). The shareholders have spoken, loud and clear. They believe in the plan, the product, the BEV market and in Musk. There is no other reason for this move. As well they have to believe as one analyst said, the stock could be worth 10X what it is if they stay the course. What would I do? I would announce a stock split, 1:4. $350-$400 is too expensive for most retail investors. Demand will drive the stock back up and I would split it again (and again).

Not so sure the shareholders believe, but rather a number of the large institutions cannot own shares in a private company. Musk's estimate of the number who would keep their shares was likely way too high and therefore he would have to use a lot of the cash he doesn't have.

Stock split is a good idea and a strategy used over the years by successful tech companies.

The biggest issue is most retail investors are not allowed to hold private company stock, especially overseas. Also, there are institutional limits on holding private stock. I was curious how he was going to pull this off.

On to Chapter 11.

Now the 'sad' part starts. The puff is almost all gone.

Musk's story arc is starting to mirror Trumps - the one reality that is coming out of Musk's mouth, which people believed for a time, is being crowded out to all the significant evidence to the contrary. Once credibility is gone, its virtually impossible to get it back.

Look for more layoffs and more disgruntled employees and "supply chain problems" (which will be blamed on external things like the weather but which really are suppliers refusing to extend further credit to Tesla) - those will be the early signs of the death spiral.

#Enron2.0

Its the "sad part" because a lot of people will lose their jobs if this happens and a lot of suppliers will end up being owed lots of money with no hopes of repayment.

Hope it doesn't happen, but signs are not good. There will be a lot of pain.

Oh, and then there is the issue of the people whose cars will turn into doorstops if Tesla factory support starts functioning.

Look at Tesla's working capital stats and make up your own minds.

Not sure what alternate reality you are living in. Even at the current burn rate, if they raise no additional funding or loans, they would have 3 quarters. 4 if you factor in one-time costs. Sales (with gross margin) are going to be dramatically higher this quarter... obviously they are nowhere near Chapter 11.

I was split with the decision to go private. I have long term holding for the future and short-term holding for trading. While the short term volatility makes the trading interesting, going private would be good for Tesla's growth strategy since their decisions will not be affected by investor sentiments. The reality is investors including institutions don't set long term goals anymore. ETF funds are getting popular over mutual funds. People with 401K now are more active with their investments and do their own trading rather than staying with mutual funds. I think this has some effect in the decision for the large institutions not to support the going private plan.

Going private or not, Tesla needs to focus on their executions and produce top notch products. They have so many projects to take on: Model Y, Semi trucks, Pickup truck, Roaster 2, ... All are key disruptors in their segments.

With the company staying public, the growing pain will probably be longer for the fickle investors. There is a trade-off between short term profitability and the need for capital to accelerate growth. Stock price will certainly remain volatile, detractors will continue to attack and be more creative with their FUDs. Autospies will continue to post 2/3 of its articles about Tesla and many of its readers will continue to be upset with Tesla doing the impossible and getting it done.

Going private is sometimes a Hail Mary for a corporation to avoid bankruptcy. Given Tesla's precarious financial state, the buzzards are circling.

Boy is it!

Face it - there NEVER was a real plan to go private - what happened was simply a "wet dream" of an entrepreneur who really does not understand what doing this would entail. That he opened up his mouth STILL will have repercussions with both the SEC - and with Class Action Suits - which will cost Musk a lot of money in fines at least.

Eventually - add a class action suit from the people who gave deposits on the Base model 3 - IF they start to spend money to produce other product first. ANd I would expect that lots of them will simply take their money back.

In the EV field - Tesla has a rough stretch ahead. It will lose the federal tax incentives for customers buying their car - JUST WHEN there will be other competition that STILL has Tax incentives available. A $7500 price disadvantage that GM and Nissan will also have. Selling TEsla cars will be a hard sell at that time.

@TomM - I don't see the disappearing tax credit as in issue. The Tesla product is in the premium segment and trades at those rates with no discounting. There is no cross shopping available at this time. Nobody is going to compare a Model 3 to a Leaf or a Prius. Porsche will make very few Taycan's for global consumption. Likely the same with Audi. If Tesla can secure more funding it will continue forward. But that is a big if. Cashflow is king in business. Everything else is secondary.

I think there WAS a plan and the Saudis were going to fund it, but Elon jumped the gun and put Tesla in legal jeopardy causing the Saudis to go elsewhere.

@MD - I think the Saudi's did express interest in the past for sure. But it may be a stretch to say there was a detailed plan related to going private. Too bad really as I have read they will invest elsewhere now. Apple has as much money as the Saudi fund, but instead, they are going to waste a fortune, maybe $100B USD on stock buybacks.

CC. If the Apple Board believes a stock buyback has a higher ROI than investing in Tesla they have an obligation to Apple shareholders to take that route. Tesla's lower gross margin would do damage to Apple's stock value, not to mention a huge cash suck.

@Vette71 - True on the Tesla side, but there is no benefit to stock buybacks. They give a slight lift to stock prices and allow for executive bonuses, fudge P/E ratios as well as give an out to some shareholders willing to sell. They do not move any corporation forward. There are far greater uses for $100B than this. I would make the water in Flint Michigan clean (as well as many other US-based projects) before I agreed to $100B for stock buybacks if I was the CEO.

@CC did you not notice the Saudis suddenly investing in another EV company in the past week?

CC - I disagree - Only SOME of the Tesla product is aimed at the premium segment - the Model 3 is NOT a premium product by any means. The interior is certainly not luxurious. As far as attaining the premium segment - sorry - but that did not happen - yet. Tesla is still down the list somewhere - there is little prestige in having a model S - and there is NO exclusivity in having a Model 3.

And I do see the tax rebate being a problem because there will be TRUE premiums in the mix - that will be able to offer them - AND offer the convenience of a local dealer for service. I note that one of the reasons why the Model 3 is more expensive to insure - remains the cost of tows- to a Body shop - and then to a Tesla service facility to have the "repairs" checked and IF THEY APPROVE they will reset your computer so your car will run - and they HAVE refused to do that when the repairs were done by a non-authorized repair facility and the repairs were done with used parts.

As far as taking Tesla Private - the price of Tesla right now is WAY beyond what is logical for the market. These levels are not sustainable - will eventually have to be based on a p/e multiple - which will not approach these current levels - and there is not Multi-Billion dollar investment house that would consider putting out that amount for Tesla. Currently - Tesla could not even afford to service the debt.

The days of Musk getting a pass on unrealistic predictions are over. Every statement and promise he makes will be scrutinized, challenged and revisited going forward. Any misses will put increased pressure on the stock price and him personally beyond even this resent faux pa.

The company is structurally bankrupt already. Working capital is negative $2 billion (no other S&P 500 company has Current Assets less than Current Liabilities). A capital raise is necessary and existing investors will get crushed in the dilution.

Great point. Those who talk about cash lasting for 3 or 4 quarters are missing the point. You can't let it go to zero, but need to maintain a decent level at all times. The working capital issue already has suppliers worried about getting paid, so they will start demanding cash up front, adding further strain. And the list goes on as to how difficult it will get. Instead of all this talk about going private Musk would have been better off to raise another round in July. Yes dilutive but the faithful shareholders would have accepted that as necessary to reach the dream.

What "going private"? The stock manipulation to try and screw TSLA shorts who apparently feel the stock's overvalued since the only thing Tesla's shipping on schedule is Musk's hype?

Elon Musk has proved himself to be a congenital liar.