Tesla shares tumbled more than 4 percent Monday after the electric car maker said it was hitting the brakes on CEO Elon Musk’s idea to take the company private — and reports that Volkswagen was among the interested investors.
Musk said in a late-Friday blog post that he and Tesla’s board agreed Thursday to scrap plans he had hinted at in an Aug. 7 tweet that claimed he had “funding secured” to take Tesla private at $420 a share. Shareholders were less than enthusiastic, Musk admitted.
“The sentiment, in a nutshell, was “please don’t do this,” Musk wrote.
Tesla shares on Monday were recently off 3.5 percent at $311.45.
Musk blinked partly because pulling off a buyout might require getting into bed with competitors, according to the Wall Street Journal, which reported that German car giant Volkswagen was prepared to team up with Silver Lake to invest as much as $30 billion into the endeavor.
Musk has long been “deeply suspicious” of traditional car companies, and was not keen on having to answer to Volkswagen, according to the paper.
Tesla also said on Sunday it was not searching for a chief operating officer — a No. 2 executive that critics claim Musk badly needs, as his micromanaging ways have lately led to him to sleep on the floor of Tesla’s factory in Fremont, Calif.
“While we are always looking for highly talented executives (…) there is no active COO search,” a spokesman said by email.
Analysts, meanwhile, questioned Musk’s credibility in the face of a possible investigation by the US Securities and Exchange Commission into the Aug. 7 tweet.
“Musk’s involvement in the company is critical, but now more than ever a solid #2 — someone with strong operational background that can help Tesla move from ideas to execution — is crucial,” analyst Joseph Spak from RBC Capital Markets wrote in a client note.
With Musk’s idea for a buyout backed by Saudi Arabia’s sovereign wealth fund now off the table, attention was zeroing in on Tesla’s efforts to become profitable, its cash reserves and what steps Musk could take to raise fresh capital.
Tesla had $2.78 billion in cash at the end of the second quarter, after a record $718 million loss.
In early August, before the buyout plan was made public, Tesla reiterated a forecast that it would achieve a profit in the third and fourth quarters, under normal accounting rules, and Musk said the company would not need to raise more cash.
A Tesla spokesman on Sunday also referred back to those previous comments.
“With its long term mission intact but short term growth shaky, serious gaps in execution skills and a board under pressure for not assuming its duties, now may be the time for third parties to get involved, be it from technology or even oil,” Jefferies analyst Philippe Houchois told clients.
One of Tesla’s biggest challenges is ramping up production of its latest vehicle, the Model 3, which is critical to its profitability goals.
With Reuters
