Elon Musk — a (financial) engineering wizard?

In case you live in a cave, we’ll tell you the news: Elon Musk announced his bold intentions to take Tesla private and focus on creating value, rather than getting distracted with the stock price. Amazing, right? The move has several pros and cons, but meanwhile my Facebook and LinkedIn wall is full of “what an amazing CEO!!!” posts, praising yet again the trendiest tech visionary of our times.

But outside of Silicon Valley and tech scene, Elon Musk is the guy that people love to hate. An army of shortsellers became Musk’s direct foe. Investors get annoyed with his Trump-style Twitter wars. Financial analysts are tired of his overpromising and underdelivering (btw, those guys really miss Steve Jobs’ underpromising and overdelivering). And now he is apparently pulling another financial engineering stunt.

There are several pros to taking a company private, at least for a CEO like Elon, but the main question on the lips of everyone familiar with the Leveraged Buyout definition is “can this fly???”. It would be the largest company to be taken private and someone would need to write a check to any existing investor who is either unwilling to keep his stake in an unlisted company or satisfied with $420 share price and ready cash out. This means that by “funding secured” Musk means someone has committed around $50bn in equity or debt for this endeavor. A bluff is another option, that would be highly unprofessional and potentially a SEC-rules violation, and we wouldn’t expect Musk to act like this. 😛

But let’s go through some options of who could be the mysterious friend:

Softbank’s Vision Fund: with over $100bn to invest, 300-years investment horizon and previous investments in the mobility space (Uber, Didi Chuxing, Ola), Softbank is the best candidate to pay for Elon Musk’s breakup from Wall Street. The main concern here is that Softbank apparently thinks Tesla is overvalued, or at least that is what it’s been reported. But again, one can expect anything from a player with such financial muscles who wrote a $4.4bn ticket to WeWorks at $35bn valuation.

Saudi Arabia’s sovereign wealth fund (PIF): it’s almost suspicious that Musk’s announcement comes immediately after PIF’s disclosure of a 5% stake in Tesla. PIF, along with a number of other similar players (Singapore’s Temasek and GIC, Abu Dhabi’s Mubadala, Qatari and Chinese sovereign wealth funds) could afford this ticket, if not for all sort of regulatory restrictions. An investment of this size from a foreign player will be definitely scrutinized by Committee on Foreign Investment in the US.

Silicon Valley friends: Could Google, Apple or “Paypal mafia” be behind all of this? Some claim that Tesla’s AI focus and all that real-world driving data that they gathered are making the car company a great target for the usual Californian techies. Musk is a close friend to Larry Page, Peter Thiel & Co and has previously been in talks with them on this topic, but it’s unsure whether they would be able to call on such a sizable bet. Apple has around $200bn in the vaults and could easily cover the bill. But whether any of these has the willingness to get in bed with Musk at this moment in time, remains a (50) billion dollar question.

Banks and private equity: Banks have funded previously leveraged buyouts of this shape and they have the expertise of doing it again. There in one problem though - Tesla’s cash flow. All the LBOs in the past had companies with solid earnings and the total funding would be calculated as a multiple of EBITDA (earnings before interest, taxes, depreciatiion and amortisation). In Tesla’s case that’s a tough one to pull.

Another car producer: The traditional car makers aren’t just watching Tesla’s progress on EVs. Daimler, BMW, VW, Ford are launching new electric models and building charging networks taking advantage of the second mover’s advantage. In fact, the real war might be not Tesla vs shortsellers, but Tesla vs competition. However, from the long list of car manufacturers, there might be one who realized that they are too late to the party and the only chance is a stake and partnership with Tesla.

I guess only time will tell whether funding is trully secured and who is the big player happy to join Musk’s on the electric vision. In any case, this deal would add a new achievement to his CV, as such a feat would be a masterpiece of financial engineering.