Where Would Tesla Be If Musk Had Taken It Private?

Joe Cecala
Dec 18, 2019 · 4 min read
Daniel Oberhaus — Self-photographed

Even for a life as dramatic as Elon Musk’s, the furor caused by a single tweet was remarkable. Back in August 2018, the then-CEO of Tesla announced via Twitter that he had secured funding to take the company into private ownership, and that plans to do so were already in motion.

Given the reaction this immediately caused, we’re still left somewhat in doubt as to what his motivation originally was. As with most things Musk-related, there’s plenty of myth and speculation.

Maybe his tweet was an elaborate joke that got out of hand, an idea supported by the quoted $420 share valuation apparently referencing cannabis culture.

More deviously, perhaps he wanted to take a slice out of the shorters who plague Tesla shares — a result he initially achieved, as the price rocketed.

However, the most straightforward reason is probably also the most realistic: Musk was simply musing about the real benefits Tesla would gain from going private, and his ill-thought-out, premature tweet took on a life of its own.

The upshot, of course, was legal trouble, fines, and Musk ultimately losing his place as head of Tesla. But what would have happened to the company if Musk had shown a more measured approach and actually taken Tesla private?

Public vs. private companies

As a public company, Tesla must abide by strict rules meant to protect the interest of its shareholders and the wider stock market. Public companies need to produce monthly reports and quarterly filings, where their full financial status is laid out in the open.

In itself, this openness and scrutiny isn’t something a mercurial character like Musk would readily enjoy. Transparency does help investors make informed decisions and is an essential part of telling the truth about company operations. However, the issue of transparency has caused Tesla greater problems than just that.

Public company reports are pored over by investors and business commentators alike, and every perceived weakness can drive the share price down. Critical and uninformed investment analysis can wrongfully impact long term planning for innovative public companies. Short-sellers love bad news and most innovations are filled with nothing but error after trial and error again. Great things often take time — failures precede successes. Short-term focus on profit can alter long term plans for innovative companies. This creates instability, and encourages short-term measures designed more to support the company valuation rather than powerful, long-term strategy. If anything, Musk cannot be considered to have a short-term focus.

In comparison, private companies have far more freedom to plan for the long term. There’s no need to make every detail of the company’s financial or operational performance public with a deadline. Decisions that would perhaps dismay impatient investors can be quietly considered behind the scenes, without impacting the company’s value.

The example of SpaceX

One example of the benefits of private status is shown by another Musk company: SpaceX. Without the constant pressure of share prices to worry about, with SpaceX Musk can pursue his unlikely vision, and eventually achieve results seemingly straight out of science fiction.

In terms of Tesla, going private would have allowed Musk to concentrate on his original plan for the company as a luxury manufacturer. It could continue producing small numbers of high-end cars, while developing the underlying technology until it was ready for the mass market.

The announcement of the lower-cost Model 3 went against this strategy, and was largely aimed at bringing in short-term revenues to offset losses and calm the fears of investors.

Unfortunately, the opposite happened, with production delays and low unit numbers damaging both confidence in the company as well as share value. In this atmosphere, every aspect of Musk’s singular character become the source of even more scrutiny and hype, putting further strain on the company’s reputation.

There’s no real doubt that Musk will eventually bring Tesla to the level he desires. However, going private would have sped this up enormously, removing distractions along the way and letting Musk stay true to his original vision. In that sense, the whole debacle stands as an interesting lesson to entrepreneurs who probably wondered what on earth would motivate Musk to make such a seemingly careless error. One could argue that he lacked as much patience as the investing public in his desire to insta-publish.

It also serves to illustrate an important lesson in public relations, especially where insta-publish platforms like Twitter are concerned: Regardless of your company or organization’s legal standing, some things ought to stay private.

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Joe Cecala

Written by

Joe is an internationally recognized expert in the area of capital markets & capital formation and structuring | CEO of Dream Exchange | https://dreamex.com

The Startup

Get smarter at building your thing. Follow to join The Startup’s +8 million monthly readers & +792K followers.

Joe Cecala

Written by

Joe is an internationally recognized expert in the area of capital markets & capital formation and structuring | CEO of Dream Exchange | https://dreamex.com

The Startup

Get smarter at building your thing. Follow to join The Startup’s +8 million monthly readers & +792K followers.

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