Published: Wed, August 08, 2018
Markets | By Erika Turner

Tesla boss Musk considering taking firm private

Tesla boss Musk considering taking firm private

Musk, the CEO and largest shareholder of the electric auto maker, said on Twitter on Tuesday that he has secured private funding. The stock rallied 11% on the day, burning short sellers, who Musk has publicly blasted, to the tune of $1.32 billion per S3 Partners and sending many investors scrambling.

Trading of Tesla sharesresumed after the company published the statement and the stock closed at $379.57, up almost 11 percent for the day.

If the company were to go private, Musk said neither he, nor any current shareholder, would have a controlling vote in the new system. The California vehicle maker has burned through US$1.8-billion in the first half of 2018 and is among the most-shorted stocks on the USA markets.

"Tesla's volatility makes it more of a trading stock than a value play", said Ihor Dusaniwsky, head of research at S3 in NY.

The company has only posted a quarterly profit twice in its history and has never made money during an entire calendar year, something that Musk has been trying to change by cutting costs, including recent mass layoffs that trimmed Tesla's workforce by 9 percent.

The bombshell proposal to take the electric auto maker private prompted regulators to take the unusual step early Tuesday afternoon of suspending trading in the company's stock.

A deal at $420 per share represents a 22.8pc premium to Tesla's closing price on Monday, valuing the company at about $72bn.

In an interview with Bloomberg News in January 2015, he spoke of the benefits of running his closely held rocket company Space Exploration Technologies Corp. and his frustrations with having taken Tesla public in June 2010.

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And since his tweet, he's elaborated on the idea and shared a blog post explaining that he's quite serious.

The number of shares borrowed to sell the stock short stands at 33.8 million shares, according to data compiled by IHS Markit, meaning that Musk's tweet alone sent a $US783 million shock through the bear patch.

Mr Musk has previously discussed the drawbacks of being a public company, saying shareholder demands often produce short-term thinking. It is also the only auto maker building cars (some of them) under a tent, as Tesla strains to crank out cars for Model 3 buyers in the waiting line to buy and collect tax credits.

He shared more details in a series of Twitter replies, noting that should Tesla go private, he'd remain in his role as founder and CEO of Tesla.

The CEO apologized to those analysts during the second quarter call.

Shares were pummeled in May after Musk abruptly cut off questions from Wall Street analysts over Tesla's spending plans.

For example, one block of 714 Tesla call options, betting on the shares rising above US$365 by the end of the week, were bought for 85 cents, for a total outlay of US$60,690 on Tuesday.

In his letter to employees, Musk also pointed to pressure from short sellers as a major downside to being a public company.

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