Published: Thu, August 09, 2018
Markets | By Erika Turner

Elon Musk’s Tesla stock boost may lower financial pressures for the carmaker

Elon Musk’s Tesla stock boost may lower financial pressures for the carmaker

Tesla CEO Elon Musk is seeking relief from the pressures of running a publicly held company with a US$72 billion (NZ$108 billion) buyout of the electric vehicle maker, but he may be acquiring new headaches with his peculiar handling of the proposed deal. In his first tweet he said funding was secured but provided no details.

Tesla's board, a nine-member group that includes Musk's younger brother Kimbal, issued a belated statement Wednesday morning saying Musk had "opened a discussion" last week with the board about the benefits of taking Tesla private.

James Anderson, a leading fund manager at the Edinburgh-based Baillie Gifford, which owns $4 billion worth of Tesla stock, told The Times that while the company's prospects were uncertain, its value was "much higher than $420 a share, probability-adjusted".

But as the dust settles on Musk's latest Twitter escapade, questions remain over whether the Tesla chief executive broke SEC guidelines by tweeting the news.

By taking Tesla private, Musk believes that the company will be able to sharpen its long-term focus of revolutionizing an automobile industry dominated by fuel-combustion vehicles without having to cater to investors' fixation on how the business is faring from one quarter to the next. Many initially thought it was Elon Musk's attempt at a bad joke about marijuana, because "420" has always been associated with pot.

In a Wednesday research note, Morgan Stanley analyst Adam Jonas estimated Tesla will end up taking on about US$50b in additional debt if the company goes private. The company declined to comment beyond pointing to an all-employee email sent Tuesday by Musk.

If we turn to the Street in general, we can see that Wall Street has a neutral point of view on Tesla, with TipRanks analytics exhibiting TSLA as a Hold. However, they may balk if Tesla becomes even more leveraged and risky in the process of going private.

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It is unclear what, if any, implications the move has for existing trade ties between the two countries. Riyadh accused Ottawa on Tuesday of interfering in its internal affairs.

Net net, Rusch reiterates an Outperform rating on Tesla shares, with a price target of $385, which represents a slight upside potential from current levels.

The company is still working its way out of what Mr Musk called "production hell" at its home factory in California, where a series of manufacturing challenges delayed the ramp-up of production of its new Model 3 sedan, on which the company's profitability rests.

Musk has feuded publicly with regulators, critics, short sellers and reporters, and some analysts suggested that less transparency would be welcomed by Musk.

He's also Tesla's largest shareholder.

Despite the board's statement, it was clear early Wednesday that the euphoria had worn off over Musk's bold claim that he had the funding secured to take the electric-car maker private.

Other board members mentioned in the statement included Robyn Denholm, Ira Ehrenpreis, Antonio Gracias and Linda Johnson Rice.

No board member has come forward to back the plan.

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