Elon Musk grumbles at short-sellers, but is private ownership right for Tesla? | Nils Pratley



Tesla’s Elon Musk isn’t the first chief executive to be infuriated by short-sellers, or to grumble about swings in the share price, or to complain that the outside world is stupidly obsessed by quarterly earnings figures. Prod most bosses of quoted companies and you’ll hear similar grumbles. The stock market can be ridiculously short-termist.

In Tesla’s case, the complaint sounds roughly fair. Musk declared in his email to staff that Tesla “is the most shorted stock in the history of the stock market”. Short positions have equated to 25% of the share capital, currently implying $10bn-plus of bets that the electric car company is over-valued or will fail.

Nor does the hostility land only at Musk’s door. One of the biggest and most loyal investors is Scottish Mortgage Investment Trust, a FTSE 100 company these days, and its co-manager, James Anderson, addressed the question of why Tesla is so hated in a blogpost last year. “At one stage last year I was receiving at least ten emails a week denouncing us for owning Tesla in savage words,” he wrote. “We were told, for instance, that we would be featured in ‘the mutual fund hall of shame’ as a consequence.”

Such threats of reputational damnation are absurd. Musk can be irascible and irritating – and his “pedo” tweet to the British diver involved in Thailand cave rescue was disgraceful. But Tesla itself, if it succeeds, could be a genuinely interesting company for a lower-cabon economy. Its battery technology already seems more socially useful than anything that has emerged from, say, Facebook. Risk-taking investors who are prepared to fund such innovation should be applauded. The “negative propaganda”, as Musk calls it, seems wildly overdone, even if he provokes half the noise himself when calls Wall Street analysts’ questions “bone-headed”.

But there are two key questions about the take-private plan. Can it be achieved? Is it wise?

A $70bn buy-out would be enormous and Musk has offered no evidence to support his “funding secured” boast, something regulators will surely investigate. But Tesla’s fan-club tends to be committed. Scottish Mortgage, T Rowe Price and Fidelity own about a quarter of the stock in aggregate and might be happy to climb aboard a private vehicle. Musk owns 20% itself.

Then there could be a whip-round among big backers to replace some of the shareholders who wish to sell at the proposed $420-a-share buy-out price. Saudi Arabia’s sovereign fund is a recent arrival on the register. Other sovereign wealth funds might be attracted. Then there’s Google, Apple, and Japan’s Softbank. All are flush with cash and unafraid to throw a few billions at capital-intensive projects for the long-term. A buy-out still sounds a stretch, but perhaps it could be done.

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The harder question to answer is whether private ownership would be really the paradise Musk seems to imagine. If the goal is to avoid distractions, then arranging and executing a $70bn deal seems an odd road to take. Even if new shareholders can be rounded up, the process will be fiddly and time-consuming. Fixing the hiccups on the production lines might be a better use of Musk’s time over the next year.

And what if, to fill the financing gaps, Tesla has to borrow heavily to get the buy-out across the line? The bark of short-sellers can be irritating, but banks and bondholders have bite in the form of legally enforceable rights of repayment. Musk should perhaps reflect that the rough and tumble of public markets hasn’t been pure hell. Capital has still flowed and his core group of shareholders has been prepared to ignore the scepticism. Life could be worse.

He should also consider how Amazon, and even little ol’ Ocado in the UK, rode out the short-selling brigade. Answer: management got on with the job, ignored the “dreamer” insults, and offered fewer performance targets that were hostages to fortune. It is still possible to succeed in the public markets.

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