The Company which was on the edge of going bankrupt became the world's most valuable car company. Well, let's go through how this miracle happened.
First, let's see some current status of Tesla:
- Tesla has defied all expectations in 2020, minting a market cap of more than $600 billion after an epic stock-market rally.
- Tesla is now the world's most valuable carmaker, reminding us that CEO Elon Musk's 2018 attempt to take the company private was not one of his better decisions.
- After an SEC investigation, Tesla and Musk were fined $40 million, and the company is now worth far more than that $420 per share that Musk proposed as the buyout price.
With those two innocuous words, tweeted in 2018, Tesla CEO Elon Musk made the dumbest wager of his entire career because of the leader of the world's most famous electric company.
It was the opening salvo during a battle to require Tesla private. the corporate had staged a comparatively routine IPO in 2010, raising just over $260 million, but by 2013, its stock price began to ascend rapidly because the upstart automaker thrust its Model S sedan plus Model X SUV.
By the time Musk unveiled his take-private scheme, Tesla had seen its stock price rise and fall in wildly volatile patterns; a permanent war had broken out between prominent short-sellers and steadfast Wall Street bulls; the company's market cap had exceeded established carmakers like Ford that had been in business for quite a century and sold many more vehicles; and therefore the Model 3, an effort to expand into the mass market, had endured numerous delays. Musk was at the top of his rope, but he did find the wit to supply a pot joke about the go-private, per-share price: $420.
His desire to delist Tesla wasn't news. A wide-ranging 2017 interview in Rolling Stone with Neil Strauss had telegraphed his intentions. "I wish we might be private with Tesla," he said. "It actually makes us less efficient to be a public company."
Sometimes, the guts outraces the top , and for Musk — an often emotional leader, the antidote to the steely MBA types who dominate the business world — this was one among those times. He appeared to think he could wrangle enough money out of a big source of capital, perhaps the Saudi sovereign wealth fund, to shop for out Tesla's retail and institutional shareholders. He also thought he could avoid discouraging heavy-duty Tesla bulls, who thought that the company's share price had only begun to satisfy its expectations.
The overarching goal was to specialize in the master plan: accelerate humanity's exit from the fossil-fuel era. Roughly 40,000 people were working for Tesla, and Musk was disgusted them being exposed to near-constant negative scrutiny. Notable shorts like Jim Chanos, who correctly foretold Enron's collapse, had labeled Tesla "structurally bankrupt." for each Tesla-boosting blog or YouTuber, there was a dogged finance or tech reporter prospecting for the bad news.
Going private would end the madness, Musk thought. The painful quarterly earnings call with Wall Street analysts, half who thought Tesla was severely overvalued, would be no more. Tesla could stop returning to the investment banks twice a year to conduct new capital raises.
Shortly after Musk fired off his infamous tweet, the stock spiked. Then, over the subsequent days and weeks, a deal that was largely speculative and left many blanks unfilled fell apart. The SEC investigated, determining that Musk used his position as Tesla's communicator-in-chief to commit fraud; the agency fined him and Tesla $20 million each and made Musk to offer up his chairman title.
In the end, it didn't matter. Tesla survived the ordeal. In 2020, the stock went on an epic rally, rising over 700% and minting a market cap that, at quite $600 billion, has made Tesla the world's most precious automaker. Shares split five-for-one, and by the top of the year, Tesla had joined the S&P 500 Index. With shares trading above $700, that old $420 price looked shortsighted.
Musk conceded in December that taking Tesla private now would be "impossible," but he didn't completely reverse his enthusiasm for the thought . like many Silicon Valley CEOs, he detests the impact that going public can wear a company's ability to hunker down and innovate. Tasking wild chances simply risk an excessive amount of revenue and might undermine the narrow profits that have underpinned optimism about Tesla's future growth.
His motives are understandable, but they ought to be considered within the context of the various times that Musk has been wrong. His bad ideas — fully automated Model 3 assembly — are usually overcome by his good ones, like reinventing the planning of lithium-ion battery cells
But "funding secured" was a howler because it had been out of character. For once, never-surrender Elon was running up a flag of truce . it had been left to Tesla warriors within the wider world to argue that it might be better to observe Tesla's business, and stock price, grow as a public company. They were playing offense while Musk was folding himself into a battered defensive crouch after witnessing the Model 3 "production hell" debacle almost bankrupt the corporate for the second time in its history.
Impressive leaders make bad decisions all the time. Napoleon shouldn't have invaded Russia. Barack Obama allowed high unemployment to harm the American worker too a few years after the 2009 financial crisis.
What's key's to form peace with the bad choice, assuming it doesn't cause Endsville. That which doesn't kill me makes me stronger, to invoke Nietzsche's notorious aphorism. In Tesla's case, the marketplace for Tesla vehicles and its stock has shown abundant confidence in what Musk has accomplished — quite Musk, even, because the CEO demonstrated in his hour of darkness.
It was the stupidest move of his life, but he more or less got away with it. But one hopes he thinks twice next time he's confronted with a crisis of the guts that overwhelms his head.