Reactions To Tesla Plan To Go Private Range From 'Crazy' To 'Bring It On'

(Photo by Smith Collection/Gado/Getty Images)

The snap judgment from industry observers on Tesla’s plan to go private ranged from that it was crazy, it will never happen, to some who thought it was a great idea, but it seems clear the $420 per share price offer is not nearly enough.

Tesla CEO Elon Musk tweeted Tuesday that he planned to take the company private if shareholders approved, at a price of $420 a share, with funding assured. The shares rose 11% to close at $379.57. Musk said as a public company it was subjected to wild swings in the share price, and attack from short-sellers.

Berenberg Bank of Hamburg, Germany, liked the idea but said the offer price should be $500. Going private would remove Tesla from day to day examination and lift pressure on its development, and have wide-ranging implications for the rest of the automotive industry.

“It removes Tesla from the glare of the public market’s short-termism, allowing the company easier access to funding sources that are more aligned with Mr Musk’s longer term ambitions,” said Berenberg Bank analyst Alexander Haissl.

Going private would also make it a more difficult rival for traditional manufacturers.

“Firstly, the company will be much better placed to execute its expansion plans, such as in China and Europe, with potentially accelerated time-frames. That means Tesla competitors may have even less time to produce viable alternatives, or risk losing significant market share,” Haissl said.

Not everybody thinks Tesla will have its own way in the electric car world for much longer.

In July, PA Consulting said in a report Tesla’s leadership will end by 2021 as Mercedes-Benz claims the lead, followed by BMW, the Renault Alliance and Volkswagen. Tesla will only be in 7th place by 2021, also behind Volvo and Toyota, according to the report, which ranked electric automakers according to their strategy, battery technology, culture, supplier networks, partnerships and financial performance.

Long-term Tesla critic, the Wall Street Journal’s Heard on the Street columnist Charley Grant, said Musk’s claim that Tesla needed to get out of public markets to avoid short-termism didn’t add up.

“That claim borders on the bizarre: Tesla has benefited hugely from public markets, which have given it a huge valuation that allowed it to raise significant amounts of capital. Those public investors have also been willing to look past years of operating losses,” Grant said.

“Tuesday’s tweet could be the start of one of the greatest financial dramas in history. But given Tesla’s history of dramas, don’t be surprised if the frenzy turns out to be just another weird day in the life of the world’s craziest car company,” Grant said.

Investment researcher Jefferies liked the idea and said going private felt like the right thing to do.

“Distraction or not, the move feels right even if Musk is downplaying how supportive public markets have been,” Jefferies analyst Philippe Houchois said.

Evercore ISI believed Musk meant what he said.

“We believe Musk’s intent is serious and genuine,” said Evercore ISI analyst George Galliers.

Galliers wasn’t convinced Musk’s claim that funding was assured meant that all the details had been agreed. Musk had long claimed that going private would be better for Tesla, and quoted an interview with Rolling Stone last year.

Galliers said going private could give Tesla more funds to grow faster internationally, and insurance against a U.S. recession when public funding might dry up.

Berenberg Bank’s Haissl sees big long-term benefits to Tesla.

“Although a premium of around 20% to Monday’s close would offer shareholders some near-term upside, the fundamental value of the company is significantly higher, in our view. Under private ownership, an acceleration of expansion plans could unlock Tesla’s full potential value much earlier than anticipated,” Haissl said.

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