A Visionary, a Prince, and the Privatization of Tesla
Knowing the key players:
Profitability isn't a top priority for Tesla's CEO, working on technologies that advance humanity is.
At heart Musk is an engineer and visionary, a Leonardo Da Vinci type, solving engineering problems is one of the key things that makes Elon Musk happy. Running a business and making a profit, not so much. Still Elon Musk is undoubtedly one of the most radical innovators in the world today, and he is determined to drag it forward into a better future at all costs.
Prince Alwaleed bin Talal
Alwaleed owns chunks of private and public companies in the U.S., Europe and the Middle East through Kingdom Holding Co., holdings include stakes in Lyft, Twitter, Apple, Fox, Citigroup, Four Seasons Hotels & Resorts, Hotel George V in Paris and the Savoy Hotel in London. Outside of Kingdom Holding, the Prince owns real estate in Saudi Arabia, the entertainment firm Rotana, and other assets. Alwaleed joined Bill Gates' Breakthrough Energy Coalition with the promise of a $50 million investment.
He wants to reduce Saudi Arabia's dependence on oil revenue. A year ago he was put under arrest during Saudi Arabia's ‘anti-corruption’ crackdown, which I believe has altered his perspectives, and given a sense of urgency, or more intense focus, to his efforts.
This is about more than cars.
Many people forget, and some don’t even know, that Solar City was absorbed by Tesla a couple years back. For a long time, one of the biggest problems faced by the renewable energy sector was storing power. Having spent a decade developing cutting-edge battery systems, Tesla has developed technology for large scalable batteries for power grids. Called Powerpacks, these energy storage systems can function as independent ‘microgrids’ and easily be integrated with renewable power production sources as well as to to enhance the reliability and efficiency of existing power grids.
Glimpses of the Powerpacks’ potential has been seen recently. An emergency deployment of energy storage systems to Puerto Rico after the devastation of hurricane Maria, and a 100MW power project (linked to a wind farm) in Australia are two examples.
Tesla (Solar City) has also been one of the key players in the production of solar power plants. The company has deployed several solar power projects servicing entire municipalities, enterprises, and agriculture and water districts. Tesla’s commercial sector success has outpaced the efforts in residential homes since the merger. Then there is the Powerwall, a home battery that can be used to store energy produced by solar panels to provide an uninterrupted power supply. Tesla is in position to help mankind make the transition Musk has always envisioned, all he needs is some help in the way of funding.
A Life After Oil
Saudi billionaire investor Prince Alwaleed bin Talal told CNBC in October 2017 that electric cars will eventually curb the demand for oil.
"All other companies are going into the Tesla path of electric cars and even autonomous cars, … so five, ten years [from now] there is no doubt the dependence on oil will diminish," he said in an interview on ‘Squawk Box.’
"Saudi Arabia's move to reduce its dependence on oil is very important and smart," he said. "We would like to celebrate when we export the last drop of oil and be dependent on other sources of wealth."
Alwaleed, noted cars account for more than 70 percent of oil consumption, so his country must prepare for a world with lower demand for oil. China and Europe are already much further along in this transition than the U.S. of A. China has spent billions on developing EV infrastructure. R&D grants for OEMs, suppliers and research institutions, charging infrastructure investments from SOEs and purchase subsidies and tax breaks for consumers, China’s EV efforts are akin to America’s efforts decades ago to have a gas station on every corner.
And Tesla just one month ago secured a deal with Chinese authorities to build an ambitious new car plant, Tesla’s first outside the US, in Shanghai’s free-trade zone. Making investing in Tesla that much more attractive to a sharp investor like Alwaleed.
Where are we now
Tesla’s largest individual owner with 20% of fully diluted shares, Musk has stated he lined up financing to go private. Earlier, the Financial Times newspaper reported that Saudi Arabia's sovereign wealth fund has taken a significant stake in Tesla.
Musk explained (not for the first time) his preference for private ownership on the Tesla site:
“As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter but not necessarily right for the long-term. Finally, as the most-shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.”
Two visionaries may have united. Musk has the engineering acumen and sheer will to bring his visions into existence, and Alwaleed has the financial wherewithal and foresight to invest in him to make it happen. What could possibly be better for a Prince looking to secure a future beyond oil, than investing into the man who is going to make oil obsolete?
But where is the 30 to 60 Billion needed to pull this off going to come from?
SOVEREIGN WEALTH FUNDS
One option to fund this effort to go private could be sovereign wealth funds.
Saudi Arabia’s Public Investment Fund has taken a stake of almost 5% in Tesla.
China’s Tencent Holdings which took a 5% stake in Tesla as well, is another possible partner.
What is unclear is how this transition to private would be set up so that the thousands of Tesla shareholders could remain invested through a special purpose vehicle in some way.
Also it is not clear whether what Musk termed “liquidity events”, such as he said is organized for SpaceX every six months, would be sufficient for all existing Tesla investors to cash out.
But it wouldn't shock me to see Musk pioneer somewhat new grounds in going from public to private, it has been done before (see comparisons in chart below), but this would certainly be a departure from the norm if it incorporates keeping those investors onboard, who want to stay onboard.
No one should be surprised if this all comes to pass however, Elon Musk being unconventional is anything but new, so an unorthodox move from public to private is just par for the course.
- Why Elon Musk could pull off his wild plan to take Tesla private - Business Insider
Elon Musk's plan to take Tesla private has generated a lot of buzz, and it has been met with a lot of skepticism. But there are several reasons why he might actually be able to pull off the deal.
- Here’s the lesson Michael Dell can teach Elon Musk about taking a company private - MarketWatch
The case for taking Tesla private may seem compelling — but check the data first, writes Mark Hulbert.
- Investors are overlooking this incredibly valuable part of Tesla’s business
ARK believes that analysts may be overlooking Tesla’s largest addressable market — autonomous mobility-as-a-service (MaaS). During its earnings call last week, Tesla (TSLA) introduced its Autopilot team for the first time.
© 2018 Ken Burgess