Everything You Need to Know About Elon Musk Taking Tesla Private

Elon Musk and the Big Tesla Buyout

In 2010, electric car company Tesla, headed by CEO Elon Musk, became a publicly traded company. The company launched on the NASDAQ at only $17 a share. Right now — in mid-August 2018 — the stock is sitting at $305.50 a share. That might change dramatically in the not too distant future, though. Elon Musk has been talking about taking Tesla private, eight years after it launched on the public market. If the company chooses to go private, what do you need to know? Especially if you are currently a proud owner of some Tesla shares? What will this mean for the company in the future?

Should I Stay or Should I Go?

If the company does go private, current investors have two choices: they can either stay with the company as it makes this transition or they can choose to sell their shares before the change happens. For casual investors, the latter option might be more lucrative. If shareholders choose to sell, they’ll be able to sell their shares at $420 a share. Or instead, a full $115 more than the current share price.

For investors, the switch for Elon taking Tesla private means they’ll only be able to access their funds once or twice a year instead of being able to buy or sell whenever they please. If Musk decides on taking Tesla private, then the shares are no longer a liquid asset.

Experts are advising investors to “take the $420 and run,” in part because a privately traded company would need some extremely aggressive future growth to be able to justify that kind of share price.

Musk would prefer that all current shareholders remain part of the new fund. Still, they all have the right to sell before the transition of being a privately held company if they so choose.

Tesla’s Special Committee

Elon Musk isn’t planning this massive buyout on his own — he’s working with some of the biggest names in the finance industry. On Monday, he announced that he was working with the Goldman Sachs Group and the Silver Lake investment firm to help them hash out the terms of the transaction. This is a bit out of Silver Lake’s wheelhouse — they usually handle financial advice for individuals rather than companies.

The whole situation is a bit unorthodox, especially since Musk announced the plans for the transition to taking Tesla private on Twitter before informing the company’s board of directors. This isn’t the first time Musk has made this kind of announcement on social media before the information was revealed “formally.” While he stated that funding has been secured for the buyout, he declared taking Tesla private before the deal with actually solid.

To help handle any negotiations, a special committee has been established. Brad Buss, Linda Johnson Rice and Robyn Denholm have been given full authority to evaluate the possible transition and handle any negotiations.

At this point, there are no assurances, even if a buyout can be negotiated, that the current shareholders will even accept the proposal.

The Future of Tesla

If the buyout proposal is accepted, what will that mean for the future of the electric car company?

It’s hard to say at this point because we have so few details about the potential transaction. Musk’s social media campaign may have been designed to scare away share short-sellers — a class-action lawsuit has been proposed specifically for that reason. The suit claims that the tweets were designed to artificially inflate the company’s stock prices.

It could be a smart move for the company. First, going private helps reduce management overhead costs. Decisions could be simpler or more streamlined because the company would no longer have to worry about playing to the shareholders or holding a vote every time a major decision needs to be made.

It’s also more difficult for companies like Tesla to function well as publicly traded organizations. Not only can it be distracting, but it can also make it harder for the company to plan a long-term strategy, because they are restricted to a quarterly earnings cycle and reporting.

In the case of popular companies like Tesla, being public traded also makes the company the target of short-sellers. Tesla stock has the distinction of being the most shorted stock of all time. Short selling is the practice of selling a stock when the price is high and buying it back at a lower price to repeat the process. It’s risky for the investor, but it can be damaging to the company as well.

In the long run, a lot of things would remain the same. Musk would still own 20 percent of the company and employees would remain shareholders. Now, instead of being able to trade their shares freely, they’ll have the option to buy or sell every six months.

We’ll just have to wait and see as the negotiations play out over the next few months. Even the industry experts aren’t quite sure where this is going to end up.

Going Private and Beyond

Elon Musk has earned a reputation for being unpredictable, much to the chagrin of his board of directors. This is the latest in a long line of statements on Twitter that have sparked dramatic change and an instant response. Whether the company goes private or not will be up to the shareholders. Even if Musk has already secured the roughly $73 million it will take to complete this massive change.

It might take awhile before we get any comments back from Tesla on how this is going to play out. If the company chooses to go private, it might allow the tech giant to make even more ambitious leaps. They can touch in fields like self-driving cars and artificial intelligence now. Anyone who decides to bail out at $420 a share might make bank. Although, they will be giving up being part of those advances.

It will be interesting to see if this sets a standard for CEOs on social media, too. If a post on Twitter can turn a multi-million-dollar company on its ear, it might change the way company owners interact with the public altogether.