Daily Management Review

Elon Musk's buyback statement may cost him dear


Entrepreneur, engineer and investor Elon Musk announced his intention to buy out all Tesla shares for $ 420, and delist the company from the stock exchange. This statement resulted in the fact that Nasdaq suspended trading of Tesla shares.

JD Lasica
JD Lasica
Currently, Musk owns 20% of the company, so such a step will require approval of the majority of shareholders. However, there is a possibility of approval: for the second quarter of 2018, Tesla's losses amounted to 717.5 million dollars and so they are likely to get rid of the shares. If Elon Musk achieves his goal, then the transaction amount can reach an astounding 72 billion dollars. This is comparable to the cost of saving Greece from the financial crisis.

Paradoxically, Elon Musk has been managing to hypnotize investors even in such a situation for quite a long time. After Nasdaq suspended the trading and re-launched its afterwards, Tesla's papers grew by 11%. Everyone believed in the company’s future, or rather, it was preponderance of the buyers who believed in the company's shares over pessimistic sellers. Many investors would like to remain owners of non-public Tesla shares in order to be involved in its sometimes unprofitable, but incredibly ambitious projects, and secondly, counting on the growth of shareholder value in the future.

Many hope that the losses will be overcome, and the idea of conquering space and building a perfect electric vehicle for a mass investor is a cult. Also, many expect a multiple growth in the value of the company in the future. Perhaps they consider it an analogue of Apple, which recently just reached a capitalization of $ 1 trillion. It is necessary to understand that the culture of technological start-ups like Tesla has been formed in the developed countries for years, and now this culture nourishes faith in such companies, and attracts capital in them.

Elon Musk has become a cult figure capable of indefinitely encouraging investors, because his "start-up", although unprofitable, is still far ahead of an endless number of small start-ups that did not even reach the stage of creating a prototype. It seems that the losses do not really bother Musk and his team. They are concerned that the wave of negativity on the Internet around their shares can prevent them from realizing the technological breakthroughs that they planned, and now the main issue regarding the repurchase is the question of where the money will come from.

Tesla’s head reported that he had already found financing for this deal, and now everyone is wondering who it might be. Perhaps this is the money of Saudi Arabia, which is actively investing in such technological innovations, trying to hedge against falling oil prices and depreciating oil during technological discoveries. If this money is not really available, if this is only an assumption, then the head of Tesla may face suits from those who stood in a short sale on the shares of Tesla and whose position his yesterday tweet destroyed.

source: cnbc.com