Elon Musk’s August 7 tweet, which caught his own board of directors by surprise, followed by an article posted on the corporate blog about the possibility of exiting Tesla from the stock market by buying back shares at $420 has prompted comment around the world.
The SEC, which allows social network accounts to be used for corporate communication, is nevertheless investigating whether Musk violated its rules by saying he had “secured” Saudi funding for the buyout with the intention of driving up Tesla’s share price. Several shareholders have sued the company for manipulating the price of their shares by saying the financing was secured when in reality this was not strictly the case, although Musk’s clarification affirms that the Saudi sovereign fund had confirmed its interest in the operation, which would be carried out with capital, not debt.
Musk’s announcement raises two interesting questions: firstly, why might he want to put Tesla back in private hands? The stock market, traditionally the way to take companies to their next growth stage, can be a difficult place for tech companies (others may well be considering their exit as well) subject as they are to the perceived wisdom of short-sighted analysts often unable to see the long-term strategy of innovative, forward-thinking businesses, sending their share prices tumbling with ill-informed comments and distracting them from their goals. Seen in this light, the stock market could continue being that magical moment in which any investor willing to buy shares is admitted, allowing the exit of others who only acquired their stake through an agreement with the owners of the company; but then could perhaps become a difficult and noisy place whose demands outweigh the benefits it might provide. If the stock markets, the foundation of capitalism, are becoming an annoying scenario for tech companies, we could be looking at big problems down the road.
The second, equally important, question is why Saudi Arabia’s sovereign fund, built on oil revenue, would want to finance Tesla’s exit from the stock market? The answer is Vision 2030, an ambitious plan being driven by the country’s de facto leader, Crown Prince Mohammad bin Salman, to reduce the country’s oil dependence, diversify its economy and develop public service sectors such as health, education, infrastructure, leisure and tourism, has become. The sovereign fund has around 200 investments in fields such as telecommunications, aerospace, sustainable technologies, security, renewable energies and information technologies, meaning that a company like Tesla fits its portfolio profile perfectly.
We might also ask how Saudi part-ownership would influence the handling of Tesla’s growth strategy: it’s one thing for Saudi Arabia to understand that the future is all about sustainable energy and electric vehicles, and another to drive change to the extent that it impacts on the country’s main source of income. Elon Musk’s efforts to create a broad-based shareholder base that would prevent excessive control by the Saudis will be key to the future of the company.
At the same time, the Saudi move confirms that Silicon Valley has few qualms about where investors’ money comes from and whether those countries are democracies or otherwise, which also explains why Chinese investors are usually welcomed with open arms. In practice, Silicon Valley’s scruples vanish when offered investment that can help companies achieve their long-term goals. Tesla’s stated mission of “accelerating the world’s transition to sustainable energy” could happen thanks to the kind of stable funding the financial markets cannot provide; what’s more, much of that money could come from Saudi Arabia, the world’s biggest oil producer: a powerful symbol of the change Tesla says it wants to bring about, and for which Saudi Arabia, a country with plenty of sunshine and the means to create a new economic model, says it is readying for.
Is Tesla about to become a private company with Saudi Arabia, which already owns almost 5% of the company, one of its key investors? Musk says he has already announced the appointment of advisors to carry out his plans, while the company’s shareholders seem inclined to back him. We must now wait and see whether Saudi clout helps speed up Musk’s plans or hinders them.