Elon Musk abandons plan to take Tesla private

Elon Musk has abandoned his plan to take Tesla private saying current investors had persuaded him to keep the electric car company as a listed business.

In a late night announcement, the billionaire founder of the company said “given the feedback, it’s apparent that most of Tesla’s existing shareholders believe we are better off as a public company”.

The post on Tesla’s blog added that Mr Musk met with Tesla’s board on Thursday to tell them he wanted to remain as a public business and his fellow directors agreed with the decision.

Earlier this month, Mr Musk announced on Twitter that he was considering a buyout of Tesla and had secured funding for a move at $420 a share, valuing the loss-making car company at more than $70bn.

The August 7 tweet sent Tesla shares soaring 11pc to almost $380 and sparked huge controversy, with allegations he had broken market rules by making the announcement.

It also set off a scramble to identify who the potential backers for such a deal were, and how it would be structured as the billionaire said he wanted to allow investors to remain shareholders if they wanted.

Many institutional investors would be unable to do so because their own rules prevented them from having holdings in private businesses.  

Explaining the stunning reversal, Mr Musk described Tesla current investors as “extremely important to me”.

He added that the company’s backers “believe strongly in our missions to advance sustainable energy” and had “stuck with Tesla from the time we went public in 2010 and had no cars in production”.

Since revealing the plan, Mr Musk, who owns about a fifth of the company, said he had “spent considerable time listening to shareholders large and small” to understand their reactions.

Following these meetings he said it was “clear to him” that “in a nutshell sentiment was ‘please don’t do this’.”

Investors had become increasingly sceptical about Mr Musk's ability to pull off the deal in recent days, as Saudi Arabia's sovereign wealth fund declined to publicly acknowledge his claims that they were willing to put up the cash.

Shares in the company last week fell to $320, $100 less than the price Mr Musk said he had planned to take the company private, and below the level they were before he sent his fateful tweet. Recent interviews and his erratic Twitter behaviour have suggested Musk is suffering personally from the stress of running the company.

Even after calling off his buyout plan, Mr Musk is likely to face continued scrutiny from the Securities and Exchange Commission, the US markets regulator, which is investigating whether his initial announcement broke market rules.

In an explanation three weeks ago about his decision to try to take Tesla private referred to “wild swings” in the share price which he called a “major distraction for everyone working at Tesla”. 

He added that being a listed company also requires Tesla to post quarterly earnings reports which place “enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term”.

Professor David Bailey, an automotive industry expert at Aston university said: “It’s not a surprise. Going private is a difficult thing to do and investors will have advised Musk that they might have to reduce their stakes in such a scenario.

"That would have added to the uncertainty the firm faces. Musk may have point in terms of the quarterly pressure Tesla faces, but equally the firm is very highly valued by the stock market so Musk can hardly complain about the market undervaluing the firm.

"Going forward Tesla faces some major challenges in scaling up and in facing more competition from big players producing electric cars. Going private would be a distraction from such the real business in hand.'

Tesla shares are also the subject of huge “shorting” by speculators, who are betting the share price will fall. It is in their interest to talk down the company and a whole industry has grown up around shorting Tesla shares, adding to pressure on the business. 

Tesla’s founder has been engaged in a highly public battle with shorters, frequently taking to Twitter to hit back at them. Last month he warned that the “short burn of the century” was coming for speculators.

With Tesla shares climbing on news of plans to take the business private, those betting on the stock falling faced huge losses.

Market analysts calculated in the first few days after the initial tweet, shorter have racked up losses in excess of $1bn.  

Mr Musk said in the latest update that he “knew the process of going private would be challenging, but it’s clear that it would be even more time-consuming and distracting than initially anticipated”.

He said trying to pull off such a complex financial deal is “a problem because we absolutely must stay focused on ramping Model 3 and becoming profitable”.

Mr Musk faces at least two legal claims about the initial tweet and speculation that Mr Musk may have misled the market by saying he had funding in place.

He sought to head this off, saying that “my belief that there is more than enough funding to take Tesla private was reinforced during this process”.

Despite cancellation of the privatisation plan, the lawsuits against Mr Musk and the SEC investigation remain.

In a separate statement, a committee of independent directors formed to review Mr Musk's proposal confirmed the decision and announced its intention to dissolve.

Mr Musk had hired both investment banks Goldman Sachs and Morgan Stanley to advise on the merger, which have worked on previous Tesla stock and debt deals. He also worked with private equity investor Silver Lake about how to fund the plan.

Tesla has faced growing financial pressures this year as it attempts to meet production goals for its Model 3 cars.

It managed to stem the rate at which it burned through cash in its latest quarter. It reported a loss of $742m (£565m) for the three months to June 30, slightly down on its previous numbers.

However, revenues rose to $4bn in the three months to June 30, up from $2.7bn, and its negative free cash flow came in at around $160m below analyst expectations.

Mr Musk said Tesla could become "sustainably profitable" before the end of 2018.