Tesla tumbled on Monday after founder Elon Musk withdrew the possibility of a $420-a-share buyout that he said would distract personnel from ramping up production of the new Model 3 and achieving profitability.
Shares in the Palo Alto, Calif.based electric carmaker, which had surged in the initial aftermath of the buyout plan before giving up the gains amid growing scrutiny, dropped 2.1 percent to $315.93 at midday in New York trading.
“It’s apparent that most of Tesla’s existing shareholders believe we are better off as a public company,” Musk said in a post on Tesla’s blog. “I 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. This is a problem because we absolutely must stay focused on ramping Model 3 and becoming profitable.”
The independent members of Tesla’s board, which had formed a special committee to evaluate any formal proposal from Musk, said they concurred with his assessment and dissolved the panel. The carmaker has been under pressure to consistently meet a production goal of 5,000 Model 3s a week as well as to attain profitability and generate cash after losing $1.43 billion, or $8.42 a share, in just the first half of this year.
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Musk recently told investors that he expected to reverse the losses in the three months through September and remain profitable afterward. He had initially said the buyout plan, which he announced in a series of posts on Twitter, would enable Tesla to focus on long-term success without the pressure to meet quarterly earnings targets or the possibility of wild share-price swings due to investors betting against the company.
Funding had been secured, Musk said, though the Wall Street Journal later reported that the Securities and Exchange Commission was evaluating the accuracy of that statement.
Days after the CEO’s initial Twitter posts, he wrote in a blog post on Tesla’s website that Saudi Arabia’s sovereign wealth fund, which holds a 5 percent stake already, had repeatedly recommended taking the company private and was interested in financing the deal.
The SEC has declined to comment. Musk said the transaction might cost just $23.6 billion, since the $420-a-share price would be paid only to the 33 percent of investors he estimated would pull out if the company weren’t publicly traded.
“Although the majority of shareholders I spoke to said they would remain with Tesla if we went private, the sentiment, in a nutshell, was ‘please don’t do this,'” he wrote Friday. Institutional shareholders had indicated that the amount they could invest in a private company would be limited, he said, and going private might freeze out many individual investors.
While a series of shareholder meetings reinforced Musk’s belief that ample funding was available for the deal, “I believe the better path is for Tesla to remain public,” he said. “We’ve shown that we can make great sustainable energy products, and we now need to show that we can be sustainably profitable.”
