By on August 10, 2018

Image: Wikimedia

Like a Netflix original movie with lots of action but a threadbare plot, Elon Musk’s plan to take Tesla private has some glaring holes. The largest of which is how he’ll finance the buyback of stock (at $420 a share) to make his dream possible.

The list of people who’d like to know where exactly the money’s coming from is a long one, but at the top of the list is the U.S. Securities and Exchange Commission — followed, apparently, by Tesla’s own board of directors.

According to two sources who spoke with Bloomberg, Musk’s Tuesday tweets and blog post caused the SEC to ramp up its investigation of the automaker. The commission was already collecting info on Tesla’s production plans, but now it’s more interested in the source of the money for Musk’s anticipated buyout. In his earlier statements, Musk claimed he had secured funding.

While it’s an informal inquiry that might not lead to anything more serious, the sources claim, the SEC does want to know if Musk’s statement was factual. Should it come to pass, Musk’s goal to take the publicly traded company private would mean the largest leveraged buyout in history. The deal is said to be worth roughly $72 billion.

The SEC isn’t along in wanting to know more. While six members of the automaker’s board of directors issued a brief statement regarding Musk’s plan on Wednesday, claiming the CEO had “addressed” the funding, Reuters reports that curiosity is rife. The board has not heard details on who will provide the funding, a source said.

A decision on whether to launch a formal review of Musk’s plan should come in the coming days, the source said, with board members already seeking advice from investment bankers on the potential hiring of financial advisers. Should the board greenlight a review, Musk would have to recuse himself. The alternative is the formation of a special board committee to carry out the task.

Musk claims he plans to keep hold of his 20 percent stake in the automaker should the company go private, encouraging existing shareholders to hold onto their stakes if they feel like it.

After spiking nearly 11 percent before trading closed Tuesday, Tesla’s stock has lost almost all of the ground it gained after Musk’s announcement.

[Image: Wikimedia (CC BY-SA 4.0)]

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19 Comments on “Where’s Musk’s Financing Coming From? Reports Say SEC, Tesla Board Want to Know...”


  • avatar
    TimK

    Ah the late ’90s, pump-n-dump, EBITDA rules for valuations, clicks not bricks. I’m so glad we’re past all that foolishness now…

  • avatar
    stingray65

    Isn’t possible funding irregularities and SEC investigations what caused the demise of Tucker? In comparison to Elon Musk, I have a lot more faith in the honesty and automotive abilities of Preston Tucker.

  • avatar

    Surprise, the board is questioning. Like I said the other day, the six who stepped up to say he had taken care of things seemed like a lie.

    And apparently it was. If this was addressed at a board meeting, the entire board would have the same information. For a part of it to claim the funding had been addressed, and another part to ask where the money’s coming from does not make sense.

    Wouldn’t he also need a board approval/resolution to go private? A vote?

    This all stinks.

  • avatar
    DeadWeight

    No one is going to buy Tesla out/take it private given its bottomless pit of losses and debt, not to mention its core, structural problems that may very well be literally unfixable.

    Musk is out of time and the walls are closing in.

    A private Tesla necessarily assumes a company that is leveraged 80x-90x via a management-led leveraged buyout, and even that may be a conservatively low leverage ratio depending on the true and accurate Tesla financial sheet as can only be revealed by an accurate GAAP measure.

    Elon gets a share price bump with some tweets based on total insanity that few bother to actually apply fundamental math to determine even basic fundamentals thereof.

    “Bloomberg commentator Sebastian Boyd is not buying it for a very simple reason: math (although meth would make it more palatable):

    Some Tesla Math

    Incidentally, Tesla has a free-float of 127.5 million shares. At $420 a share, that would cost you $53.6 billion. The company already has net debt of of $8.8 billion and an adjusted net leverage ratio of 13 times. Were it to be bought in a management-led LBO, a back-of-the envelope calculation would give it a leverage ratio of over 90 times, worse on a trailing 12-month basis. You can’t run a company on math like that.”

    Compare Tesla math to a company…say Dell…that was a large LBO and accompanying numbers:

    “A quick flashback of what that deal looked like: In 2013, Dell management led a buyout of the company for $25bn — financed through management’s ownership stake (16%, valued at over $3bn), $750mn in cash on the balance sheet, some incremental equity holders, and debt of approx. $19.4bn (debt-to-equity ratio of 3.5x). While the transaction was somewhat similar in nature to what is being proposed at TSLA, the EBITDA generation and cash flow characteristics of the business were very different given a more mature product and growth profile: Dell’s reported 2013 adjusted EBITDA was $5.1bn (implying 3.4x leverage at-close) and FCF generation was approx. $3BN.

    By Comparison, excluding working capital gimmicks, Tesla is run rating around $1 billion in cash flow burn per quarter.”

    So a Tesla LBO would require 60 billion or more in cash, and result in a leverage ratio of at least 90x (likely way more on 12-month trailing basis), with 4 billion or more (likely more) of cash BURN annually.

    Again, Dell had a leverage ratio of 3.4x, and was throwing off 3 billion in pure, free flow cash PROFIT.

    The Model 3 IS Musk’s Waterloo.

    This is the world that we are living in.

    It’s literally all a House of Cards, Total Bullish*t, and Mass Delusion.

    It’s the very definition of insanity.

    Drink the Soma, bathe in the snake oil, and pretend that anything is possible, and even probable, in the direct face of contrary facts and math.

    I knew the world had gone batsh*t crazy in 2007, just prior to the “Troubles” that followed.

    The world is set up for “Troubles” that will make those of 2008-2012 look less dramatic, now.

    • 0 avatar
      Lockstops

      Yes, it’s simple math. Tesla is too far gone. It is literally cheaper to buy a functioning car company or found one from scratch and do exactly the same thing that you’d want to do with Tesla. Period.

      And as I’ve said before: there is absolutely nothing of power that Tesla holds that isn’t replicable, they have no aces. The only larger thing that Tesla has of value is the Supercharger network, and the Supercharger network actually does cost them a lot and keeps getting more expensive and more difficult to expand. And that’s a strategic weapon only if you for some reason want to have a proprietary charging network: because it’s an easy, cheaper and far less risky alternative to just join the ChargeNow network which is already bigger and will beat Supercharger network to a pulp in a few years’ time.

      I’m sure that the calculations would end up with a comparable network to the Supercharger network being much cheaper to build up yourself from scratch even in a hurry, in about 5 years than it is to buy the clusterf**k of a company Tesla and all its massive debt. And that approx. 5 years of build time would correspond to the time it takes to develop 2-3 new models to produce and get production-ready. But in any case I’m convinced it makes no sense for automakers to sink in all that cash on their own charging network, and that’s the reason _not a single other car manufacturer in the world_ is doing it, and they already have a wider net of charging stations.

    • 0 avatar
      raph

      Yeah it seems like the tip of the ol’ market retract… err correction thing rearing its head! I wonder how many “too big to fail” companies will crop up this time around?

  • avatar
    Darkdowgow

    Guys. $420 a share. He’s just high. It’s a 420 joke. He’s just playing us

  • avatar
    danio3834

    The Teslavangelists will be here shortly to abate any concerns.

    Have you heard about our Lord and Savior Model 3?

  • avatar
    Lockstops

    https://youtu.be/eqM8TagOCWk

  • avatar
    Carroll Prescott

    I think the money is being printed by space aliens that Muskrat is holding hostage and they are printing by hand in a tent somewhere near a gigafactory tent city.

  • avatar
    Flipper35

    Perhaps a certain beancounter is the funding?

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