Imagine how much sadder Elon Musk would be today if he had managed to take Tesla Inc. private in 2018. In August 2018, he tweeted “considering taking Tesla private at $420. Funding secured,” and spent a few days pretending it might happen. Eventually he decided not to do it, because (1) in fact he had no funding and (2) it would not have been possible to take Tesla private and keep all of its public shareholders, which for some reason is something that Musk said he wanted to do. It was all pretty half-baked, and later Musk got in trouble with the Securities and Exchange Commission because pretending you’re going to buy out a public company is something of a no-no.
But imagine he’d done it; imagine he had taken umpteen billion dollars of Saudi sovereign wealth money and bought out all of Tesla’s public shareholders, leaving himself and the Saudis as the only owners. In some sense, it would have been an incredible trade. Tesla’s stock closed at $341.99 the day before Musk tweeted that he’d buy it for $420. It closed yesterday at $1,034.07. In between there was a 5-for-1 stock split. The stock is up more than 1,100% from Musk’s proposed deal price in about three years. Yesterday’s closing price gave Tesla a market capitalization of $1.03 trillion. In hindsight, Musk would have been buying the company cheap:
On the other hand, since August 2018, Tesla has done four stock offerings raising a total of more than $13 billion, which it has used to, you know, make cars and become huge. Would it have been able to go back to its private backers for $13 billion of capital after doing the largest leveraged buyout in history? Maybe, I don’t know; private markets were pretty generous for much of that time. But the public market was extremely generous to Tesla. The last two of those offerings, for $5 billion each, were at-the-market offerings to Musk’s horde of retail-investor fans; one of them was timed to Tesla’s addition to the S&P 500 index. You can’t do a retail at-the-market offering, or an index-add offering, with a private company. Tesla’s cost of capital is incredibly, incredibly low, because it raises money not from a handful of professional private equity investors but from an army of Tesla enthusiasts. It is good to have a low cost of capital if you are in a capital-intensive business.
Even more important, look, Elon Musk runs a trillion-dollar company. If he had taken it private, he would be running a company that he bought for $80-odd billion in 2018 and that had improved its financial performance since then. How much would it be worth? Who knows? It wouldn’t trade publicly. Retail investors couldn’t bid up the price. It would be worth some vague amount north of $80 billion. “If Musk were to take Tesla public again,” analysts might write, “he might be able to get as much as a $400 billion valuation,” or whatever. Might someone have written “he might be able to get $1 trillion”? Sure, why not. But that wouldn’t be an accepted fact. The value of Tesla would be some unknown number because it wouldn’t trade. Who would believe it was $1 trillion?
Today Bloomberg’s billionaire list tells me that Musk is the richest person in the world, with a net worth of $288.6 billion, consisting mostly of Tesla stock. Jeff Bezos is in second place with $192.6 billion of mostly Amazon.com Inc. stock. Musk was well behind Bezos last year, but he’s up $118.9 billion year-to-date, because Tesla’s stock has been on a tear. No public stock, no tear, no “richest person on Earth.” It’s nice to be the richest person on earth! I assume.
Of course in some sense he’d be economically just as rich as he is now (richer, really), because he’d control just as much (more, really) of the same company making the same cars; maybe he’d even be able to make better business decisions freed from the pressures of the public market, and revenue would be even higher. But nobody would know about it. There’d be no scoresheet saying that he’s worth $288.6 billion. The value to Elon Musk of public markets is partly that they allow him to raise limitless capital to fund his business, but it’s mostly that they allow everyone to keep score of how rich and successful he is. Private-market success is quieter. I do not think that Elon Musk likes quiet.
People love to complain about the myopia and short-termism of public markets. Elon Musk, in particular, used to love to complain about that, which is why he briefly pretended he was going to take Tesla private. There is probably some truth to some of these complaints. But there is maybe no better counterexample in the history of capitalism than Tesla. Elon Musk had a dream of making electric cars cool and ubiquitous, and that dream was pretty far out there, and he spent years missing production targets and losing money in pursuit of that dream, and his legions of public-market fans patiently funded him, and it turns out that he and they were right and now you can rent a Tesla at a Hertz. And the stock market has rewarded him with hysterical lavishness, giving his company a bigger valuation than every other car company combined and making him the richest person in the world. Imagine if he had given all that up to go private! He really dodged a bullet.
If you were wondering which junk-rated company would be the first to reach a trillion-dollar market capitalization, your wait is over. It’s Tesla Inc.
The automaker’s debt may still be considered speculative-grade, but its stock passed the $1 trillion mark on Monday, according to data compiled by Bloomberg. … “The $1 trillion mark leaves Tesla creditors with unprecedented equity cushion for a junk-rated issuer,” said Bloomberg Intelligence credit analyst Joel Levington.
The “equity cushion” idea is a somewhat strange way to think about creditworthiness but it does seem obviously true here. Bloomberg tells me that Tesla has about $10 billion of total debt. If Musk ever wanted to pay that off he could go to the stock market and raise $10 billion in an hour; the stock would probably go up. That has to make his creditors feel good.