The plan's downfall
The unfolding story suggests Musk was sorely mistaken when he tweeted "funding secured2 and later told the world "investor support is confirmed," based on his belief that Saudi Arabia's Public Investment Fund was eager to back his venture. The U.S. Securities and Exchange Commission is now investigating his tweets and blog posts, which triggered the stock gyrations throughout August.
"Elon Musk @elonmusk Am considering taking Tesla private at $420. Funding secured," the CEO wrote.
Musk's vocal ambitions stirred unease among Saudi officials about the publicity surrounding their potential role, according to people familiar with the matter who asked not to be identified. The Saudis were unhappy about Musk detailing his talks with the Kingdom's sovereign wealth fund in an Aug. 13 blog post, where the CEO justified his earlier tweet about "funding secured" on their interest, the people said. On top of that, there were concerns about potential fallout from shareholder lawsuits and the SEC investigation, the people said.
While the Saudis were open to making a significant investment in the effort as a way to help the kingdom hedge against oil and attract technology expertise to the region, the fund mainly was interested in a minority stake to limit its exposure to a single deal and save resources for other projects, the people said.
Musk and the Saudis hadn't yet reached an agreement on the terms or structure of their participation before he pulled the plug, the people said. In addition to its interest in Tesla, the Saudi sovereign wealth fund is considering an investment in aspiring U.S. electric-car maker, Lucid Motors, one of the people said.
One of the investors Musk's advisers had lined up was Volkswagen Group, the Wall Street Journal reported, citing people familiar with the matter. A representative for the German automaker didn't immediately have a comment when reached by Bloomberg News on Monday.
Other investors made their concerns widely known. Wood, of ARK Investment, published an open letter to Musk and Tesla's board Wednesday in which she stated that Tesla should remain a public company. "Thank you for the thoughtful letter," Musk responded on Twitter.
Musk had hired advisers including Goldman Sachs Group and Silver Lake as well as Morgan Stanley, news of whose involvement was broken Aug. 23. Yet discussions about how a deal might proceed were still at a very early stage when he decided to call off the plan, according to people familiar with the matter. Banks had at most just a couple of weeks to assess the situation, after being brought in to advise only after Musk’s initial tweet, said the people, who asked not to be identified as the details are not public.
One of the ideas that advisers discussed involved creating a private market for Tesla shares, similar to how the stock of SpaceX, Musk's rocket company, is traded among employees and other shareholders, the people said.
Yet no decisions had been made on how to advance as the advisers were still trying to understand the funding situation and whether taking the company private was even plausible, the people said.
What is ahead
Musk's decision to scrap his plan still leaves many questions about where he and the electric-car maker go from here. Leaving ownership as is puts the scrutiny back on Musk's all-consuming work style, the company's tricky cash position, its ability to meet mass-market production goals, and the independence and oversight of Tesla's board.
The next measure of how Tesla bounces back may come in early October, when it will report third-quarter production and deliveries. The company has said it expects to make 50,000 to 55,000 Model 3s in the quarter, which averages to roughly 4,200 vehicles a week at the higher end of the guidance.
"Eventually this will blow over, but it's going to take at least six months," analyst Gene Munster of Loup Ventures said in a phone interview Saturday. "This is not a situation where we can just forget about it. It's created a new layer of questions for investors. And now Tesla needs to get back to basics, which is ramping Model 3 production and profitability."
The SEC investigation and investor lawsuits related to the whipsawing stock will at minimum continue to divert management's time from operations, Joel Levington, a senior credit analyst with Bloomberg Intelligence, said in a note Saturday. Musk's exhaustion, which the CEO described in a New York Times interview, is the "most critical near-term concern."