I haven’t written a piece about Tesla for nearly five years. Aggressive accounting masking poor results, I said in October, 2013. Crash likely coming if you ignore the signs and buy (at US$180).
Since then, I’ve opted out of the Tesla debate. There are stocks, to paraphrase John Maynard Keynes, that can stay irrational longer than your willingness to claim you’re not stupid. Tesla, which has never meaningfully traded below the level of five years ago and is now at double the price at which I took my shot, is one.
So why open my mouth now? Why try to add to the ocean of commentary that already existed before “the tweet” of Tuesday, the supposed going-private offer that roiled the market, burned the shorts and inspired even more Tesla tomes? Why?
It’s because there are too many voices taking all of this seriously, earnestly explaining what a leveraged buyout of this size would mean, whether the shares are truly undervalued by chief executive Elon Musk’s purported offer, et cetera, et cetera absurdum ad infinitum.
I beg of any investor who might actually read all this and consider buying Tesla stock for the first time: Please run away with your wallet and sanity intact. The company has transcended “battleground stock” and become a parody of a public company, unsuitable for anyone except those willing to risk setting their dollars aflame.
If you require a review, Mr. Musk tweeted during market hours Tuesday: “Am considering taking Tesla private at $420. Funding secured.” No news release, no securities filing, nothing else. No additional information as of Wednesday afternoon more than 24 hours later, on said funding and its security. (My favourite parody tweet Tuesday came from @profgalloway, who actually offers a better grip on reality.)
Am considering going to Chipotle. Funding secured.— Scott Galloway (@profgalloway) August 7, 2018
Mr. Musk is, by all accounts, a brilliant innovator, and I gather his automobiles are excellent. He is, however, the perfect public-company CEO of the Donald Trump era, where attitude and aura, amplified by Twitter, are the hallmarks of leadership. Prior to Tuesday’s escapades, Mr. Musk had used Twitter to attack business journalists who had written articles critical of Tesla and gotten into a bizarre spat over his strange offer to build a miniature submarine to rescue the young soccer players who were stranded in a cave in Thailand. When I say he’s the “perfect” CEO for this era, I mean he is most decidedly not suitable to be the CEO of a company whose shares trade on a public exchange.
Decorated business writer James B. Stewart, in the name of service journalism, talked to a number of legal experts who indeed said, yes, the officers of a public company cannot issue misleading or fraudulent statements, so Mr. Musk must presumably hope that “funding secured” is a defensible term. Because US$420 per Tesla share requires a little less than US$60-billion for the portion of the company he does not own.
Tuesday’s tweet has everyone focused on how he might raise such a sum, a convenient Trumpian diversion from how Tesla ought to be raising more capital to combat the hundreds of millions of dollars it burns every quarter. But even those numbers typically get drowned out in the bizarre world of what constitutes good Tesla news. Here is an actual sentence from a report on Tesla’s earnings, earlier this month, as the shares rose:
“The rally mostly seems like a sigh of relief: relief that Tesla isn't the recipient of a Wells Notice [allegation from regulators of potential securities fraud]; relief that free-cash flow burn came in lower than analysts' estimates; relief that Tesla isn't going through a liquidity crisis and in need of cash … While the quarter wasn't good from a financial perspective, it wasn't as bad as many had feared.”
Just as Mr. Trump’s administration – and his supporters – have moved the goalposts on what we consider acceptable behaviour and performance, Mr. Musk’s Tesla has shifted what we’ve apparently come to allow from a public company.
Let’s say that this buyout will happen, crummy disclosure notwithstanding. Mr. Musk is correct in that taking Tesla private will benefit Tesla, as it will no longer have to face the distractions of being a public company and issuing all sorts of statements that actually need to be true.
The greater benefit of removing Tesla and Mr. Musk from the public markets will be to investors in all other companies and the people who lead them. Mr. Musk’s performance – and it is a performance, like performance art – will no longer set a CEO standard.