Last November, Rolling Stone published a profile of Tesla CEO Elon Musk, written by Neil Strauss, a neo-gonzo journalist who made his name with a book about pickup culture. And in that interview Musk made a confession.
“I wish we could be private with Tesla,” Musk told Strauss. “It actually makes us less efficient to be a public company.”
Tesla has been public since its 2010 IPO and since then the stock has risen from about $20 a share to nearly $400 at one point in 2017. The company’s market cap is now close to $60 billion. Investors who jumped in seven years ago have enjoyed a return of nearly 1,200%.
Musk might be the only person who wishes Tesla were private. Even short-sellers, recently clobbered by Tesla’s surge, have been delighted when the stock has gone through one of its periodic swoons of $100 in a few months. And ironically, Musk’s next ten years of compensation are now completely tied to Tesla’s market performance, which the board of directors thinks can yield a $650-billion market cap.
That’s delusional. In many ways, it sets Musk up for both continued inefficiency — a lot of second-guessing about investments in automation, for example, at the expense of hitting production targets — and potentially epic failure. It also represents a radical formulation of shareholder value theory.
Tesla is wildly overvalued, and what it needs now isn’t a fatter stock price but rather an ability to satisfy customers. For the Model 3 mass-market vehicle, currently stalled amid production bottlenecks, Tesla has 400,000 mostly unfulfilled pre-orders.
Apple buying Tesla is an idea that always seems to be on the table
In the past, there’s been talk about somebody buying Tesla. Usually, Apple is the one that gets everybody’s heart racing. I’ve shot down this idea several times. But with the announcement of Musk’s new pay package, I think Tesla needs to be rescued from itself. And that Musk should get his wish.
Tesla is worth so much that there aren’t very many companies able to buy the automaker. And Tesla going truly private would be too much of a reversal of history as well as a financial improbability, although if the bottom falls out some investors might someday snap up what’s left of Tesla on the cheap.
Apple, thanks to the new tax bill, will repatriate over $250 billion is cash that it has been keeping overseas. Even after paying taxes on it, at the reduced corporate rate, it will have arguably too much left over. It could easily wind up going into share buybacks or a dividend, or Apple could continue its pattern of making small acquisitions.
Or the company, which is sitting on a mature iPhone business that mints the profits but could be looking at more severe growth headwinds in coming years, could swing for the fences and get a piece of the multi-trillion global transportation industry. If Tim Cook agrees with the Tesla board that the company will be worth $650 billion in a decade, then buying Tesla now would be a staggering bargain.
The obvious question is, “Who would be Tesla’s CEO?” Musk’s pay package is designed to ensure that it’s him, an extreme evolution of addressing the “great man” risk that companies led by visionary founders face. But Musk is also running SpaceX and he’s on the verge of launching a huge rocket that could pave the way for a Mars mission. Dealing with Tesla’s difficulties could be seen as a needless distraction.
That said, Musk could remain CEO of Tesla as an independent business unit of Apple, while Tim Cook would run the entire show (Musk could also relinquish the CEO title but continue as chairman of the board). In a way, Cook isn’t really a CEO in the Musk/Steve Jobs vein anyway. He’s more like a mega-COO.
And that’s just what Tesla actually needs right now. If it was Jobs who rescued Apple and put it on the path that led to the iPod and the iPhone, it was Cook who turned the company into the profit-making colossus it has become. The guy is a supply-chain genius. Making stuff is his bag. And at the moment, Tesla is struggling mightily to make stuff, falling well behind its ambitious production targets for the Model 3 mass-market vehicle.
Tesla would also witness its cash-burn challenges — over $1 billion per quarter — vanish. Apple could fund losses for years.