Dividends and Inside Elon Musk’s U turn on taking Tesla private

In August, Elon Musk the Chief Executive Officer of Tesla tweeted he might take Tesla private and he had the financing arranged. In was news to his Board of Directors and in late August after a Board Meeting, Mr. Musk changed his mind to keep Tesla public. In the meantime, those that bought stock now either have a long-term hold or lost money as the shares declined to well below what Mr. Musk said he would take Tesla private. In addition the good folks at the SEC are investigating.

If you have an opportunity to ride in a Tesla, do it. By all accounts it is a cool car to ride in. After the ride, whether you want to invest in the stock or not, ensure you look at the short sellers or the naysayers from a financial point of view. Everyone agrees the car is cool. They will not agree on whether Tesla makes money selling a car, one short seller will tell you they lose $5,000 a car. The short sellers look at the coming marketplace and see other car companies entering the market – BMW, Range Rover, Lexus and soon the marketplace for the price of the car is crowded. Will Tesla continue to sell the number of cars it does? The shorts say no. There are a host of other factors, but the shorts believe while Tesla is a cool car, the company should be priced similar to other car companies and if that happens the company can continue but the price of the stock falls.

In an article by David Gelles of The New York Times News Service, he investigated who was for the going private and who was not. Unless Mr. Musk had a very deep pocketed investor, many of the institutional funds were going to have to sell, because their governance or regulations only allow funds to hold public companies which allows the holdings to be valued on a daily basis.  While there are many individuals who hold Tesla stock, the history of the company is to continually say they are cash positive but go to the bond and stock market to raise more money. Typically, individuals can not come up with the amount of money Tesla raises and says it does not need.

The Board met, they heard the private equity firm Silver Lake and Goldman Sachs make a presentation they could privatize the company, but Elon Musk changed his mind and the Board agreed. The company remains public and Elon Musk actions as the Chief Executive will continued to be scrutinized for the stock price declined. Who sold during the announcement?

Linking to dividend paying stocks, while Tesla never paid a dividend the lesson to learn is examine the facts from both sides. If you are a shareholder, you have some bias what is the opposing side saying and what do you believe. Tesla is a promoter stock with a cool car, it may be the best but in a year or two it may be where it is now, only with hindsight will you know.

There are more questions than answers, till the next time – to raising questions.

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