Doubts Surface as to Whether Musk Will be Able to Finalize the Tesla Buyout by Morgan Stanley
It appears that Elon Musk’s grandiose plan to take Tesla to newer heights is finally receiving some positive feedback in terms of financing. This comes after reports confirm that indeed Morgan Stanley has pushed for a majority of its clients to redirect their funding towards making Tesla a private firm.
In a statement directed to the company’s clients on Friday, analyst Adam Jonas said that an (EBO) equity buyout could become a potential option in the event that the company is privatized.
Additionally, he said that it was possible for an auction to be considered for Tesla’s shares in the private equity spectrum, with shareholders overseeing the financial setup. Moreover, assistance in the matter is also poised to come from captive assets divestiture, new strategies, and optionally assistance from Space X
Positive results to the announcement
As a matter of fact, Tesla experienced a surge in its shares, having them move up to 11 percent last week. This is after Elon Musk tweeted his consideration of privatizing the company at $420 per share. Moreover, the tweet also hinted that Musk had secured funding for the expected deal.
However, it is also worth noting that Tesla’s stock has experienced an overall 7 percent decline after there was a lot of skepticism regarding whether or not the deal was actually financed. As a matter of fact, the U.S. Securities Exchange Commission had to contact Tesla to confirm the finance deal.
That being said, Adam Jonas has stated that no information has been relayed to him as whether there is a possibility of an equity buyout being done by Tesla. Moreover, he projects that Tesla’s shares would top only at the $291 price.
Additionally, sources close to the company are reporting that there will be a board meeting coming soon together with financial advisors this week to discuss and officially kickstart the process of taking the company into the private spectrum.
Criticism from the media
However, Musk has received a lot of criticism regarding his plans, with quite a number of tabloids regarding the privatization of Tesla at $420 a share as a complete sham.
This is based on the current state of Tesla. The electric company is having a hard time dealing with over $10 billion in debt. Additionally, it is estimated that Tesla does not have the cash flow required to accrue a subsequent $24 billion debt needed for a third of its shareholders to be bought out.
If that’s not enough, in 2017, Tesla generated about $11.8 billion as its revenue, though it accrued a negative cash flow of $3.5 billion. The effect is still being felt at this moment. In fact, during the first half of this year, the company recorded a $1.8 billion negative cash flow.
Confident of the buyout
In his defense, Musk has argued that the company will soon become profitable as soon as it begins production-increase of its Model 3. It is expected that the car’s production will rise to 5000 per week, and to 10,000 per week by the start of the New Year. However, it is worth noting that Musk’s predictions on production have not been accurate over the years.
Additionally, even if the company did manage to make these targets, an estimate by Goldman Sachs shows that the company will still require funding of at least $3.6 billion for the next two years to maintain capital spending and manage operational issues.
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