The big headline-grabbing Tesla story Tuesday was that Elon Musk says he is considering taking the company private.
But we shouldn’t miss an equally important story. The Financial Times reported Tuesday that Saudi Arabia has acquired an “undisclosed stake of between 3 and 5 per cent of Tesla’s shares this year.” The position is worth some $2 to $3 billion, making the Saudis “one of Tesla’s largest shareholders.”
In other words, the world’s biggest oil exporter — whose entire economy is built around more than $100 billion in oil and oil-related exports a year — has placed a massive bet on the company whose entire goal is transitioning the world off of oil.
The investment came from Saudi Arabia’s $230 Public Investment Fund (PIF), which is the Saudi’s “sovereign wealth fund” — a state-owned investment vehicle.
Expanding the PIF with oil revenues — and using the fund to help transition the Saudi economy off of dependence on oil — has been a major strategy of Crown Prince Mohammed bin Salman.
Back in March, the prince announced a plan to build a stunning 200 gigawatts of solar power capacity in Saudi Arabia for $200 billion. This is 100 times larger than the largest solar farm ever proposed. And, as Bloomberg has reported, it will provide “evening hour” power thanks to what will be “the largest utility-scale battery.”
Tesla has been the world leader in driving down the price of both batteries and electric cars to the point where countries from England and France to India and China have announced plans to ban gasoline powered cars outright.
A 2016 study by the credit rating agency Fitch concluded that advances in batteries could “tip the oil market from growth to contraction earlier than anticipated,” leading to an “investor death spiral” in the 2020s as savvy investors — and then everyone else — pull out of oil company assets such as stocks and bonds.
Interestingly, the Financial Times reported that before buying the Tesla shares in secondary markets, the PIF had first approached Musk to buy new shares directly from Tesla.
But Musk rejected the offer, since he’s trying to show Wall Street that he doesn’t need to issue more shares to raise money. Indeed, he has been endeavoring to convince investors that the company will be cash-flow positive in the second half of the year, after burning through $1.8 billion — nearly half of all its cash reserves — in the first two quarters of 2018.
Musk surprised the world Tuesday when he tweeted in the middle of the day, “Am considering taking Tesla private at $420. Funding secured.”
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
That news, coming directly on the heels of the announcement of the massive Saudi investment, led to a jump in the stock, which had been trading at just above $340 a share yesterday and is now, at time of publishing, above $370.
Within hours of the first tweet, Musk had sent an email to employees, “Taking Tesla Private,” explaining that he wants to take the company public to escape “the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term.”
If indeed he succeeds in taking the company private, we won’t get as much public news on the company as we do today, but it will give more stability to a company that has been on one long roller-coaster ride to the future.