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Is Tesla for Real?

Elon Musk has seemingly done everything in his power to dampen enthusiasm for his company. And yet it keeps bouncing along.

Scott Olson/Getty Images

Even by the standards of Elon Musk’s wild 2018—which has included production, cash flow, and fire problems at his electric car company Tesla, and a number of reckless and irresponsible tweets—the last week has been insane. Tesla’s trading was halted last Tuesday after Musk tweeted that he planned on taking the company private at $420 a share.

Given Musk’s propensity for using Twitter for pranks, many assumed he was joking. But two days later, with the Securities and Exchange Commission circling (tweeting about taking a company private almost certainly counts as stock manipulation), Musk stuck to his guns. There are still numerous legal hurdles involved, but he confirmed that he is exploring a deal to take the company private, which he believes would create the environment for Tesla “to operate best.” On Monday, he suggested that the money would come from the Saudi Sovereign Wealth Fund, which had approached him “multiple times” about taking the company private over the past two years.

It very well may be true that Tesla needs to go private to “operate best.” Tesla has had serious cash flow and manufacturing problems as it has tried to ramp up production. Musk also has serious problems dealing with the transparency requirements that come with being a public company. But investors have hardly punished it. Instead, Tesla’s stock has stayed in the $350 range over the past year, even as Musk has done everything possible to dampen enthusiasm for his leadership.

So the question of whether Tesla is a public or a private company seems to point to larger ones: Is Tesla the world-altering car company that Musk and his acolytes claim that it is? If so, is the erratic Musk the right person to lead it? And if not, is it just another cash-burning Silicon Valley darling on the verge of losing its luster?

Musk made his fortune at PayPal and has poured it into Tesla, a company that he sees as part of a larger mission to save the world from environmental ruin. He has also founded SpaceX, a space exploration venture; Boring Company (“hyperloop” travel); and Neuralink, which is pursuing cyborg-ish brain implant technology. While all of these companies play a role in Musk’s public image as a man of the future (or, for his critics, the personification of everything wrong with Silicon Valley technocapitalism), Tesla is his day job and the company with which he is most closely associated.

That Musk is essentially synonymous with Tesla has been a boon for Tesla. Tesla has struggled to meet production targets and laid off nine percent of its staff in June to ensure profitability. It is burning through cash and had its credit rating downgraded by Moody’s in May. One of its self-driving cars crashed on autopilot, killing its driver. And yet the market rewards Tesla for modest successes (and promises of future profitability), thanks in part to confidence in Musk. Even his bizarre tweets (like when he accused a diver involved in the Thai soccer team rescue of being a “pedo”) play into a narrative of the brilliant and eccentric innovator.

There are a lot of advantages to going private. The panoply of venture capital firms in Silicon Valley (and elsewhere) could supply the cash that Tesla craves as it inches toward some semblance of sustainability, without worrying about the kinds of targets and disclosures that are required of a public company. And for Musk, it is the transparency of a public company—and the critics and short-sellers transparency attracts—that really bothers him. He has admitted as much, saying:

As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to 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. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.

But Musk is mistaken if he thinks that going private will solve these problems. He will continue to own about 20 percent of the company, which means he will still have investors to answer to. Because attorneys for Musk have suggested that new investments will come from a “special-purpose vehicle that is accessible to all shareholders,” the new company would (probably) still be public enough to be expected to produce financial statements. Scrutiny is inevitable, and there’s no reason to suspect that a scarcity of financial information will suddenly make his haters disappear.

It also won’t make Tesla’s larger problems disappear, either. Yes, the company burned through less cash in the second quarter of 2018 (negative cash flow of $740 million) compared to the first (over $1 billion). And Musk claimed in an investor call in early August that he expected progress to continue. But Tesla, founded in 2003, now faces increased competition in the electric car market. It produces 5,000 cars a week, or 260,000 cars a year. (A single BMW plant in South Carolina made nearly 400,000 cars in 2017.) Combined with Musk’s public relations problems, there is no strong sense that Tesla is on the verge of turning a corner.

Wall Street has been very patient with the company. The company’s image as a world-shaking unicorn on the cusp of a major breakthrough has remained intact. Even when Musk has tried to change that narrative with tweets about bankruptcy and odd behavior on earnings calls—which some have speculated is an attempt to sabotage the stock so he can take the company private—the market has largely stuck with him.

This ultimately gets at the absurdity surrounding the company. Musk has done everything possible over the past few months to dampen enthusiasm for Tesla, but it just floats along. Musk may be fond of saying that Tesla is the most shorted company in history, but its short sellers have lost billions as the stock has stubbornly refused to plummet. In this regard, Tesla may not be unique at all. Perhaps it is just another overhyped tech darling, buoyed by an industry that has a history of supporting middling companies with charismatic founders. Sometimes that faith is rewarded. Other times reality eventually catches up.