Elon Musk doesn’t appear to have funding secured for Tesla deal: Experts

Tesla CEO Elon Musk’s attempt at damage control may backfire.Rebecca Cook / Reuters

• Tesla CEO Elon Musk released a statement on Monday in which he shed light on some of the questions raised last week by his statements about taking the company private.
• But Musk’s explanation is incomplete and raises new questions, experts say.
• Musk’s new statement doesn’t back up his claim last week that he had “secured” funding to take Tesla private, Jeffrey Sonnenfeld, the senior associate dean for leadership studies at the Yale School of Management, told Business Insider. 
• And Musk doesn’t explain an estimate he makes about the amount of funding he’ll have to raise to convert Tesla into a private company.

Tesla CEO Elon Musk released a statement on Monday in which he shed light on some of the questions raised last week by his statements about taking the company private. But Musk’s explanation is incomplete and raises new questions, experts told Business Insider. 

Last week, Musk said he was considering taking Tesla private for $420 a share and implied that he had the funding to do so “secured,” pending a shareholder vote. But, at the time, he didn’t explain where that funding would come from. 

Musk said on Monday that he used the phrase “funding secured” in a tweet last week because he believed there was “no question” Saudi Arabia’s Public Investment Fund would provide financing for a deal to convert Tesla into a private company after a July 31 meeting with the fund’s managing director. 

Musk may have contradicted himself

But his attempt to provide clarity to investors and observers raises new problems, said Jeffrey Sonnenfeld, the senior associate dean for leadership studies at the Yale School of Management.

“It was, at best, hasty and naive, and, at worst, manipulative,” he told Business Insider.

(Have a Tesla news tip? Contact this reporter at [email protected].)

While Musk expressed confidence in Monday’s statement that the Saudi sovereign wealth fund was interested in helping Tesla go private, he didn’t mention any legally-binding agreements that were in place at the time he sent his now-controversial tweet. And Musk said he is currently in discussions with the Saudi fund and other investors, which suggests some sources of funding may not be settled.

“He did not have the firm commitment that he said he did,” Sonnenfeld said.

“While he’s in talks, there’s nothing certain until it’s certain, and ‘funding secured’ and having productive talks are two different things,” said James Rosener, a partner at the law firm Pepper Hamilton who specializes in private equity and corporate financing.

Tesla did not respond to a request for comment about the potential disparity between Musk’s “funding secured” tweet and his statement from Monday.

The Wall Street Journal reported on Wednesday that the US Securities and Exchange Commission had made an inquiry into Tesla about whether one of Musk’s tweets regarding the possibility of taking the company private was truthful. And on Thursday, Bloomberg reported that the agency was “intensifying” its inquiry.

According to Sonnenfeld, Monday’s statement doesn’t lessen the chance that Musk receives some form of punishment from the SEC, in addition to lawsuits from shareholders, some of which have already been filed.

“It would be hard to imagine he isn’t sanctioned, fined, reprimanded in some way for this misconduct,” he said.

Musk’s statement raises new questions

While the statement appeared to be damage control, according to Gregory Sichenzia, a founding partner at the law firm Sichenzia Ross Ference Kesner, it includes at least one statement that could open Musk to further scrutiny.

At one point, Musk estimates that about two-thirds of the shares owned by current Tesla shareholders would roll over into shares of a private Tesla, were a take-private deal to go through, reducing the total amount of money he would have to raise.

But Musk doesn’t explain how he arrived at that estimate.

“How does he know that? How does anyone know that,” Sichenzia said. “There’s no way to know that, so why would you say it?”

Musk’s statements may contradict the reason he wants to take the company private, Akshay Anand, an executive analyst for Kelley Blue Book, said. Last week, Musk said he wanted to take Tesla private in part because the pressures of being a public company have created distractions. But the questions raised by his conduct over the past week may create yet another distraction.

“Musk already has his hands completely full. He doesn’t need distractions. The employees don’t need distractions. Investors don’t need distractions, and this has the potential to turn into one,” Anand said.

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