A Tesla deal with Saudi Arabia’s fund could be good

Tesla CEO Elon Musk.Lucy Nicholson / Reuters

• The Saudi sovereign wealth fund could be the key player in taking Tesla private, according to a recent account from CEO Elon Musk.
• The Saudi fund is potentially enormous, even with much of its value bound up in a troubled IPO.
• Depending on how a possible deal shakes down, Tesla and Musk could see a massive funding boost, freed from market constraints.

On Monday, Tesla CEO Elon Musk provided some additional detail on his plans to take Tesla private.

The key takeaway is that the deal hinges on the Saudi sovereign wealth fund’s willingness to finance a buyout.

Secondarily, the potential deal size isn’t anywhere near $80-billion-plus numbers that have been discussed; instead, Musk is essentially trying to bring all Tesla’s major shareholders along and give small-time or restricted investors the chance to bail out at $420 per share.

Up to this point, Tesla has been a rather small company with a rather large financial value: it’s $60-billion market cap makes it the largest US automaker, as measured by the stock market.

Prior to the now infamous Musk go-private tweet of last week, this mismatch had led a lot of Tesla enthusiasts to go into heavy futurist mode and predict that a company that made 100,000 vehicles in 2017 would take over the world, becoming a massive automaker both in terms of production and sales. 

And that’s not even considering the sideline businesses in solar power and energy storage.

The Saudi factor could defeat any skepticism around that prospect. The biggest impediment to Tesla growing by true leaps and bounds was the capital-intensive nature of its business. Multi-billion-dollar new factories would need to be built, for example.

But the Saudi fund — it’s officially known as the Public Investment Fund and has been around since the early 1970s — is legitimately enormous. Its total heft is debated, largely due to much of it being tied up in Aramco and its troubled IPO, but it could at some point be worth $2 trillion. In any case, it’s still capable of accessing more than $100 billion, making a Tesla equity buyout an easy lift.

What’s tantalizing about such a deal is that it would provide Musk with a veritably unlimited funding partner — and ironically place the globe’s largest oil economy in a pretty big seat at the table to world’s most influential sustainable transportation and energy enterprise.

The public markets had imposed a sort of ceiling on Tesla’s expansion, based on a balance sheet that represented a certain measure of equity value and debt. With that possibly erased thanks to some of the deepest pockets in the known universe, Musk might actually be able to set his sights higher with Tesla that he has with SpaceX and its Mars ambitions.

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