Musk at bay: Will Saudi cash help Tesla rid the world of...

Musk at bay: Will Saudi cash help Tesla rid the world of oil?

Chris Middleton reports on the latest twists and turns in the saga of Elon Musk and Tesla, as Saudi Arabia could help him take the company into private hands, while the SEC launches an investigation into possible market manipulation.

Internet of Business says

UPDATED 16 AUGUST The expression ‘a bull in a china shop’ has often been used to describe a reckless individual upsetting everyone around him, while sending his own achievements crashing to the ground. The term certainly applies to Elon Musk this year, although he could also be seen as a bull in a pen, trying to free himself from investors’ lassos, while becoming ever more angry and volatile.

But is the bull about to be tamed by an even bigger beast: the world’s oil economy lynchpin?

2018 has certainly been a rough ride for the serial entrepreneur and Tesla, SpaceX, and Boring Company chief. In the early Spring he was a media darling, a new Steve Jobs for the electric transport and private space-faring age, firing roadsters into space, landing his reusable rockets, and launching experimental satellite constellations to bring broadband to rural areas.

However, after the fatal crash of a Tesla car in March, a different Musk began to emerge from behind the inspiring, futurist image that had ignited the imaginations of millions worldwide.

This alternative Musk was egocentric, short-tempered, and seemingly unable to cope with criticism, while Tesla attempted to micro-manage media outlets (see Internet of Business, passim) and Musk sought to discredit negative press coverage, in Trumpian ‘fake news’ style.

But not all of the criticisms came from the media. Days after the crash in California, the US National Transportation Safety Board (NTSB) slammed Tesla for releasing information about the accident without alerting the agency beforehand, as it was obliged to do. The NTSB said, “We take each unauthorised release seriously. However, this will not hinder our investigation.”

The impression was that Tesla, again, was trying to seize control of media messaging rather than follow standard protocols.

In June, Tesla was one of several frictionless transport companies criticised by insurers in a BBC report for misleading customers with inaccurate product names – such as Tesla’s ‘Autopilot’ software.

The Association of British Insurers said that the way some advanced vehicles are described “can convince motorists that they have self-driving cars when that is not the case”: a point that has repeatedly been put to Tesla by Internet of Business.

The company has never responded to our question about its product name putting owners at risk, despite correspondence on numerous other points.

Safety first

Despite hostility in some quarters of the media, Tesla was swift to defend the safety record of its technologies after March’s accident, which saw the value of its shares plunge in a sell-off.

“Over a year ago, our first iteration of Autopilot was found by the US government to reduce crash rates by as much as 40 percent. Internal data confirms that recent updates to Autopilot have improved system reliability,” it said.

“In the US, there is one automotive fatality every 86 million miles across all vehicles from all manufacturers. For Tesla, there is one fatality, including known pedestrian fatalities, every 320 million miles in vehicles equipped with Autopilot hardware. If you are driving a Tesla equipped with Autopilot hardware, you are 3.7 times less likely to be involved in a fatal accident.”

So why isn’t that message getting through to the world outside its CEO’s circle of acolytes? The company’s problem is that Musk’s personal profile and drive – which are so critical to Tesla’s success – now frequently overshadow its achievements; the downside for any company made in the image of a ‘maverick’ CEO.

Even the sober voice of the UK’s FT recently used the phrase “reality distortion field” to describe Musk’s current approach to business – a phrase previously associated with Steve Jobs when he was leading the resurgent Apple.

Diving for brickbats

In July, Musk’s public image took a further battering, but this time the whole world was watching. His attempts to design rescue solutions to help a group of trapped boys in a cave in Thailand were dismissed by some experts as disingenuous and publicity-seeking. The criticisms caused Musk to lash out at one rescue diver in the notorious ‘pedo’ tweet that undid much of the world’s goodwill towards the multibillionaire.

Tesla’s onboard battery of a CEO appeared to be catching fire and burning out.

Musk is a man who – like some other leaders, perhaps – would be well advised to step away from social platforms for the good of his own organisation and career, but is unable to do so because he thrives on adulation.

But for some people today, of course, social media are the only media that count. On the one hand, they offer a personal and immediate publishing channel free of editorial control, media agendas, and gainsaying, but on the other, a hall of mirrors for anyone with narcissistic leanings: the ultimate me-me-meme, a world of followers (22.3 million in Musk’s case), not readers.

Cuts and money problems

Production, battery, and financing challenges piled further burdens on Musk’s shoulders during the summer, so he could be forgiven for showing the strain.

In July, Musk signed a preliminary agreement with the Shanghai government to build a Tesla factory in China, to help alleviate its production problems. The new facility will reportedly manufacture 500,000 vehicles per year, effectively doubling the company’s electric vehicle production (when combined with its existing factory in Fremont, California).

Given the growing trade war between the US and china, which has resulted in Tesla raising the price of its Model S and Model X vehicles by 20 percent in China, the company will be eager to sidestep rising trade tariffs – in a climate in which US authorities are increasingly intolerant of domestic companies’ relationships with China.

But the strain of years of developing a market-leading business had already left its mark. In June, Tesla announced that it was cutting nine percent of its workforce, in what the CEO described as both a “difficult, but necessary reorganisation” and a “comprehensive organisational restructuring”.

“Tesla has grown and evolved rapidly over the past several years, which has resulted in some duplication of roles and some job functions that, while they made sense in the past, are difficult to justify today,” he wrote.

“As part of this effort, and the need to reduce costs and become profitable, we have made the difficult decision to let go of approximately nine percent of our colleagues across the company.”

Musk added that making money had not been a motive throughout Tesla’s 15-year history, during which it had never turned a profit.

However, Musk’s announcement made clear that while the company was still motivated by its “mission to accelerate the world’s transition to sustainable, clean energy”, it would “never achieve that mission” unless it could demonstrate that it “can be sustainably profitable”.

But more recent developments have suggested that Musk now believes the company can never succeed while it is shackled by the short-term interests of some Wall Street investors.

Private investigations

On 7 August, Musk took to Twitter again to announce that he planned to take Tesla private, suggesting that funding was “fully secured” for the deal – prompting the US Securities and Exchange Commission (SEC) to launch an investigation (see below) into whether the statement was accurate, and commentators to suggest that lawsuits from new and existing investors could follow.

The company’s share price rose by ten percent in the wake of Musk’s tweet, gains which have largely been lost in the days since.

As the FT put it, “One of the aims of Mr Musk’s plan to take Tesla private, he has said, is to allow it to mass produce electric cars profitably, without needing to hit short-term sales and earnings targets that place its shares under pressure from short-sellers betting on a fall in market value.”

On 11 August, Sky News reported that Musk was indeed being sued for a scheme concocted to “decimate” short sellers – as if that were somehow a bad idea for the world economy.

The same need to restructure and renew the organisation without being subject to the relentless scrutiny of short-term investors’ interests persuaded Michael Dell to take his company private earlier this century, only for Dell re-emerge into the public markets in a smarter, IoT-centric form this summer: an epic piece of financial engineering that Musk may be seeking to emulate.

However, according to an update from Musk on 13 August, the “secured” funding to take Tesla private comes from a controversial source, which some may see as standing against or compromising Tesla’s commitment to clean, sustainable, renewable energy: Saudi Arabia – or more accurately, Saudi Arabia’s sovereign wealth fund.

Last week the FT revealed that Saudi Arabia’s Public Investment Fund (PIF) had been “quietly building a three to five percent stake in Tesla”, conceivably as a bet on a post-fossil-fuels world.

Whatever the fund’s motives, the irony of a shared journey towards a world of electric, self-driving vehicles ending up as a private venture backed by Saudi Arabia – one of the world’s top two oil producers and a deeply repressive human rights regime – is impossible to ignore.

The Committee on Foreign Investment in the US has the power to block deals on national security grounds – something that has recent precedent, given the White House’s recent scuppering of the Broadcom/Qualcomm deal. But that may not be an impediment in this case.

Musk explained that his 7 August claim that the funding was “fully secured” followed a series of meetings over a two-year period, including conversations with the managing director of the PIF, Yasir Al Rumayyan, an ally of Saudi crown prince, Mohammed bin Salman.

Musk claimed in his update this week that the PIF has expressed renewed support for proceeding with a deal to take the company’s shares off the public markets. Such a deal would be funded principally through equity, he added, with roughly two-thirds of the shares held by existing investors ported over to the newly private company.

But was this detailed explanation from Musk a clear-sighted leadership tactic, or the rear-guard action of a man seeking to repair the damage from yet another reckless tweet – which one unreliable witness has alleged was made under the influence of drugs, according to this extraordinary report on Techcrunch?

Or is the truth that Musk is driving himself so hard that he is falling apart and making serious errors of judgement? Journalist and fellow entrepreneur Arianna Huffington – who knows him personally – certainly thinks so. She has published an open letter to Musk, urging him to take a break and replenish his energies – rather than work 24×7, as he is apparently doing.

In one sense, the facts – whatever they are – have become irrelevant: through his own volatility and growing lapses in judgement, Musk has made himself the story, but not in the way he intended. From now on, his every word will be leapt on, investigated, and criticised by the media, rather than taken at face value.

In turn, this is likely to make him even more volatile and unpredictable at a time when people are becoming more interested in those facets of his personality rather than his many impressive achievements.

This vicious circle does neither Tesla nor SpaceX any favours, nor their sincere attempts to make the world a bolder, more imaginative, more ambitious, and sustainable place, with clean energy and communications for all.

And it is not only the media that are grabbing the tail of this volatile bull. On 15 August the SEC subpoenaed Tesla over Musk’s 7 August tweet, saying that while companies can announce material details of deals and business relationships on social media, they are not allowed to mislead investors.

If the organisation concludes that Musk’s tweet overstated the nature of the financing discussions with Saudi Arabia, it could form the basis of a market manipulation case against Tesla – just as it tries to exit the public markets entirely.

So Musk’s putative partners now find themselves in discussions with an entrepreneur whose company is being investigated for possible market manipulation. They will either have to back or distance themselves from his comments, which have so far proved self-defeating.

Musk claimed that he had decided to speak publicly about taking the company private because, “it wouldn’t be right to share information about going private with just our largest investors without sharing the same information with all investors at the same time.”

“To be clear […] I am speaking for myself as a potential bidder for Tesla,” he added.

Of course he is. So the question today is one that seemed unlikely to be asked earlier this year – if ever – as a Tesla roadster headed silently into outer space: if the deal goes ahead, will Saudi Arabian money support Tesla’s vision to rid the world of its reliance on oil?

Ask that question again and consider all the implications.

So has the bull found a rider, a saviour, or a partner who will tame it for good?

Answers in a 3am tweet, please.

Since this report was published, Morgan Stanley and Goldman Sachs have both dropped Tesla’s stock rating and are no longer providing investor guidance on the company, suggesting that moves to take the company private are advancing. Goldman Sachs is known to be advising Tesla on its privatisation plans, and so is also seeking to avoid any conflict of interest.

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