Elon Musk Confirms That Saudi Arabia Wealth Fund Offered to Take Tesla Private

author: Jacky Ho   

Tesla CEO Elon Musk made headlines last week when posted on Twitter about taking his electric car company Tesla private. In his tweet, Musk said that the funding is already secured and recent reports hint that Saudi Arabia's sovereign wealth fund has stepped up a possible major investor. Today, Musk clarified what led to his announcement on Twitter.

In a blog post today, Musk said that the Saudi Arabian sovereign wealth fund offered to fund taking the all-electric automaker private during a meeting on July 31. However, the talks have started over 18 months ago.

Musk confirmed in a blog post that the Saudi Arabian sovereign wealth fund approached him multiple times about taking Tesla private. He said they first met with him at the beginning of 2017.

The Saudi Kingdom's Public Investment Fund (PIF), which already owns around 5 percent of Tesla, is exploring how it can be involved in any potential deal to take the electric carmaker private, according to people with knowledge of the fund's plans.

"I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving." Musk said. "This is why I referred to ‘funding secured' in the August 7th announcement."

Musk added that he has continued talks with the managing director of the Saudi fund who wishes to move forward with the process. According to Bloomberg, the PIF sees its investment in Tesla as a strategic way for the world's biggest crude producer to hedge against oil, said the people, who asked not to be identified.

The Public Investment Fund approached Musk several months ago to discuss buying a minority stake, but he initially resisted the investment and said there were no plans to issue new shares, according to a different person familiar with the talks at the time. As a result, PIF itself decided to buy about $2 billion in Tesla shares on the market with the help of an investment bank, the person said.

At Musk's buyout price of $420 per share, the cost of taking the automaker private is $82 billion. Saudi Arabia's sovereign wealth fund is one of the few investment funds with deep enough pockets to take such a major stake in Tesla. Tesla's stock rose 11 percent last week after Musk's surprise announcement.

Musk's tweet stating that he secured funds for the proposed buyout already sparked two separate lawsuits and a preliminary probe by the Securities and Exchange Commission, which is seeking proof that Musk had in fact secured financial backing.

In a blog post to press the case that Tesla should go private, Musk attempted to address his critics who have attacked his tweet and questioned whether he may have engaged in stock manipulation or securities fraud.

Musk has publicly expressed contempt for Tesla's short sellers on Wall Street, who continutally bet that the company's shares will fall. Musk himself owns 20 percent of Tesla and $60 billion would be needed to buy the business from public shareholders.

The plan to take Tesla private will draw intense scrutiny from the electric-car maker's board, advisers and investors. Tesla board members are preparing to meet with financial advisers this week to evaluate Musk's proposal.

Previous discussions over taking Tesla private have also included Japan's Softbank. Musk and SoftBank Group's Masayoshi Son held meetings last year that included talks of taking Tesla private, two people with knowledge of the talks have said to Bloomberg. The discussions failed to progress due to disagreements over ownership.

Softbank is Uber's largest shareholder and owns about 17.5 percent of the ride-hailing company.

However, SoftBank has no plans to participate as a potential source of capital in a deal taking Tesla private, according to people with knowledge of that matter who asked not to be identified as the details aren't public. Among the reasons is that SoftBank has already placed big bets on the future of the automobile with General Motors, with a $2 billion investment in Cruise, the automaker's self-driving car unit. GM purchased Cruise for $1 billion in 2016.

PIF, as it's known, is central to the Saudi government's effort to diversify the economy away from oil, under a plan known as Vision 2030. The fund was set up in 1971 to support projects of strategic significance to the Saudi economy. Until recently, the fund focused mainly on its home market.

In a tweet on Sunday, the nation's Energy Department said that Saudi Arabia currently is working to develop a city to support the supply of raw materials and parts for the automobile industry. The goal is to reduce imports, increase exports, encourage foreign investments and provide jobs.

Musk has said he still expects to own about 20 percent of Tesla after any transaction, and that he hopes all shareholders will remain owners of the private company.

Jacky Ho