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Abu Dhabi, UAESunday 16 December 2018

Tesla shares tumble in Germany trading after private-plan U-turn

Stock drops 5 per cent on Monday following surprise turnaround over privatisation plan by CEO Musk on Friday

A Tesla dealership in Brooklyn, New York City. The firm's shares could be heading further south. Getty 
A Tesla dealership in Brooklyn, New York City. The firm's shares could be heading further south. Getty 

Trading in Tesla shares in Germany on Monday pointed to a 5 per cent drop when US markets open as investors reacted to chief executive Elon Musk's decision to abandon plans to take the luxury electric car maker private.

Mr Musk said in a blog post late on Friday that consultations done with the help of Goldman Sachs and Morgan Stanley had shown most of Tesla's existing shareholders opposed the deal he proposed on Twitter three weeks ago to widespread shock on Wall Street.

Tesla's shares, already down nearly 10 per cent from their level on August 7, just before Mr Musk tweeted that he had "funding secured" for a buyout at $420 a share, fell 5 per cent in trading in Germany to $263.50.

With the Silicon Valley billionaire's proposal for a buyout off the table, investors will focus on Tesla's efforts to become profitable, the company's cash reserves and what steps Mr Musk could take to raise fresh capital.

He and Tesla also face a series of investor lawsuits and the threat of a US Securities and Exchange Commission investigation into the factual accuracy of Mr Musk's tweet that funding for the buyout deal was "secured".

Tesla had $2.78 billion in cash at the end of the second quarter, after a record $718 million loss.

In early August, before the buyout plan was made public, Tesla reiterated a forecast that it would achieve a profit in the third and fourth quarters, under normal accounting rules, and Mr Musk said the company would not need to raise more cash.

A Tesla spokesman on Sunday referred to those previous comments.

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One of Tesla's biggest challenges is ramping up production of its latest vehicle, the Model 3, which is critical to its profitability goals.

Analysts have suggested a capital increase may be required soon to boost investor confidence.

Mr Musk and Tesla could hold off on any fundraising plans for the time being, in part because tapping capital markets would contradict his comments about Tesla being adequately funded, investment bankers who are not working for the company said over the weekend.

This week would also be an inopportune time for a capital raising, given that many bankers and investors are away ahead of the September 3 US Labour Day holiday.

The high price investors have put on Tesla's shares has allowed Mr Musk to expand US production, invest in building out a vehicle charging network and start work on new models including a small 4x4, a new Roadster and a semi-truck even as the company burned cash.

Tesla earlier this year announced plans to build a battery and vehicle assembly complex in China. Mr Musk said this month that the company's "default plan" would be to fund that expansion by borrowing money from Chinese banks.