Fund managers may soon discover which of them was right about Tesla after the company's founder warned he would take it private.
The swirl of conjecture around Tesla moved to a higher pitch yesterday evening (7 August) when its founder and chief executive Elon Musk revealed on social media he had the funding to take the company private after a story by FTAdviser's sister publication, the Financial Times, revealed Saudi Arabia's sovereign wealth fund had built up a $2bn stake in the business.
Mr Musk said he planned to take the company off the market by paying a price of $420 (£325) a share.
Since issuing the original message, which prompted Tesla's share price to rise by 11 per cent to $379 a share, Mr Musk emailed employees reiterating his intentions.
Tesla is the stock with the most short positions on the US market, with about 27 per cent of the free float of the shares held by investors who are betting the companies share price falls.
But the Scottish Mortgage investment trust, a £7bn fund, and other Baillie Gifford funds are major investors in Tesla, and combined are the fourth largest shareholder in the company.
James Anderson who runs the Scottish Mortgage trust, has been a vituperative defender of Mr Musk and has repeatedly said he is unconcerned by short-term factors such as quarterly earnings reports, and has invested in the company due to the long-term potential of the technology.
Of the latest developments, the managers of the Scottish Mortgage investment trust said: "As long term shareholders, we will take time to reflect upon this development."
Last month Mr Anderson wrote to Mr Musk in protest has the Tesla founder's comments on the rescue of children from a cave in Thailand.
Mr Musk tweeted that one of the rescuers who helped the children was a paedophile, despite there being no suggestion this allegation is true, and he later apologised for this.
James Clunie, who runs the £1.5bn Jupiter Absolute Return fund, is one of the long-term sceptic of the investment case for Tesla.
He said: "Tesla is a classic example of a 'glamour' stock where tales of the company’s plans to revolutionise the auto sector and domestic energy market run up against arguments about profitability, rapid cash burn and the true worth of the business."
Cash burn is a phrase used by investors to describe a situation where a business is consistently spending more on a day-to-day basis than it is earning.
Mr Clunie said the shares were deeply fashionable with investors because it is involved in exciting areas such a electric car manufacture, but his said investors were ignoring the financial fundamentals of the business, and those are the ultimate arbiter of a company’s fate.
Meanwhile Simon Edelsten, who runs the £92m Artemis Global Select fund, which has returned 89 per cent over the past five years, compared with 65 per cent for the average fund in the IA Global sector in the same time period, said he finds it difficult to understand the true value that should be placed on Tesla shares, due to the number of unknowns associated with the company’s business model.
david.thorpe@ft.com
