Although Elon Musk’s proposed idea of taking Tesla private seems like something totally unthinkable, there really is precedent for this in the auto industry — something that occurred nearly 100 years ago.
Henry Ford, who was to cantankerousness what Musk is to showmanship, was annoyed with minority shareholders who wanted things such as higher dividends to be paid out during the 1910s. The way they thought this could be accomplished was through raising the price of the Model T. Henry was completely outraged by having anyone tell him how to run his business.
Be that as it may, two of those shareholders, who happened to be John and Horace Dodge, sued Ford in 1917. Realize that the Dodge brothers had been associated with Ford since 1903, so this wasn’t a casual relationship that the legendary automakers had. They held 10 percent of the company and were looking for some good returns.
In October 1917, the Michigan State Circuit Court ruled on behalf of the plaintiffs, and Henry was ordered to pay out. He appealed, but in 1919, the Michigan Superior Court upheld the lower court’s ruling.
Henry was so angry that in March 1919, he announced that he would establish his own car company. Needless to say, it was understood by all involved that were Ford to start competing with, well, Ford, he would win. Arguably this was a clever ploy. He owned 58 percent of the Ford Motor stock, and maneuvers such as those caused shareholders to want to sell their stock — which he was more than glad to buy.
On July 11, 1919, the day after the court-ordered dividends were paid out, Henry, his wife, Clara, and their son Edsel purchased the company for some $106 million, the large part of which was borrowed.
But that put Henry in control.
This brings us back to Elon Musk. In his Aug. 7 email to employees, Musk wrote about his rationale:
“[T]he reason for doing this is all about creating the environment for Tesla to operate best. As a public company, we are subject to wild swings in our stock price …”
“Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long term.”
“Basically, I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible.”
All of which sounds exactly like something that Henry might have written.
Back in the early 20th century, Ford Motor wasn’t the only car company going. But it was the most successful.
Today, Tesla isn’t the only vehicle manufacturer going. But it is probably the least financially successful, yet the one that is valued far in excess of those other companies that actually make money along with cars, crossovers and trucks.
Let’s face it: Most OEMs have lots of capacity in a world that has too much capacity. Most OEMs have margins on their vehicles so thin as to be nearly transparent.
A Bloomberg opinion columnist makes the argument that the people who really ought to make a run at taking the company they own 45 percent of private are the Quandts of BMW fame. Columnist Chris Bryant quotes analyst Max Warburton at Bernstein Research who says, “BMW is awash with cash, it’s grossly undervalued … Tesla has negative EBITDA, and couldn’t pay the funding cost for more than a month or two.”
Bryant acknowledges that this idea is likely to stay theoretical: “Of course, all of this is highly unlikely. Like most German family owners, the Quandts are famously conservative.”
In this case, the opposite of conservative isn’t liberal. It’s passionate. Some people own and look at spreadsheets. Some people own and put their offices — or beds — in their factories as they create something.
I would suggest that there may be something else that needs to be considered: Henry Ford was a man who was committed to the point of the extreme. Elon Musk is of that same mold. In the cases of Ford Motor way back when and Tesla Inc. right now, the leaders thought or seem to be thinking about more than earnings. Passion is something this industry can use more of.
Henry Ford was probably looked at by more than one investor as being more than slightly askew. Is Elon Musk any different? Time has proved Henry right. What will it show about Musk?