Elon Musk thinks it’s a “good idea” to create a holding company above Tesla, SpaceX, Neuralink and The Boring Company – at least, that’s what the billionaire CEO said in response to the idea on Twitter. Such a holding company could simply be known as “X,” suggested Dave Lee, a former Tesla shareholder, in a tribute to the “X.com” Musk property of his days at PayPal.
Musk famously entertains changes, large and small, in his companies on Twitter’s public square. In 2018, he even suggested such a big (and largely unsubstantiated) – make Tesla private using Saudi Arabia’s “guaranteed financing” – that ended up in court.
But the idea here is not So away from the realm of possibilities. It was only five years ago that Google announced a similar change, creating Alphabet holding and sharing some of its biggest and boldest projects in its own ventures alongside the search giant, but still under the new umbrella.
If Musk is entertaining something similar after browsing Twitter, let’s think about what that would be like.
Musk’s most direct way to create the X would be to follow this Alphabet model. The big difference is that SpaceX, Neuralink and The Boring Company are separate entities that exist outside Tesla, the group’s only publicly traded company. Let’s start with Tesla, as this is where most of the action will have to take place.
This is the hilarious and fun way Alphabet’s business was structured: Google created a wholly owned subsidiary called Alphabet. Created other Alphabet’s new wholly-owned subsidiary called “Maple Technologies”. Then he merged Maple and Google to create a new version of Google that was, you understand, wholly owned by Alphabet.
As for Google’s shareholders:
Each share of each class of Google shares issued and outstanding immediately prior to the Alphabet Merger will automatically be converted into a corresponding equivalent share of Alphabet’s shares, having the same designations, rights, powers and preferences and the qualifications, limitations and restrictions of corresponding share of Google shares being converted. Consequently, after the consummation of the Alphabet Merger, current Google shareholders will become shareholders of Alphabet. Google shareholders will not recognize a gain or loss for United States federal income tax purposes after the conversion of their shares in the Alphabet Merger.
In other words, Google basically said “wait while we change things, and when we’re done, you will now have a slice of Alphabet at the same value.”
The same can be done with Tesla. Create a Tesla subsidiary called “X”, create a merger entity underneath This oneand then combine the merger with Tesla. Tesla’s shareholders become equivalent shareholders of X, a closed deal.
Well, not that fast. X would then have to include the other three private companies. Instead of being able to just shuffle them, as Google did with companies like Nest or Calico, X would probably have to acquire SpaceX, Neuralink and The Boring Company.
This should not be too difficult since Musk is the majority owner of these companies. The problem would most likely be philosophical. Tesla’s stock price is too high today because many people believe in the company. But how would people perceive the value of action X if it included these other operations? Would X shares be subject to less dramatic fluctuations, since the company’s value would be less dependent on Tesla’s performance? Things of this nature.
The combination of the four companies under the X could help Musk to further sell his futuristic vision (making humanity run on sustainable energy, establishing other worlds, etc.). More boring, it could help you consolidate the financial or human resources departments of several companies, which Google was looking for with Alphabet.
Okay, now we’re going to be weird.
Musk buys Tesla
what really Musk doesn’t like to follow the alphabet route … it kind of despises the fact that Tesla is a public company. Here’s what Musk wrote when he tried to make Tesla private in 2018:
As a public company, we are subject to violent fluctuations in our share prices, which can be a major distraction for everyone who works at Tesla, all of them shareholders. Being public also subject 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 run. Finally, as the best-selling stock in the history of the stock market, being public means that there are a large number of people who have the incentive to attack the company.
Tesla is much better off financially now, so you don’t have to worry so much about the second and third points. But the general message still follows. Musk prefers to run his business with fewer prying eyes. Would he really expose SpaceX, Neuralink and The Boring Company to the same kinds of pressures by turning them into a public holding company?
Probably not, so how do you solve this?
Tesla is the only public company out of the three today, so … take it private. Yes. We will repeat the whole experiment with guaranteed funding, but forget to try to sell it to Saudi Arabia or Apple. Let’s take stranger.
Musk is now the second richest man in the world, currently worth about $ 140 billion. He probably can’t come up with all the money needed to buy Tesla at his current valuation north of $ 600 billion – especially since half of his shares at Tesla are already pledged as collateral and the company’s board limited him to borrowing only 25% of the value of any additional shares. It is also unclear how much of his SpaceX shares were pledged as collateral. But, using his stake in the four companies as the basis for loans, you could see him taking a good bite out of that $ 600 billion price.
He would still need some serious partners to join him in the purchase of Tesla. Perhaps Tesla billionaire and board member Larry Ellison? It seems the least Ellison could do after Musk brought him into the group after the guaranteed funding disaster, and turned what was a modest investment into what is now several billion dollars.
Musk seems to love Tesla’s most loyal shareholders to the point of trying to promise that they would still own part of the company during the failed 2018 IPO transaction – an idea that baffled experts – so maybe he could find a way for them to get involved too. Any consortium that Musk formed could just replace X, acquire Tesla and then bring the other companies into the fold.
Musk creates one of the special-purpose acquisition companies, or SPACs, that has been so hot this year and calls it X. He starts with a lot of his own money (probably from leveraged Tesla and SpaceX shares) and the price of stock fires immediately as soon as it starts trading, because a) it is a SPAC and this is how things work now, apparently, b) its existence as a vehicle for brute force capitalism excites the masses and c) it is Elon Musk. SPAC X becomes a blank check giant, he uses it to buy Tesla and the other companies,
Dissatisfied with the simple theorizing of what the laws of Mars should be, Musk creates the first Mars Stock Exchange. He models it according to terrestrial stock exchanges, but with adjustments to reduce some of his less favorite aspects (such as quarterly reporting rules or that annoying Securities and Exchange Commission). No one is sure whether it is legal or “real”, but then again, the Outer Space Treaty did not take long in financial regulation now, did it?
Musk reveals that he is the creator of bitcoin Satoshi Nakamoto, sells all his coins and buys Tesla.
As you can see, Musk has a few options if he really wants to create the kind of global conglomerate that only appears in films. It may be a long shot, but that’s kind of him all thing. No wonder he thinks it’s a good idea.