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 be simply known as “X,” longtime Tesla shareholder Dave Lee suggested, in a nod to Musk’s ownership of “X.com” from his PayPal days.
Musk notoriously entertains changes, big and small, to his companies in Twitter’s public square. In 2018 he even suggested one so large (and largely baseless) — taking Tesla private using “funding secured” from Saudi Arabia — that he wound up in court.
It was only five years ago that Google surprise-announced a similar shakeup
But the idea here isn’t so far outside the realm of possibility. It was only five years ago that Google surprise-announced a similar shakeup, creating the Alphabet holding company and splitting some of its bigger and bolder projects out into their own ventures alongside the search giant but still under that new umbrella.
If Musk is entertaining something similar after thumbing through Twitter, let’s have a think on what that would even look like.
The most straightforward way for Musk to create X could be to roughly follow that Alphabet model. The big difference is SpaceX, Neuralink, and The Boring Company are all separate entities that exist outside of Tesla, the only publicly-traded business of the bunch. Let’s start with Tesla, since that’s where most of the action will have to take place.
Here’s the hilariously paper push-y way Alphabet deal was structured: Google created a wholly-owned subsidiary called Alphabet. It created another new wholly-owned subsidiary underneath Alphabet called “Maple Technologies.” It then merged Maple and Google to create a new version of Google that was, you got it, wholly owned by Alphabet.
As for Google stockholders:
Each share of each class of Google stock issued and outstanding immediately prior to the Alphabet Merger will automatically convert into an equivalent corresponding share of Alphabet stock, having the same designations, rights, powers and preferences and the qualifications, limitations and restrictions as the corresponding share of Google stock being converted. Accordingly, upon consummation of the Alphabet Merger, Google’s current stockholders will become stockholders of Alphabet. The stockholders of Google will not recognize gain or loss for U.S. federal income tax purposes upon the conversion of their shares in the Alphabet Merger.
In other words, Google basically said “sit tight while we change things up, and when we’re done you’ll now own a slice of Alphabet worth the same amount.”
The same could be done with Tesla. Create a Tesla subsidiary called “X,” create a merger entity underneath that, and then combine the merger entity with Tesla. Tesla shareholders transform into equivalent shareholders of X, deal done.
The trouble would more likely be philosophical
Well, not so fast. X would then have to bring the other three private companies into the fold. Instead of being able to just shuffle them around, like Google did with businesses like Nest, or Calico, X would probably have to acquire SpaceX, Neuralink, and The Boring Company.
That shouldn’t be too difficult since Musk is the majority owner of those companies. The trouble would more likely be philosophical. Tesla’s stock price is currently very high because a lot of people believe in the company. But how would people perceive the value of X stock if it includes these other operations? Would X stock be subject to the fewer dramatic swings since the company’s value would be less dependent on Tesla’s performance? Things of that nature.
Combining the four companies under X could help Musk further sell his futurist vision (making humanity run on sustainable energy, settling other worlds, etc.). More boringly, it could help him consolidate the various companies’ financial or human resources departments, which was a benefit Google sought with Alphabet.
Okay now let’s get weird.
Musk buys Tesla
What really doesn’t gel about going the Alphabet route is Musk... kind of despises that Tesla is a public company. Here’s what Musk wrote when he tried to take Tesla private back in 2018:
As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. 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. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.
Tesla’s in a much better place financially now, so it doesn’t have to worry so much about the second and third point there. But the overall message still tracks. Musk would rather manage his businesses with fewer prying eyes. Would he really expose SpaceX, Neuralink, and The Boring Company to the same kinds of pressures by folding them into a public holding company?
Probably not, so how do you solve that?
Tesla is the only public company of the three currently, so... take it private. Yep. Let’s run the whole funding secured experiment all over again, but forget trying to sell it off to Saudi Arabia, or Apple. Let’s get weirder.
Seems like the least Ellison could do
Musk is now the second-richest man in the world, currently worth around $140 billion. He probably can’t come up with all the money it would take to buy out Tesla at its current valuation north of $600 billion — especially since half his shares in Tesla are already pledged as collateral and the company’s board has limited him to borrowing just 25 percent of the value of any additional shares. It’s also unclear how much of his SpaceX shares are pledged as collateral. But using his ownership in all four companies as the basis for loans, one could see him taking a fair-sized bite out of that $600 billion price tag.
He would need still some serious partners to join him in buying out Tesla. Perhaps billionaire and Tesla board member Larry Ellison? Seems like the least Ellison could do after Musk brought him into the fold following the funding secured debacle, and turned what was a modest investment into what is now many billions of dollars.
Musk does seem to love Tesla’s most loyal shareholders, to the point that he tried to promise that they would still own part of the company during the failed go-private transaction in 2018 — an idea that confused experts — so maybe he could find a way for them to be involved, too. Whatever consortium Musk draws up could just stand in for X, acquire Tesla, and then bring the other companies into the fold.
Musk creates one of the special purpose acquisition companies, or SPACs, that have been oh-so-hot this year and calls it X. He kicks it off with a lot of his own money (likely from leveraged Tesla and SpaceX shares) and the stock price immediately soars once it starts trading, because a) it’s a SPAC and that’s just how things work now, apparently, b) its existence as a vehicle for brute force capitalism excites the masses, and c) it’s Elon Musk. SPAC X becomes a blank check behemoth, he uses it to buy Tesla and the other companies,
Unsatisfied with merely theorizing what the laws should be on Mars, Musk establishes the first Mars Stock Exchange. He models it after terrestrial stock exchanges, but with tweaks to reduce some of his least-favorite aspects (like quarterly reporting rules or that pesky Securities and Exchange Commission). Nobody is quite sure if it’s legal, or “real,” but then again the Outer Space Treaty didn’t exactly go long on financial regulation now, did it?
As you can see, Musk has a few options if he really wants to create the kind of world-beating conglomerate that only shows up in the movies. It may be a long shot, but that’s sort of his whole thing. No wonder he thinks it’s a good idea.