Gene Munster’s first research note on Tesla this week appeared after CEO Elon Musk tried to clear up the questions on his plan to take electric car company Tesla private that he first revealed last week on Twitter.
Munster wrote that Musk, with his blog post, “fills in the blanks” from that original cryptic assertion on Twitter that he had secured funding to take Tesla private at $420 per share.
But to me, that blog post on the Tesla website seemed to have as many blanks as a page out of a Mad Libs story. And who announces a deal on Twitter, anyway?
After talking to Munster, it’s clear he’s remaining as professional as possible when sharing his thoughts on a potential transaction that was disclosed in the wackiest possible way.
Munster clearly knows it could be months before funding is secured to take Tesla private, if it ever is. Yet he appreciates the rationale for taking Tesla out of the public market. He gives the prospect better than 50 percent chance of closing. And he appreciates, even with his obvious flat spots, the entrepreneurial gifts of Elon Musk.
Given his star status in technology, you think you’d be calling up a flamboyant personality, but on the phone Munster comes across pretty much as he does on TV — measured, serious and Midwestern friendly.
Munster is a venture capitalist in Minneapolis and a high-profile technology analyst. He’s frequently on TV talking Tesla and other prominent companies. He is best known for making an early and savvy call at Piper Jaffray & Co. to buy Apple stock, hanging on for the very long ride up.
Munster and colleagues formed Loup Ventures at the start of 2017 with an unusual business model for venture capital. They wanted to keep writing research on new technologies and technology companies, in part to attract the attention of high-potential entrepreneurs who need venture money.
One reason Munster has been such a fan of Tesla is because its promise of ushering in the age autonomous electric vehicles fits perfectly into a Loup Ventures theme of artificial intelligence making all our lives better.
When Musk tweeted of taking Tesla private at $420 per share, Munster said Loup declined to publish an immediate reaction for fear this was some sort of joke, particularly as the number 420 is often associated with smoking pot. As Munster put it, “We didn’t want to play into a joke.”
Of course, anybody who knows how businesses work already suspected Musk was talking nonsense in that first tweet. Funding secured? The money can’t be considered secured until notice comes from the bank that the promised wire transfer has arrived.
Musk’s latest clarifying blog post didn’t help much. The entrepreneur said he had discussed his plan to take Tesla private with representatives of Saudi Arabia’s sovereign wealth fund. He was convinced after their last conversation in July that the managing director wanted to go ahead.
Seriously? That’s like me tweeting that I got the mortgage for that $8 million Lake Minnetonka house because my neighbor the mortgage broker said it sounded good when we talked at the block party.
On Friday, after an interview with Musk appeared in the New York Times, it was clear not much was secure in Musk’s business life, as he carried the burden of getting Tesla through a very trying year and getting himself through a crisis that his tweet had ignited.
In Munster’s view, all Musk really has at this point is the apparent support of the company for going private.
The details are still unknown, although Musk’s plan is to take new money from Saudi investors or whomever else will provide it and buy out the public shareholders who want out. Musk owns about one-fifth of the company, and he hopes to persuade most of the remaining shareholders to stay in as it becomes private.
That means what’s really on the table is just delisting and deregistering the company’s public shares, a process sometimes called going dark.
Munster says the company really would be better off privately held, in part to end what Munster called an unprecedented “vortex of activity” around the company, like the intense media scrutiny and a vocal tug-of-war going on between bulls and bears over the stock.
Going private has plusses
Munster also said Tesla might have an easier time ramping up its output of Model 3 cars, the smaller and lower-priced sedans meant to broaden the appeal of the brand, as a private company. Investors care about Model 3 production rates so much that Loup had an analyst camped out for three days outside Tesla’s factory at the end of last quarter just to count new cars coming out.
A company with a longer than three-month time horizon wouldn’t be trying to re-engineer the manufacturing process at the same time it tries to ramp up the production rate.
As for the long-term view, Munster remains bullish. In reading through his work, it’s clear he sees both the company and Musk as once-a-generation investment opportunities. Yet that doesn’t make him a Musk apologist — he still scolded Musk in a July open letter on his recent erratic behavior.
On Friday morning, after the Times published a story discussing how much pressure Musk was under, Munster pushed out another research note, this one entitled simply “Managing the Weight of Success.”
“I’m always surprised at how supportive people who have left Tesla are. It’s a very different dynamic” than with other big tech companies, Munster said, explaining in our call one reason he came to be a fan of Musk. “I remember a recent meeting with two founders that had come from Tesla, and I asked at the end of the meeting … and it was almost to the point it was annoying, how positive they were.
“He has a way of inspiring employees on this crazy-good mission they’re on,” Munster continued. “There are really very few people out there who can inspire like he can.”
Munster acknowledges he’s risking his reputation a bit, holding bullish views on Tesla. Yet it’s unlikely he regrets betting on Musk, who Munster regards as at least a little misunderstood.
No ordinary entrepreneur has a real shot at upending a traditional global industry with something like $2 trillion in annual sales. No ordinary entrepreneur would even try.