Elon Musk thinks it’s a “good idea” to set up a holding company over Tesla, SpaceX, Neuralink and The Boring Company – at least that’s what billionaire CEO said in response to the idea on Twitter. Such a holding company could simply be known as the “X,” longtime Tesla shareholder Dave Lee suggested in a nod to Musk’s ownership of “X.com” from his PayPal days.
Musk is notoriously entertaining changes, big and small, to his businesses in Twitter’s public space. In 2018, he even proposed one so big (and largely unfounded) – to take Tesla privately using “funding secured” from Saudi Arabia – that he settled in court.
But the idea here is not so far beyond the reach. It was only five years ago that Google surprised a similar shake-up, creating the Alphabet holding company and splitting some of its larger and bolder projects into their own projects along with the search giant, but still under the new umbrella.
If Musk entertains something similar after thumbs up through Twitter, let’s think about what it would even look like.
Repeating alphabet
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, all of which are separate entities found outside of Tesla, the only listed company in the herd. Let’s start with Tesla, as this is where most of the action will have to take place.
Here’s the fun paper-push-y way the Alphabet deal was structured: Google created a wholly owned subsidiary called Alphabet. It created another new wholly owned subsidiary of Alphabet called “Maple Technologies.” Then Maple and Google merged to create a new version of Google that you got, wholly owned by Alphabet.
Easy, right?
Regarding Google shareholders:
Each share in each class of Google shares issued and outstanding immediately before the Alphabet Merger is automatically converted into a corresponding equivalent share of the Alphabet Share with the same designations, rights, powers and preferences and qualifications, restrictions and limitations as the corresponding share of the conversion Google shares. Therefore, at the end of the Alphabet Merger, Google’s current shareholders will become shareholders in the Alphabet. Google shareholders will not recognize gains or losses for U.S. federal income tax on the conversion of their shares in the Alphabet Merger.
In other words, Google basically said “sit tight while we change things, and when we’re done, you now own a piece of the alphabet worth the same amount.”
The same could be done with Tesla. Create a Tesla subsidiary called “X”, create a merger unit below to, and then combine the fusion device with Tesla. Tesla shareholders are transformed into similar shareholders in X, deal done.
Well, not so fast. X will then have to bring the other three private companies into the fold. Instead of being able to just mix them around, as Google did with companies like Nest or Calico, X would likely have to acquire SpaceX, Neuralink and The Boring Company.
It should not be also difficult as Musk is the majority owner of these companies. The problem would probably be philosophical. Tesla’s stock price is currently very high because many people believe in the company. But how would people experience the value of X-warehouse if it includes these other operations? Would X shares be subject to the fewer dramatic fluctuations, as the company’s value would be less dependent on Tesla’s performance? Things of that kind.
Combining the four companies under X could further help Musk sell his futuristic vision (get humanity running on sustainable energy, settle other worlds, etc.). More tediously, it could help him consolidate the financial or human resources of the various companies, which was an advantage Google sought with Alphabet.
Now let’s get weird.
Musk buys Tesla
What really not gel about going the alphabet route is Musk … kind of contempt for Tesla being a public company. Here’s what Musk wrote when he tried to take Tesla privately back in 2018:
As a public company, we are exposed to wild fluctuations in our stock price, which can be a major distraction for anyone working in Tesla, all of whom are shareholders. Being public also exposes us to the quarterly earnings cycle, which puts enormous pressure on Tesla to make decisions that may be right in a given quarter, but not necessarily right in the long run. Finally, as the most short-lived stock in the history of the stock market, being public means that there are a large number of people who have an incentive to attack the company.
Tesla is a much better place financially now, so it does not have to worry so much about the second and third point there. But the overall message is still being tracked. Musk would rather run his businesses with fewer curious eyes. Would he really expose SpaceX, Neuralink and The Boring Company to the same kind of pressure by folding them into a public holding company?
Probably not, so how do you fix it?
Tesla is the only public company of the three at the moment, so … take it private. Yes. Let’s run the whole fundraising experiment again, but forget about trying to sell it to Saudi Arabia or Apple. Let’s get 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 it would take to buy Tesla at the current valuation north of $ 600 billion. – especially since half of his shares in Tesla are already pledged as collateral and the company’s board of directors has limited him to borrowing only 25 percent of the value of any additional shares. It is also unclear how much of his SpaceX shares are pledged as collateral. But by using his ownership in all four companies as a basis for loans, one could see him take a pretty big bite of that $ 600 billion price tag.
He would still need some serious partners to join him by buying Tesla. Maybe billionaire and Tesla board member Larry Ellison? It looks like the least Ellison could do after Musk brought him into the fold after the fundraising debacle, turning a modest investment into what is now many billions of dollars.
Musk seems 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 deal in 2018 – an idea that confused experts – so maybe he find a way for them to get involved too. Whatever Musk consortium works out, it could just be X, acquiring Tesla and then bringing the other companies into the fold.
SPAC X
Musk creates one of the special purpose-acquisition companies or SPACs that has been oh-so-hot this year and calls it X. He kicks it off with a lot of his own money (probably from leveraged Tesla and SpaceX shares) and the stock price rises immediately when it starts trading because a) it’s a SPAC and that’s just the way things work now, apparently, b) its existence as a means of brute force capitalism excites the masses, and c) it is Elon Musk. SPAC X becomes an empty check behemoth, he uses it to buy Tesla and the other companies,
Mars Street
Musk is dissatisfied with simply theorizing what the laws should be on Mars, and establishes the first Mars exchange. He models it after land-based exchanges, but with tweaks to reduce some of his least preferred aspects (like quarterly reporting rules or the annoying Securities and Exchange Commission). No one is quite sure if it is legal or “right”, but again the outer space treaty did not go exactly long with economic regulation now, did it?
Bitcoin
Musk reveals that he is bitcoin creator Satoshi Nakamoto, selling all his coins and buying Tesla.
As you can see, Musk has a few options if he really wants to create the kind of world-beating conglomerate that only appears in the movies. It may be a long shot, but it’s kind of his whole thing. No wonder he thinks it’s a good idea.