Tesla: Saudi sovereign fund in talks with Lucid
After his bold claim that he is considering taking Tesla private, Elon Musk was bombarded with questions - the most pressing one: "Who could pay the huge amount needed to take the electric carmaker private?". In a recent blog post on Tesla's website, he explained that he has been repeatedly approached by Saudi Arabia's sovereign wealth fund since 2017; he also claimed that the fund wanted him to take Tesla private. Indeed, after the Public Investment Fund (PFI) acquired 5% of Tesla through the markets, Elon met with them again, and their "persistence" led to the widely circulated "funding secured" statement.
Now, although Elon's statements have not been disclaimed, the Saudi fund seems to be moving away from Tesla - or at least, considering other options. An exclusive report by Reuters, citing unnamed sources familiar with the matter, suggests the fund is now exploring an investment in Lucid, a Tesla rival which has, since its founding, recruited a number of high profile Tesla people. Lucid is taking reservations (with a $2,500 refundable deposit) for its inaugural EV, the Air. The Lucid Air is a futuristic sedan which is expected to sell for a price lower to Model S, yet higher than Model 3, starting at $60,000.
As the founder of Tesla said in his blog post, the PFI seeks to diversify its oil-heavy portfolio by investing in Tesla. This seems in line with recent investment choices made by the fund: in 2017, it invested $3.5bn in ride-hailing giant, Uber, and, as of last May, has agreed to invest in tech alongside SoftBank, contributing up to a rumoured $45bn over 5 years. The diversification of Saudi Arabia's portfolio is predominantly made necessary by the low oil prices dictated by the global markets.
Although the investment in Lucid by the PFI has not yet been finalised, it seems that the fund may be making a calculated move by choosing Lucid at this stage. The fund's vast wealth ($250bn) may be enough to support the large investment needed to take Tesla private, but, as explained above, large chunks of it have been committed to other ventures - importantly, other tech-related investments which already provide the needed diversification. Additionally, although Lucid's product seems promising, it still has not delivered a final product and is thus pretty under-the-radar. This may make it a smart investment move - additional cash from the Saudi fund may help it deliver an alternative to Tesla and grab a significant share of the still sparsely populated EV market. Finally, and perhaps most importantly, a direct investment in Tesla for a share price of $420/share could be an overkill at the moment. The share price, announced by Elon Musk, represented a 20% premium over the price the carmaker's shares traded at the time.
As of today, $420/share would represent a near 40% premium over the publicly traded price - after his recent interview with the New York Times, during which he discussed his struggles and health issues prompted by a 120-hour work week, Tesla shares have been trading slightly north of $300, a considerably lower price than the $350 at the time of Elon's privatisation announcement. Considering that the PFI-Lucid talks likely contributed to the Tesla share price plummeting, it will be interesting to observe what a potential closing of the Lucid deal would mean for Tesla. Although the Saudi fund is already invested in Tesla's financial wellbeing (as they currently own 5% of the carmaker), a deal with Lucid could allow them to acquire an even bigger share of the Musk-led automaker through the open market at lower prices.
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