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Why Goldman Sachs doesn't think Tesla is the next Dell

The electric-vehicle maker's potential privatization has been compared to Dell's, but analysts aren't seeing an exact likeness
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CEO Elon Musk tweeted Tuesday that the electric-car maker may go private

Tesla Inc (NASDAQ:TSLA) CEO Elon Musk tweeted Tuesday afternoon that the electric-auto maker may soon go private, citing the pressure and short-term view of quarterly reporting as well as his distaste for short sellers. In the days following, analysts had some questions about the possibility of privatization and just how that would work for the US$60bn company.

Goldman Sachs on Wednesday analysts posed a few questions about a potential management buyout in a research note.


Musk’s tweet proposed the price point of US$420 per share. The analyst estimated that with around 186.5 million diluted shares outstanding, the equity value comes to about US$78bn.

Add approximately US$6bn in adjusted net-debt and the enterprise value comes to US$84bn, which is nearly 24 times Goldman’s estimated EBITDA for 2020 and about 18 times the Factset consensus.

READ: Tesla CEO Elon Musk takes Wall Street on a wild ride, considers taking electric automaker private


Whether or not US$420 is a fair price may depend on an investor’s perspective on Tesla’s growth, according to the analysts.

Goldman’s upside scenario sees Tesla achieving mass-market volume, around 2 million to 3 million vehicles in 2025. The base case forecasts around 800,000. In the upside scenario, shares are valued at around US$411 per share.

“Of course, our base case valuation implies a much lower potential value per share for Tesla — given the slower growth rate and forecasted lower margin profile,” wrote analysts.


Following Musk’s tweet, one Twitter user expressed concern about what going private would mean for long-time investors.

Musk responded that he was hoping that all investors would remain if the company did go private, floating the idea of a special purpose fund similar to SpaceX. Shareholders can buy or sell every six months.

The analysts did forecast some potential issues with transition Tesla’s current shareholder base, stating that there may not be enough liquidity for large institutions with the current fund ownerships.

“While we take no view on the potential conversion rate of public to private shareholders, we note that incremental equity or leverage could potentially be needed to help finance an MBO,” wrote analysts.

READ: Tesla faces SEC probe after Elon Musk's tweetstorm about going private, says WSJ

Dell Comparison

The possibility of privatization reminded some investors of Dell, another high-profile company to go the way of a leveraged buyout back in 2013. The computer giant’s management led a buyout for US$25bn, financed through a mix of ownership stake, cash, debt and equity.

While Musk’s proposition is somewhat similar, Goldman analysts don’t see an exact comparison. The analysts characterized Dell as a company with a more mature product and growth profile.

Goldman reiterated its Sell rating on Tesla’s shares.

Shares of the automaker were down around 2.5% to US$360.57 in Thursday morning trading.

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