Before Considering Going Private, Tesla Should Look at Dell

Tesla has been rocking the boat and stealing the spotlight with Elon Musk’s hint that the company could be going private.

The argument is that, with lower pressure from Wall Street and public investors, Tesla, and Musk, could focus on more long-term projects and investments without worrying about the consistent returns the public sector demands. This is Musk’s key argument: prioritizing long-term investments over short-term demands from public investors.

Sound familiar? It should. It’s a similar argument as the one Michael Dell used when he took Dell private back in October 2013.

Now Dell, after a complicated deal, is back on Wall Street as of this July. It blasted back onto the market valued between, according to Dell, $61.1 billion and $70.1 billion, nearly triple the $24.9 billion it was valued at when it went private five years ago.

This growth makes it seems like going private was a great move for Dell, but did it really make that much of a difference? The technology market, and computer hardware makers specifically, delivered equally impressive rates of growth and returns during the same period. This implies that going private, perhaps with the exception of Michael Dell’s personal gains, had little impact on Dell Tech’s trajectory.

In the case of Tesla, some might argue that the demands and constraints of the public sector are helpful. They keep the company focused, while the private sector might allow Musk to run away with some of his more fantastical project proposals.

We’ll have to wait and see whether or not the proposal to take Tesla private will actually come to pass. In the meantime, if you’d like to learn more about the private vs. public argument, and how much difference it’s likely to make for a company, check out this fantastic and recent academic study.

 

Sources: Market Watch, The Verge, SSRN