Elon Musk, the CEO of Tesla Motors, has floated a trial balloon to form a Holding Company for SpaceX and Tesla that are two of his well-known companies.
Why would Mr. Musk do this? I believe that Mr. Musk and his management at Tesla have tried–without success–to raise cash for Tesla at its current share price of $28.50.
Probably prospective investors have told Tesla they will buy in at $10 to $15 a share, but not at the prevailing price. Tesla needs lots of dough to keep the operation going–between half and three quarters of a billion dollars–or else it will simply run out of working capital to keep the doors open. That amount does not include the almost half billion dollars of DOE loans Tesla was given by the Obama administration.
Tesla has taken and is holding over a hundred million dollars of customer deposits on cars it has yet to manufacture and yet to deliver. As many as 12,000 well-off and want-to-be-green folks gave Tesla these deposits for the privilege of being the first on their block to own a breakthrough vehicle.
On August 22nd it was reported that Tesla had finally produced 100 of their Model S vehicles. Tesla reported net equity of $62 million at close of business on June 29, 2102. They are probably bleeding money at the same rate they did in the previous quarter, at the rate of approximately $30 million a month. Therefore as of this moment, Tesla probably has zero or negative net equity and is desperate for cash.
Mr. Musk has one rising star in his portfolio of companies. That is SpaceX–a company that has contracts from Uncle Sam to launch space-bound payloads for the US government. SpaceX has some value, while Tesla is a pretend auto company with an overvalued share price. Musk may therefore believe he has to blend the two companies to raise the maximum amount of money for Tesla while issuing the minimum number of shares.
A vivid analogy for the joint holding company is that SpaceX will be left holding the trash bag of the soon-to- drop Tesla. Mr. Musk should rather admit to the utter failure of his stillborn wunderkind and let his other prodigious child soar into space carrying cargo rather than making them conjoined twins. But he needs Uncle Sam as a customer for SpaceX, and if Tesla fails he will be red-faced with the Department of Energy loan guarantees.