Elon Musk’s cult of personality is obscuring the real value in Tesla, this investor says

With the suggestion yesterday that he may take Tesla Inc (NASDAQ:TSLA) private, CEO Elon Musk continues to be a one man headline-generating machine, a feat which ultimately obscures investors to the tonne of embedded value in his company, says Cameron Hurst, chief investment officer at Equium Capital Management.

On Tuesday, Musk tweeted his interest in taking automotive and aerospace company Tesla private at $420 per share, declaring that the funding for such a move had already been secured (all figures in US dollars).

But later that day in an email to employees, Musk said the “wild swings in our stock price” were serving as a “major distraction” for the company and its employees and that going private would free Tesla up from having to pay homage to quarterly earnings cycles.

The news follows on last week’s second-quarter earnings from Tesla, which featured the company’s largest quarterly loss to date, a net loss of $742.7 million, up from $401.4 million a year ago.

Still, revenue of $4 billion beat analysts’ estimates and the company reported that it would not be needing to raise more cash this year and that capital expenses for 2018 would run a little under $2.5 billion, lower than expected. That news drove the price of Tesla shares up 12 per cent in trading last Thursday, followed up by yesterday’s 10.5 per cent jump in response to Musk’s comments.

But investors would be better off ignoring much of the press on Tesla, says Hurst, since it has become too fixated on Musk’s personal antics as well as the production numbers for Tesla’s Model 3 all-electric vehicle.

“This is ultimately one of those cases of signal and noise,” Hurst told BNN Bloomberg Tuesday. “The reality is that there is incredible embedded value [but] everybody is focused on the right here and right now —what was the Model 3 production, did he miss or did he hit it?— and then there’s articles about his father, about his family and all kinds of things that are clouding the issue that there is, in fact, tremendous embedded value in this company, both on the automotive side and, not in the least, the SpaceX side.”

Musk said in a blog post on Tuesday that in taking Tesla private, he had no intentions of merging the automotive company with the privately held space transport and aerospace company SpaceX, one of the world’s most valuable private companies worth an estimated $28 billion. He further clarified that a privatized Tesla would likely be structured similar to SpaceX, which has held funding rounds twice a year on average over the past three years.

Hurst says that there’s a real void of media coverage on Tesla’s hard assets, arguing, “They are definitely talking about the cash burn, that makes sense, but you’ve gotta look at the assets and how you’d value Space X —and that almost never comes in. It’s all about Model 3 and that’s crazy.”