By Liam Proud
LONDON (Reuters Breakingviews) – Saudi Arabia’s Crown Prince Mohammed bin Salman risks picking the wrong driver. The kingdom’s sovereign wealth fund already holds nearly 5 percent of Tesla and expressed interest in taking the electric-vehicle innovator private, according to boss Elon Musk. That’d be a dicey way to diversify away from oil.
At first glance, $60 billion Tesla fits the crown prince’s mandate to reduce reliance on fossil fuels. The company’s Model S was the most popular all-electric car in North America and Europe by sales last year, according to Citi. Musk has also poured money into battery-storage technology. That makes Tesla a natural hedge as and when demand falls for the Gulf state’s traditional cash cow, oil.
Musk reckons about two-thirds of investors would still want to hold shares in a private Tesla. Saudi’s sovereign wealth fund, the likely investment vehicle according to a Monday blog post by Musk, could therefore buy the rest for about $24 billion at the mooted $420 per share price.
Either way, Tesla might not be the wisest way to bet on electric cars. BMW, General Motors and Volkswagen are investing heavily and have enviable production scale and know-how. Tesla’s sales have dipped as much as 30 percent in European countries since rival models launched, Bloomberg reported, citing IHS and government data which Tesla disputes.
Crucially, the buyout price means the crown prince risks paying away much of his potential upside. At $420 per share, loss-making Tesla’s enterprise value of $81 billion including debt is four times 2018 revenue, using Thomson Reuters I/B/E/S. Slower-growing but profitable carmakers are generally valued at around one times revenue. Battery specialist BYD and renewable-energy groups Siemens Gamesa and Vestas Wind are valued at roughly the same level, according to Eikon.
While a shiny new Tesla is cooler than a row of turbines, the crown prince has cheaper ways to play the energy transition.
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