Why Saudi Arabia Would Want to Invest in Elon Musk and Tesla
At first blush, Elon Musk and the Kingdom of Saudi Arabia may appear to be strange bedfellows. The latter is a country that owes its massive wealth to Big Oil, and the former is a Silicon Valley entrepreneur determined to “accelerate the transition to sustainable energy” with electric cars and solar panels.
But, according to Musk, who recently made news when he talked and tweeted about taking Tesla private, the investors controlling Saudi Arabia's sovereign wealth fund have approached him multiple times since the beginning of last year. Most recently at a meeting on July 31 which, according to his blog post, Musk left “with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving." (Whether that counts as “funding secured,” as he tweeted on August 7, is a question Securities and Exchange Commission regulators are looking into.)
“At first people would think, why aren’t they buying into Ford or GM? But if you dive deeper, it makes a lot of sense,” says Thomas Knapp, an entrepreneurship and innovation professor at USC. The country's ruling family is well aware that the world is looking to move away from fossil fuels, and the man called "the power behind the throne," Crown Prince Mohammed bin Salman (known as MbS,) has a plan, known as Vision 2030, that’s supposed to wean the kingdom off the black stuff, diversify its economy, and develop new income streams from trade, tourism, infrastructure projects, and public services like health care and education. And, of course—show the region, and the world—how well it’s doing.
Buying Tesla would certainly send that signal. It also would align with some of the other big projects the country is involved in, including plans to build a $500 billion megatropolis on the Red Sea coast, which will be powered by clean energy, and possibly have more robots than humans, if you believe the hype. The sovereign fund has also made other tech investments, most notably $3.5 billion in Uber in 2016, as well as in Virgin’s space business and a tech fund run by Japan’s SoftBank. “Saudi Arabia is very much pushing to understand how new technology can be helpful to them,” says Knapp.
Musk’s goal of making Tesla the world’s most advanced car company plays to the same audience. “The Saudis want to put forward the idea of a modernizing monarchy,” says James Gelvin, a Middle East specialist at UCLA and author of The New Middle East: What Everyone Needs to Know. These projects capture world attention, he says, and “that tends to entrench the regime and demonstrate that it has the capacity to do these things.”
Owning a brand viewed as prestigious, like Tesla, comes with the same cachet, in a way investing in Ford, Fiat, or even Ferrari never could.
Another Gulf country, Dubai, provides a model for how to diversify like crazy and make money in other sectors. Dubai has built a tourism industry, also based in no small part around superlatives. It has the world’s tallest building, the Burj Khalifa (although Saudi Arabia is building the Jeddah Tower, which will be 591 feet taller). It has private islands shaped like the world, visible from space. And it has the world’s only 6-star hotel.
Saudi Arabia may also be looking west, to Norway, for inspiration. The Scandinavian country also made billions from the sale of oil and gas, and accumulated the world’s largest sovereign wealth fund. It used some of that money to grant generous subsidies to electric car buyers, and now more EVs are sold there than gas cars, giving the country a well-earned reputation as a leader in green transport technology.
There are some ways that Musk may mesh well with Saudi investors. As spelled out in a new series of interviews in Wired UK, Musk abhors red tape and the status quo, and will throw everything at making his vision real.
Similarly, in the Middle East, seemingly outlandish projects can be shoved through with the sheer force of royal will. In Dubai, that means giant man-made islands in the shape of palm trees erupted from the waters of the Gulf and new 10-lane roads and a monorail linking up once remote areas. Now, Dubai and Saudi Arabia are both working with Virgin Hyperloop One to make a different Musk-imagined transport technology a reality.
But, despite its heft, even the large Saudi fund is unlikely to afford buying out all Tesla shareholders single-handedly. And Musk, in his latest missive, says he doesn’t expect them to. That would take about $70 billion, but Musk says he expects two-thirds of people who own shares now to stay with the company and roll over to the private Tesla. That could include other large players, like Softbank (which owns 5 percent) and pension and institutional investors. So the Saudi Arabian fund would be one partial owner amongst several—they'd all just be private owners instead of shareholders on a public exchange, with all the reporting and performance requirements that entails. That will water down the influence that Saudi Arabia has on the company, and you can bet that Musk will structure any deal to make sure he’s not handing over any control.
Saudi Arabia’s politics are very different from those of Silicon Valley. Women only just won the right to drive in June, and the country is accused of human rights violations against religious minorities and dissidents. But similar issues haven’t held companies back from accepting Chinese money, and Knapp doesn’t believe that’ll happen here either. “Saudi Arabia will talk very much about the progress it’s making,” he says. “Had women not been able to drive, and they owned a car company, that could be very different.”
To Musk it might be a no brainer, but, despite his dislike of red tape, there’s going to be plenty involved in a move like this. Just look at all the name-checks on his latest tweet: “I’m excited to work with Silver Lake and Goldman Sachs as financial advisors, plus Wachtell, Lipton, Rosen & Katz and Munger, Tolles & Olson as legal advisors,” it says. That’s before Tesla’s board has to approve a plan, and shareholders have to vote for it. Charge those Telsa batteries, there's a long road ahead.
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