Tesla and a New Saudi International Investment Strategy
Anyone reading a financial publication recently has probably seen the news that Elon Musk has declared his desire to take his groundbreaking electric car and battery company Tesla private after over 8 years as a publicly traded company. This is most likely due to Musk’s disdain for answering to public investors, as well as entertaining the pessimistic outlook of short-sellers who would like nothing more than to see his company fail. There have also been many articles recently about how he would do this and who would invest. One group has been focused on as a player capable of the kind of major investment that would provide enough capital to bring the company private. Musk stated recently that Saudi Arabia has approached him about providing a major portion of the needed investment, and the likelihood that he would engage in such a deal is increasing by the day.
Why would Saudi Arabia, a country made fabulously wealthy by petroleum production want to invest in an American electric automaker that could be described as groundbreaking yet financially fledgling? To answer that question one must understand two main points. First, with the King of Saudi Arabia deferring more and more policy and foreign relations responsibility to his younger son, Mohammad Bin Salman Al Saud, who has gone to great lengths to modernize the Saudi monarchy in many different ways, financially and socially. There has been a shift in their overall international strategy that may have implications all of the world. As part of their new strategy, the Saudis are realizing that they cannot sustain their kingdom on oil revenues in a world that is becoming increasingly electric and that is cutting back on petroleum usage more and more everyday. Investment into the very technology that may replace their current primary revenue generator is a strategy that makes sense.
Perhaps more importantly, foreign direct investment in Saudi Arabia has recently hit an all time low and the Saudi prince has come up with a plan to create an $18 billion investment fund that is designed to partner with foreign investors, with the ultimate goal of increasing the amount of foreign direct investment back into Saudi Arabia. So look for Saudi money to be included in major plans all over the globe. Already Saudis have invested heavily in Southeast Asia, Africa, and the United States. Time will tell whether their investments will further their influence around the world or if they will increasingly modernize their own way of doing things due to the influence of the rest of the modern world on them. Will their gamble of investing in other countries pay off and lead to greater foreign investment in Saudi Arabia, and if so what implications will that have on the energy industry as a whole?