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Saudi Arabia's Tesla investment builds on pivot to clean energy and tech, analysts say

Saudi Arabia, August 9, 2018

Saudi Arabia is capitalising on a global pivot towards clean energy where it has made further inroads with its most recent investment in electric-car maker Tesla.

Investing in Tesla is in line with the Saudi sovereign wealth fund's strategy to fund cutting-edge technology, increase foreign investments and back renewable energy projects as part of a wider plan to reduce its reliance on oil, analysts said.

'Having a holding in a company that leads innovation in electric vehicles makes sense to ensure that this technology can then also be applied as quickly as possible in the kingdom,' Gus Schellekens, partner at Ernst and Young's climate change and sustainability services, said. 'There remains a need for the kingdom to continue its holistic engagement with all forms of clean energy and if anything, to accelerate this in the coming years.'

The kingdom's sovereign wealth fund, the Public Investment Fund, has built a stake of three to five per cent in Tesla, according to a Financial Times report. The stake, estimated to be worth about $2 billion, would make the fund one of Tesla's biggest shareholders.

PIF did not immediately respond to The National's request for comment. Shortly after the FT report, Tesla founder Elon Musk shocked Wall Street with a tweet announcing his intentions to take the company private in what would be the largest deal of its type.

Six directors on Tesla's nine-member board confirmed on Wednesday that Mr Musk put forward the proposal last week. The directors said in a statement they are 'taking the appropriate next steps to evaluate this.'

PIF, which hopes to control more than $2 trillion in assets by 2030, is a key driver of the Saudi government's plans to diversify the economy away from oil under a transformative strategy known as Vision 2030. This has propelled PIF's investments into projects ranging from $45bn in a technology fund run by Japan’s SoftBank Group to building the $500 billion futuristic robot-focused city Neom on the Red Sea. The fund has also invested $3.5bn in Uber. The kingdom is increasingly focused on solar and wind energy projects, with Tesla becoming the latest foray in clean energy and innovative technology.

'Tesla is the only meaningfully sized pure-player in the clean vehicle space, so PIF may find scarcity value in that,' Joel Levington, Bloomberg Intelligence analyst, said.

The fund is investing in companies it considers innovative and on the forefront of emerging technology trends, analysts said.

“It is clear that the Saudi PIF is investing in companies that it considers transformative, market-moving and can transfer technology to Saudi Arabia,' Anas Al Hajji, an independent Dallas-based oil analyst, said.

Mr Musk plans to take Tesla private at $420 per share, according to a tweet on his official account.

'The reason for doing this is all about creating the environment for Tesla to operate best,' Mr Musk said in a letter to Tesla employees on the company's blog.

Going private would free the company from the close scrutiny of the market and allow it to focus on its long-term goals rather than the quarterly expectations, he said.

'Musk has a mission that’s admirable: He wants to save the planet and move us towards sustainable energy, he doesn’t want this constant questioning, criticism from shorts and other bears on Tesla stock,' David Kudla, the chief executive of Mainstay Capital Management, said. 'The flip-side is that it's bleeding cash, it's not the typical company that's attractive for a takeover but there's a lot of hype around it, it's a story stock.'

At $420 a share, the company would have a value of approximately $82 billion including debt, which means Musk would have to pull of the biggest leveraged buyout in history to take the company private.

Musk said the 'funding is secured' without elaborating on where it would come from.

Analysts agreed that further information about the source of funding needs to be made clear soon. Mr Musk's tweets emerged almost half an hour after the FT report of PIF's shareholding in Tesla.

'Musk needs capital to take the company private and the Saudi PIF could certainly provide that,' Ellen R. Wald, president of Transversal Consulting and author of Saudi, Inc., said.

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