NEW YORK  - Global dominance is the key to a Tesla buyout paying off. Investors taking a company private often aim to double their money in five years. For that, Chief Executive Elon Musk would have to leave rivals for dust, according to a newBreakingviews calculator.

Buying out the $60 billion electric-car maker at a premium could value it at nearly $80 billion, allowing for cashing out convertible debt, options and the like. Say two-thirds of existing owners, including Musk with 20 percent, roll their holdings into the private company. Then assume, fairly boldly, that Tesla might be able to roughly double its debt to a bit over $20 billion, covering part of the buyout of other investors.

That would give Tesla a going-private equity market capitalization approaching $70 billion. Taking that to over $130 billion by 2023 would be no easy drive. Let’s say by then the more mature company can justify a price-to-earnings multiple of 15 times, roughly double what most major carmakers trade at, rather than the 49 times estimated 2020 profit it currently sports.

Tesla's cheaper, relatively low-margin mass-market Model 3, with help from the prototype Model Y, will account for 80 percent of unit sales by then, in Breakingviews' analysis. Still, to be generous, assign a 2023 pre-tax margin of 11 percent – again, significantly better than most established rivals.

Crunch all that, and Tesla would need to sell around 1.9 million vehicles in 2023. That’s a sevenfold increase on what the company is on track to produce this year, and close to BMW's global output.

That means not only rapid expansion by Musk, but also that the likes of Toyota, General Motors and Volkswagen will fail to compete. Some 4.2 million all-electric vehicles may be sold globally in 2023, Citigroup reckons. Tesla would need to be making nearly half of those - and there's rampant domestic and international competition in China, already the world's biggest car market.

Tesla may yet achieve elements of its more sweeping electric-power vision. And widespread robotaxis could allow automakers to rake in 10 times what they currently earn selling and servicing vehicles, GM estimates. Both look a long way off, though, leaving any partners in a Musk buyout running on a lot of faith.

On Twitter https://twitter.com/AntonyMCurrie 

CONTEXT NEWS

- The Securities and Exchange Commission has sent subpoenas to Tesla about Chief Executive Elon Musk’s plan to take the company private and his tweet that the funding was “secured,” Fox News reported on Aug. 15.

- Tesla’s two biggest shareholders after Musk each sold more than 3 million shares in the second quarter, Bloomberg reported on Aug. 14.

- Tesla’s board on Aug. 14 set up a special committee to evaluate any proposal by Musk to take the company private. It comprises three directors: Brad Buss, who was finance chief at another Musk company, SolarCity, before Tesla bought it in 2016; Robyn Denholm, chief operations officer at communications company Telstra; and Linda Johnson Rice, CEO of JPC and Fashion Fair Cosmetics.

- Musk first tweeted about wanting to take Tesla private on Aug. 7.

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(Editing by Richard Beales and Martin Langfield)

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