Elon Musk's tweet about going private costs Tesla short sellers $1.3 billion

08 August, 2018, 09:24 | Author: Shannon Aguilar
  • Elon Musk at a Tesla

Musk, who has previously discussed possibly taking Tesla private, has had bumpy relations with Wall Street, often dismissing questions over financing.

Tesla CEO Elon Musk said Tuesday he was considering taking the company private at a price of $420 a share, posting his intentions on Twitter and causing the stock price to jump 7 percent before trading was temporarily halted around 2 p.m.

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But even for him, this was stunning. He has frequently lambasted "short" sellers of Tesla shares - those who take bets that the stock will fall in value.

Tuesday's gains following the tweet added to upward movement on the stock after The Financial Times reported earlier Tuesday that a Saudi Arabian sovereign wealth fund had built a stake of between three and five percent in the company.

In two minutes, the shares, apparently set to ludicrous speed, had gained 4 percent - to $371.

The immediate question was whether Musk was joking.

Musk said that he expects Tesla to eventually return to being a public company.

Munster notes that Musk's other companies, SpaceX and The Boring Company, are private firms. Sometimes trading in stocks is even suspended while a company prepares a big announcement.

This seems to fit in with what experts are saying about the potential move, and with what Musk himself has said, historically.

In contrast, private companies have a smaller number of shareholders-generally fewer than 2,000-and are not available for purchase on public markets.

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Representatives for the Saudi fund weren't immediately available for comment on the investment, which the Financial Times first reported earlier Tuesday. Either they can stay investors in a private Tesla or they can be bought out at $420 per share, which is a 20% premium over the stock price following our Q2 earnings call (which had already increased by 16%).

He reassured investors that he planned to remain CEO. "Will ensure their prosperity in any scenario".

Going private, Musk said, would end "negative propaganda from shorts", referring to his hated short-sellers.

Musk has been under intense pressure this year to turn his money-losing, debt-laden company into a profitable higher-volume manufacturer, a prospect that has sent Tesla's valuation higher than that of General Motors Co. He repeatedly apologized to analysts during a second-quarter earnings call last week.

And Tesla also released an email to its employees in which Musk argued going private would release the company from "wild swings in our stock price that can be a major distraction for everyone working at Tesla".

This is especially true for a company like Tesla that has a long-term, forward-looking mission. And then there are the short sellers. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.

Elon Musk has said he is considering taking his electric sports vehicle company Tesla off the stock market and into private ownership.

"This has nothing to do with accumulating control for myself", he said. I own about 20% of the company now, and I don't envision that being substantially different after any deal is completed.

Musk's tweets, though, might present a bigger problem.

"Investor support is confirmed. Only reason why this is not certain is that it's contingent on a shareholder vote".

Shares ended the day up 11%, just below $380. What do his latest tweets mean for the future of Tesla?

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