Tesla Inc (Nasdaq: TSLA) stock went bonkers on Tuesday, jumping 11 percent in the afternoon when CEO Elon Musk used his personal Twitter account to announce plans that the company could go private at $420 per share.
After a flurry of follow-up tweets, Tesla stock halted trading for nearly 90 minutes before the company issued a statement that confirmed the publicly traded company was considering going private. That statement was written by Musk, this time in his official status as Tesla chief.
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These were very, very strange circumstances.
Is Tesla going private? The official statement didn’t confirm that, but seemed to imply things were moving that way. Here’s a timeline of the events that got TSLA stock going on Tuesday: Out of the blue, Musk tweeted Tuesday afternoon, at 12:48 p.m.: “Am considering taking Tesla private at $420. Funding secured.”
TSLA stock instantly shot 5 percent higher, and those gains got bigger throughout the day.
“I don’t have a controlling vote now & wouldn’t expect any shareholder to have one if we go private. I won’t be selling in either scenario.” Musk tweeted at 1:40 p.m.
“My hope is *all* current investors remain with Tesla even if we’re private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity’s SpaceX investment.” Musk tweeted at 2 p.m.
As the stock continued drifting higher, there was still no official word from Tesla itself, and there was lots of confusion over whether Musk was serious, why he wanted to take his company private, why this was how Musk chose to announce it and so on.
When the stock was halted at 2:08 p.m., TSLA was up 7.3 percent, or $24.95, to $366.94.
While shares were halted, Musk kept tweeting cryptically about the idea, which he seemingly couldn’t keep to himself for just a few more hours, until the market closed at 4 p.m.
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“Shareholders could either to sell at 420 or hold shares & go private” Musk tweeted at 2:13 p.m.
Problems with Musk’s tweet process. Originally, some Twitter users and Wall Steet talking heads thought Musk was “trolling,” perhaps targeting the short-sellers with his comments. But that would be a terrible strategy, considering market-moving “jokes” would be frowned upon by the Securities and Exchange Commission.
An intentionally misleading tweet revealing market-moving information like this would be market manipulation, but it’s a hard charge to prove, since intent must be shown.
But if the substance of Musk’s tweets themselves weren’t true, and those tweets containing inaccuracies moved the market, Musk could be guilty of fraud of some kind.
Thankfully, the letter from Tesla in the late afternoon shows Musk wasn’t pulling legs.
Why does Musk want to take Tesla private? “I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve,” Musk says in the letter, which was written to Tesla employees Tuesday.
The letter does not identify exactly how the going-private process would be financed.
Tesla has earned a notorious reputation on Wall Street for promising the moon and never delivering. After Tesla second-quarter earnings, the company doubled down on its goals to both break even and have positive cash flows in the third and fourth fiscal quarters.
Most TSLA stock analysts are very skeptical this can happen. Aside from that momentous challenge, Musk has repeatedly vowed that Tesla will get through 2018 without another capital raise. The going-private transaction may in fact be the most logical way to grow the company — but not have to lie to Wall Street (or destroy its credibility there) to do so.
In other words, it’s possible that Musk is taking Tesla private so he can raise money for Tesla from whatever sources he wants, whenever he wishes, without having to catch grief if Tesla misses a self-imposed production deadline or becomes known as a promise-breaker on Wall Street.
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Aside from the ambitious profitability goals, Tesla had also guided for Model 3 production between 50,000 and 55,000 in the third quarter, up 75 percent to 92 percent from the previous quarter. It’s possible Musk and Tesla still aren’t out of “production hell” and that those figures were turning out to be too optimistic, too.
“Basically, I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible,” says Musk in the letter.
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Tesla Inc (TSLA) Stock Soars on Elon Musk’s $420 Buyout Tweet originally appeared on usnews.com
