Did Elon Musk’s Tweets Jeopardize the Tesla Inc Share Price?

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Elon Musk Tweets: The Backstory

Should Elon Musk stop tweeting? Believe it or not, that’s the question investors are asking as shares of Tesla Inc (NASDAQ:TSLA) continue to drop.

It’s a good question too, given that TSLA stock has stumbled ever since the famous CEO started his 280-character tirades about short sellers, the media, and everyone else who supposedly wronged him.

At first, his tweets seemed harmless. Musk used them to connect with investors, customers, and fans—all of whom were drawn to his grandiose visions of the future.

It was Musk’s strategy to circumvent the media. And if he occasionally fired back at critics, all the better. It seemed like a small price to pay for controlling the narrative around Tesla stock.


But then Musk started to go off the rails.

He lashed out at the media with accusations of “fake news.” When an underwater vehicle he designed failed to rescue 14 Thai boys stuck in a cave, he got into a feud with one of the divers who did save the children, calling the man a “pedo”—short for pedophile.

It turns out that these were warm-up acts. Last week, Musk nearly broke the Internet by saying Tesla might leave the public stock market for greener, and more guarded, pastures.

“Am considering taking Tesla private at $420,” he tweeted at 1:48 pm on a Tuesday, right in the middle of trading hours. However, that wasn’t the scandalous part. What truly shocked investors were the two little words that followed: “Funding secured.”

Markets went absolutely ballistic. Funding secured? From whom? You could almost hear reporters scrambling to find out who the mystery investor was.

In order for Tesla stock to go private, someone would have to buy most of the existing shares, and that buyer would need deep pockets. About $70.0 billion deep.

Analysts quickly narrowed the field. Major banks knew nothing about the deal. Institutional investors knew nothing about it either. Famous billionaires who throw money at Silicon Valley, like Japan’s Masayoshi Son, were also in the dark.

The only likely candidate was Saudi Arabia’s sovereign wealth fund. Minutes before Elon Musk tweeted, the Financial Times reported that the Saudis had agreed to buy five percent of outstanding TSLA stock.

But then…

Saudi Arabia denied any knowledge of the deal! It was a shocking twist that left many people wondering if Musk had jumped the gun.

What Actually Happened?

Tesla released a note soon after Musk’s tweets. It explained nothing, really. (Source: “Taking Tesla Private,” Tesla Blog, August 7, 2018.)

There was no mention of the mystery buyer, how many shares Tesla expects to buy, how many shares Tesla can afford to buy, or if the company has filed anything with the U.S. Securities and Exchange Commission (SEC). More on that later.

A follow-up note issued several days later told us more, however. (Source: “Update on Taking Tesla Private,” Tesla Blog, August 13, 2018.)

Musk explained that there had been several meetings with Saudi Arabian officials, including one on July 31, saying “the Managing Director of the fund expressed regret that I had not moved forward previously on a going private transaction with them…”

Musk continued, “I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving. This is why I referred to ‘funding secured’ in the August 7th announcement.”

Surely, this isn’t possible. Can the CEO of a multi-billion-dollar company really issue sensitive information based on a few throwaway lines said at a meeting? It stretches the imagination.

Further down in the letter, Musk said that the Saudi investment fund was still interested and that it was asking for more details.

The fund might go forward with the deal, but it’s a long way from being signed, sealed, and delivered.

Is Elon Musk in Trouble With the SEC?

The SEC is now investigating Tesla over the tweets. If it turns out Tesla did not secure funding, the tweet about the funding might be construed as stock manipulation.

Here are two reasons why:

  1. Short-sellers were crushed. Tesla is famous for having more bets against it than any stock in history. By tweeting that Tesla would go private at $420.00 per share, Musk instigated a brief surge in Tesla stock that decimated short positions.
  2. Convertible debt turned into equity. Tesla is heavily burdened by debt. It just so happens that the momentary jump in the TSLA stock price allowed debtholders to swap their bonds for equity, meaning that Tesla would never have to pay them back.

Clearly, the tweet worked to Musk’s advantage. He has been at war with short sellers for years, and Tesla’s debt load is precariously high. Therefore, the SEC could argue that he hit two birds with one tweet.

Analyst Take

Elon Musk is quickly transforming from a celebrated icon into the living embodiment of Icarus—a Greek god who melted his wax wings by flying too close to the sun. Tweeting has turned from being Musk’s greatest strength into his potential downfall.

That’s one reason to worry about Tesla stock. Another is the lack of paperwork concerning the funding deal.

For something this important, you would expect a deal memo, press release, memorandum of understanding—anything that would cement the existence of the funding from Saudi Arabia’s sovereign wealth fund.

Until that paperwork emerges, I’d stay far away from TSLA stock. The deal could evaporate at any second, and with it could go the last of Musk’s credibility.