Tesla’s (NASDAQ:TSLA) CEO, Elon Musk’s Credibility is ‘Shot’
At 1st came the ‘420’ Tweet that funding was secured and Tesla (NASDAQ:TSLA) may go private, then a statement that the money was not locked down after all. Then about 3 weeks later blogs that he cannot do it, so the deal is off.
Welcome to the weird (some say psychedelic world) Elon Musk, 47 anni, the impulsive genius.
Wall Street experts say Tesla is exposed to a hefty fine for misleading investors, and the episode has hammered his credibility with shareholders who have endured multiple unkept promises and years of losses as a public company, as Mr. Musk burns money in ‘production Hell’.
His ‘420’ go-private scheme has taken his credibility ro Zero.
The bizarre ‘420’ story
It began on 7 August when Musk, while driving to the airport (now rumored on LSD), Tweeted he was considering taking the company private and that funding had been secured for the deal.
That investors would be paid 420/share, a 23% premium over the 6 August closing price. No other details were given, but Tesla’s stock spiked 11% on the day.
At 420, buying all Tesla shares would cost around $72-B sans the debt.
Then, in a carefully worded blog post 6 days later, Mr. Musk wrote the money was not locked up, revealing that Saudi Arabia’s PIF was the source of the cash but was still doing its due diligence.
Mr. Musk’s statement said that the Tesla Board and some big investors had been told he was considering taking the company private before he Tweeted that information. He said he Tweeted the disclosure so everyone could have the information.
Mr. Musk owns 20% of Tesla, and he wrote that he expected only 33% of shareholders to sell, meaning the deal would be valued around $24-B.
Then after the close Friday came another carefully worded statement from Mr. Musk’s blog saying that after talking to investors, the plan to go private has been abandoned after both Morgan and Goldie told him that institutional investors had limits on how much they could invest into a private company.
The episode drew attention from the US Securities and Exchange Commission (SEC), which is investigating Tesla for possible manipulation of the stock price. At least 2 lawsuits seeking class-action status also have been filed alleging Mr. Musk broke securities laws by making it sound like financing for the buyout was lined up.
All of us in the business know that the regulations prohibit companies from making misleading statements that influence the markets.
The fact that Mr. Musk has backed off so quickly indicates the lack of veracity in which his 1st statement was made.
The SEC also is likely to look at Mr. Musk’s disclosure to some investors before others, which also is prohibited if there is reason to believe the investors might trade stock based on the information.
On top of all that drama, last week Mr. Musk disclosed in a tearful interview with the NY-T’s that he was stressed out from trying to meet long-delayed production targets for the M3 mass-market EV. He said he was working 120 hours a week and is take the Rx drug Ambien to sleep.
Some Bullish investors still say Tesla has great growth potential. But the Consumer Edge analyst, who had been a Tesla optimist, cut his rating on the company and urged the board to bring on a seasoned executive to help manage it, noting the events of the past few weeks are “enough to make us uncomfortable.”
HeffX-LTN’s Overall Outlook for TSLA is Neutral with a Bearish Bias.
Have a terrific week