Elon’s Twitter RantsOctober 18th, 2019
Elon Musk behaves impulsively on Twitter. So does everybody else, but Elon is not allowed. He is not allowed because a person in his position could leak material information. He has a lot of cards he is playing close to the chest, so he needs to tread carefully. And apparently the SEC has rules. Control over what he can and cannot say. And if he does say things he shouldn't, he is penalised with threats of contempt which in turn create fear amongst shareholders and cause TSLA abandonment.
But let's look at the damage caused from the tweets in terms of maliciousness on Elon Musk's part.
500K cars in 2019:
Tesla made 0 cars in 2011, but will make around 500k in 2019— Elon Musk (@elonmusk) February 20, 2019
Q1 2019 Elon breaks an agreement he has with the SEC in that his Tweets must be pre-approved. Naughty naught. The SEC claims that vehicle delivery numbers are material to the stock price and therefore must... not be divulged on Twitter? It is Elon's job to divulge these numbers, which he did so publicly which gives everybody a fair chance to react to the stock, but saying it through Twitter is off limits.
Perhaps it has nothing to do with this tweet, but the corrective tweet that follows:
Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k.— Elon Musk (@elonmusk) February 20, 2019
Looking at how this tweet could be as malicious as possible, Elon would have had to intentionally make the first tweet in an attempt to rally his stock. Then he would try to slide in that correction tweet so that nobody noticed and the stock benefited greatly because of it. Well, that definitely didn't happen, at least the outcome.
Now whether Elon is right or wrong, not everybody will agree. But in hindsight, we can definitely see stock behaviour from this news. Prior to the tweet, TSLA was trading around $305.64. The stock was actually down to $297.86 on Feb 26th when the SEC started up with the threats of contempt. For some reason this drove the stock price up for a couple days before crashing down to a 3 year low of $178.97 ~70 days later. Was this all due to the SEC, definitely not. Raising capital, quarterly earnings, Tesla operations, laws and trade wars and government also had impacts at every turn. But to say that Elon did this to benefit is provably false despite any intent.
One has to wonder that if it wasn't for the agreement between Elon and the SEC, would publicly tweeting such material information with corrections still be regarded as out of bounds? Why did they have an agreement in the first place? Oh yeah...
Taking Tesla Private @$420 Tweet
Am considering taking Tesla private at $420. Funding secured.— Elon Musk (@elonmusk) August 7, 2018
By August 8th, Techcrunch was spreading awareness about SEC looking into Elon. According to that article, the stock did gain 10%. Now, whether you feel Elon had good or bad intentions is up to you.
But where would Elon get such a radical idea to take a company private. You need look no further than SpaceX, his other company that is private. If you could ask somebody - "What is better, having the company public or private? Elon Musk might be the most qualified person on Earth to answer that very question.
So the intention of taking the company private is likely well-intended for the betterment of the company. Had he not stated the price, he would have had far fewer issues. As well as stating "Funding secured". The price point was close to justifiable but it was "420". Had the price been so radically far away from $420, I am sure he would not have used some other number, but he rounded from $419. So despite it being a bit funny and an attempt to "impress his girlfriend" the number was higher than current stock price which could cause the share price to go up and it did. I honestly thought he was going to do it. After all, he landed rockets, so... taking a company private didn't seem that hard. If I was any country on Earth, I would be wanting Elon to build a Gigafactory in my country, so funding secured didn't seem much of a stretch to me.
So what really happened? I guess that is between the SEC and Elon. But here is my take. I think Elon made that tweet with every intention on going private. They also took going private seriously as a company but decided to stay public. In that they state:
there is more than enough funding to take Tesla private
This is in line with what I have seen as well. But that was not enough to stop the SEC from sueing Elon Musk for Securities Fraud.
The SEC claimed:
- "These misleading statements, none of which were pre-cleared or reviewed by anyone at Telsa cause significant market confusion and disruption."
- "Tesla's own Head of Investor Relations questioned whether the tweet was even legitimate"
- "Investors and journalists contacted Tesla and asked whether the tweet was a joke"
- "NASDAQ which requires members to give the exchange advanced notice of market moving information, but had received no advance notice of the announcement suspended trading for more than 90 minutes following the tweet.'
- "His tweets that funding was secured and that investor support is confirmed was simply not true. He had neither secured a commitment from any source to provide funding for a transaction nor confirmed investor support. "
- "In fact while leading Tesla's investors to believe they had a firm offer in hand, we allege that Musk had arrived at the price of $420 by assuming a 20% premium of Tesla's then existing share price and then rounding up to $420 because of that significance of that number in marijuana culture and his belief that his girlfriend would be amused by it.
- "Similarly, Musk's claim that the only reason why this is not certain is that it's contingent on a shareholder vote was also false and misleading."
And they allege more. But to be clear, there is a major difference between allegations and what really happened.
Ultimately, Elon should not have made that tweet. It was an impulsive declaration which in turn cost him tens of millions of dollars and did TSLA no favours.
He didn't get away with it. And so we await the next mistake he make publicly for the story to continue.
I am long TSLA and TSLA options. I am not a financial advisor. Investing in anything comes with inherent risk. This is not financial advice.
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