August 7, 2018
Elon Musk taught every CEO a dangerous lesson today. Musk, CEO of Tesla, tweeted today that
"am considering taking Tesla private at $420, funding secured".
Tesla stock prior close was around $342. After his tweet, Tesla stock shot up almost 11% to close at $379.57 today and rising to $383 after hours at this writing.
Going Private - Dell vs. Tesla
There's a reason there are so many SEC regulations governing what not to say or act by company C-level executives. Let's take Dell as an example. Michael Dell took Dell private in 2013 and Dell stockholders got paid $13.65 per share to leave the company on its own. That price is higher than the $11 range Dell stocks were hovering at.
The point is that rumors did float around about Dell being bought out, but Michael Dell never personally released any statement regarding a target price. Company executives are banned from discussing company stock price due to the potential unfair and biased market-moving effect, let along giving a target price that is 23% higher than the last close of $342.
Greed Knows No Limit
Elon Musk not only set a price target of $420, but also followed up with another tweet minutes later that
"Shareholders could either to sell at 420 or hold shares & go private".
It seems the purpose of this tweet is to twist the knife a bit more to ensure investors not selling Tesla stocks and "encourage" more buying to bring the stock price up to his target of $420.
Greed certainly knows no limit. For a company that has never made a profit in 15 years with cash burn and leverage at insanely alarming rate, Musk actually has the nerve to imply Tesla is undervalued at even $340 level? If this is not the most blatant stock and market manipulation to the umpteenth degree, I cannot imagine what else would top it.
It is one thing that some layman says the same thing, which is not capable of moving the market, it is entirely another when a celebrity CEO such as Elon Musk talks up his books like this.
The Inevitable Reality of Tesla
I'm certain Elon Musk is sophisticated enough to know what he said and did may land him in legal troubles but why did he do it anyway? My assessment suggests Tesla is indeed in serious financial trouble as many analysts have warned, and this looks like Musk's last ditch desperate attempt to hide the records from the public and the SEC before Tesla goes bust.
Then the challenge became how to ensure "desirable" funding and valuation before the buyout -- by propping up the stock price as much as possible by any means, of course. Michael Dell followed the CEO SEC rules and let the market decide the "fair" price which resulted in his equity partners snatched up his company for a song. Elon Musk is not about to let that happen to Tesla which is inevitable as the reality sets in and his charisma and renewed promises can only go so far.
Insatiable Ego in the Wrong Place
Tesla is the most shorted U.S. stock (for good reasons) and Elon Musk has a long standing feud with those short sellers. Musk has moved mountain and earth, laying off many workers and his bizarre earnings call notwithstanding, to keep up with the appearance that Tesla's production ramp-up is on schedule to appease investors as it is sadly the only thing investors can find some consolation. He even went as far as borrowing personal loans to buy Tesla shares, a majority of them at the historical high, creating a less liquid market thus punishing the shorts.
According to Zero Hedge, Elon Musk has personally borrowed $624 million in loans from various investment banks as of March 2017, including Goldman and Morgan Stanley, to buy Tesla stock, and that loan number is estimated to reach $800 million by now. That is almost like colluding with banks that most likely hold Tesla stocks to arrive at a win-win for all. This goes way beyond just a feud with short sellers and yet another desperate act to keep stock price afloat. Again, I do not believe this is even legal for any CEO to artificially manipulate stock price like this.
Fact Speaks for Itself, but Which Fact?
I get that every CEO tends to think their company stock is under-valued due to something intangible the investing community has failed to take into consideration. However, the best way to crush the nay-sayer is to let the fact speak for itself. Make good product at good price dominating the market and let the profits show what your company is really worth.
That $800-million personal loan would have gone a lot further investing back into Tesla to hire higher skilled workers and competent supply chain management professionals. I question the motive and intellect of going as far as borrowing millions of dollars just to buy company stocks for the sole purpose of jacking up the stock price and crushing the shorts.... unless the Tesla fact cannot speak for itself to what Musk wants.
Where Is SEC in All This?
Another reason Musk chose to make such moves is that the current weak SEC and a "tolerant" financial regulatory environment has emboldened almost everyone from the President, Central Banks to … Elon Musk to "dabble" in market moving "tweets" or acts and nothing would ever stick.
On the other hand, many of the Tesla short positions are by very powerful fund managers and institution investors. Musk’s tweet today probably caused enough pain and legal ground for these power houses to launch a legal assault on Elon Musk. Whether it will stick or not probably depends on the bigger political environment after the mid-term and presidential re-election.
Mourning the Loss of Ethical Standards
On a side note, I cannot help but mourn the loss of ethical standards in America today. I am not talking about some high moral ground, but the basic right from wrong.
The response to the Elon Musk’s tweets today centers around if $420 if really Musk’s target, how Musk came up with that valuation (why would anyone even bother to ask?). Most news media I read are in awe that Musk's target of $420 will likely be met in no time. Musk also openly tweeted thanks to investor's support. Yet nobody questions this previously considered taboo illegal act by a prominent CEO.
Government officials and company executives used to be held at a much higher moral and ethical standard so to lead the public by example. That sadly has gradually gone down the drain over the past two decades.