With a Single, Mysterious Tweet, Elon Musk May Have Just Destroyed Years of Hard Work
The question is: will it end up hurting Musk, or Tesla short sellers?
PHOTO CREDIT: Getty Images
An avid user of Twitter, Tesla CEO Elon Musk has demonstrated his ability to use the social platform for good, bad, and ugly.
But yesterday, he issued what may turn out to be his most important tweet yet.
Am considering taking Tesla private at $420. Funding secured.-- Elon Musk (@elonmusk) August 7, 2018
"Am considering taking Tesla private at $420. Funding secured."
These statements are huge, as Tesla has grown to be one of the most valuable automotive companies in the world--albeit most of this is perceived value based on the company's potential vs. what it has actually accomplished.
In an email sent to employees (and which was posted on Tesla's official blog), Musk explained his reasoning for wanting to take the company private, namely to relieve the pressure of performing under the microscope as a public company.
"As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders," Musk writes. "Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term."
But it was his next statement that many financial experts (and Tesla fans) find most interesting.
"Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company."
Musk has been warring against Tesla short sellers for years. Basically, short sellers borrow shares to sell them, hoping they can later buy the shares back for a lower price. Then they can return the shares to the original lender and make a profit.
Just a few months ago, Musk tweeted that the "short burn of the century" was coming soon.
Financial technology company S3 partners said that Tesla short sellers could see their positions "go up in smoke," as reported by MarketWatch. According to S3, short sellers have already seen a loss of $3 billion in August alone.
If Musk gets his way, the work of these short sellers could be completely destroyed.
But there's another important factor to consider: Some experts question whether Musk's tweet may have broken the law, for example, by manipulating the stock market.
"If [Musk's] comments were issued for the purpose of moving the price of the stock, that could be manipulation," stated Harvey Pitt, former SEC chairman, in an interview with CNBC on Tuesday. "It could also be securities fraud. The use of a specific price for a potential 'going-private' transaction is highly unprecedented, and therefore raises significant questions about what his intent was. So that would have to be investigated."
"He has claimed there's a specific source of the funding so that had better be true," Pitt added. "He's also claimed that there's a specific amount available for funding, and so that has to be true; otherwise, even if it's not manipulation, it would be fraud."
So, while it's not necessarily illegal for Musk to use Twitter to announce news, those announcements better have solid backing.
Can you imagine what would happen to Tesla if Musk ended up in prison for securities fraud?
It's too early to say what the final repercussions of Musk's announcement will be. As he explained in his email, "a final decision has not yet been made" and any "proposal to go private would ultimately be finalized through a vote of [Tesla] shareholders."
However, whether it ends up harming Musk or Tesla short sellers, one thing is certain:
A simple, nine-word tweet has the potential to destroy years of hard work.