Newsletter: Published Tuesday, 14 August 2018.
🚗 So Tesla.
Lots of people pretend they don’t care about stuff they really, really care about.
And while that faux-nonchalant attitude could get you millions of dollars in album sales, sometimes it may implicate you in securities fraud!
Last week, Tesla’s Elon Musk announced via the most acceptable platform available that he intends to take his business worth around $US62 billion private. For a healthy price premium of 20% on the existing share price.
In a flurry of definitely, very self-aware Tweets, Musk took a leaf out of rapper Kanye West’s book and showed the haters he’s in it for the science. For the work. And the naysayers can go clean the barrel of a flamethrower.
But Musk doesn’t have quite the same circumstantial fortune as other hyperbolic Tweeters.
Kanye West - also an enthusiastic Twit - has long been emphatic that he couldn’t care less about downloads or streams or ratings or any of that commercial dross. He is an artist and will make art for whoever wants to listen to it. Or watch it. Or wear it.
But then he released his most recent album and promptly went on a Tweet storm crowing, among other things, that it was the most-streamed thing in the history of the internet and that haters had it coming and he was vindicated. At last. Because Platinum.
So to the casual observer, it looked like he cared about that stuff.
Elon Musk has also been somewhat scathing of public opinion for quite some time. He has long been emphatic that he couldn’t care less about short sellers, or analysts with 'boring bonehead' questions about the future earnings of his business, or whether someone is actually a sexual predator
He is a scientist and will make science for whoever wants to, like, go to space. Or drive electric cars. Or throw flames.
But Tweets that were certainly, definitely not directed at his naysayers, have said things like “short burn of the century comin soon” and “they have about three weeks before their short position explodes” and “the sheer magnitude of short carnage will be unreal”. They kind of gave him away.
So, it’s probably a fair conclusion to draw that both Musk and West care about what people think of them. Possibly a lot.
And they both use Twitter to broadcast their feelings. Possibly too much.
But the thing for Kanye West is, it doesn’t matter much because musicians are kind of expected to generate hype - even if it’s hyperbolic - in order to generate sales. In fact, if a Tweet storm results in money changing hands, that’s great! That’s biz, man!
But for Musk, his Tweets - especially if they are hyperbolic or even, you know, potentially misleading - kind of represent highly market-sensitive information. And so if money is changing hands, that’s not biz, man! Things like that have been found to be securities fraud before!
In this instance, following the August 7 Tweet saying Musk would take Tesla private, the Tesla share price jumped 13 per cent from $340 a share. And some of those shortsellers, those visionless naysayers, might have gotten squeezed. Possibly out of their short Tesla positions entirely.
I mean, if you buy a Kanye West album and he says he doesn’t care about what people think and every track on there is about how much he cares what people think, you might feel a bit disgruntled. You might not buy another Kanye album but you don’t really have legal rights to ask for your money back.
But if you take a short position on a Tesla share and then the CEO says he’s going to take the company private, which the market thinks is a great idea, and then you lose all your money but it turns out he was just hyped up or underslept or whatever, you’re going to be more than disgruntled. And you might even have the securities regulator (the Securities and Exchange Commission or SEC) on your side. Because this is the kind of stuff they look at.
But hey! It’s only potentially securities fraud if he doesn’t take Tesla private. Musk Tweeted last week “Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote.”
That sounded like an investor had secured funding to take Tesla private at $420 a share.
And it turns out - in news that broke just a few hours before Musk told the market he wanted to take Tesla private - it was discovered the Saudi Arabian sovereign wealth fund had built a 3 to 5 per cent holding in the business.
Maybe that was the investor Musk was referring to!
But while it is possible that the Saudi fund thinks that taking Tesla private is a good idea, according to a new Tesla blog post, it doesn’t look like they’ve actually provided the $US70 billion Musk would need.
Which kind of puts Musk in a tricky spot.
He Tweeted that the funding of a private takeover was confirmed. The share price went up. Short sellers lost money. Musk Tweeted some jokes over the weekend that involved “short shorts coming soon to Tesla merch”. It might turn out the funding for a private takeover was not secured. (And because this is 2018, rapper Azealia Banks doesn’t think it is, and she was apparently at his house for the weekend.)
Those short sellers are now suing Musk because they think he might have put information that wasn’t true out in the market to move the share price and make them lose money.
So unlike situations where Kanye West may say he doesn’t care about what people think and then takes action that indicates that he really may care...
...Musk saying that he doesn’t care about short sellers but then proceeding to take action that indicates that he’s got the money to takehis business private at a higher price so those short sellers lose money and he then he also indicates via social media that he maybe does care and might even think it’s funny, well that might actually matter. Particularly if he does not actually have the money to take the business private, after all.
So the SEC is looking into whether his intention in making the announcement was meant to be factual, or intended to manipulate the stock (with the result of squeezing short sellers).
As well as, when he said the investor was confirmed, was the investor actually confirmed?
As one fabulously snarky Twit said: "Can't wait for Saudi Aramco to acquire Tesla and convert all the cars back to petrol.
Stay tuned. This newsletter might literally be out of date by tonight.
The Spaceship Universe Portfolio holds investments in Tesla.
Note: I think this Elon Musk header illustration comes from Tim Urban's Wait But Why website.
When I reverse image search it takes me there, but I can't actually find exactly where it is housed or who made it. Any ideas, let me know at email@example.com.