Tesla shares rise 11 percent after Musk's shocking tweet

08 August, 2018, 09:23 | Author: Kathy Ellis
  • Elon Musk

"Gene Munster, a partner at the venture capital firm Loup Ventures, said that taking Tesla private "makes a ton of sense", for the following reason: "[Musk's] missions are big and make it hard to accommodate investors' quarterly expectations".

Asked on Twitter whether Musk would continue to be CEO under such a scenario, he replied there would be "no change". At market close, Tesla's market cap stood at $63.87 billion.

The Silicon Valley company faces a make-or-break moment in its eight-year history as a public company as competition from European automakers is poised to intensify with new electric vehicles from Audi and Jaguar, with more rivals to follow suit next year. Even as the world's 31st-richest person and Tesla's largest shareholder, Musk would be reliant on outside funding for any buyout since his fortune is highly illiquid. As he explained "Being public ... 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".

In contrast, private companies have a smaller number of shareholders-generally fewer than 2,000-and are not available for purchase on public markets.

Musk views short sellers as people who don't understand his company [.] It's similar to the relationship between Trump and the media. This is not to say that it will make sense for Tesla to be private over the long-term.

"This is great news for any bondholder any way you spin it", said Ross Gerber, chief executive of Gerber Kawasaki Wealth and Investment Management who owns both the convertibles and the stock. He said in his letter to employees that he did not seek to expand his ownership. It would be one of the biggest go-private deals on record with a price tag of about US$72 billion, based on US$420 per share. "Our guess is there is a 1 in 3 chance he can actually pull this off", wrote Gene Munster of Loup Ventures, adding that Mr. Musk's proposed premium over Tesla's existing share price might not be enough to persuade shareholders to sell.

Call options, which convey the right to buy shares at a fixed price in the future, were particularly busy and logged significant price gains on the day.

Tesla Motors CEO Elon Musk is considering taking the company private, saying it would be less distracting that the "enormous pressure" of meeting quarterly financial targets. He made no mention in his tweets or his letter of where the funding for a deal would come from.

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Tesla stock was trading at about $355 a share before Musk's tweet.

Musk argued that his other major company, SpaceX, offered a good model for Tesla to emulate.

China's Tencent Holdings, which took a 5 percent stake in Tesla previous year, is another possible partner.

The US Securities and Exchange Commission (SEC) allows companies to use social media outlets like Facebook and Twitter to announce key information in compliance with its fair disclosure rules so long as investors have been alerted about which social media outlets will be used to disseminate such information.

However, some analysts were skeptical that Mr. Musk could engineer a buyout.

In fact, Tesla has turned a narrow profit in only two quarters since it became a public company in 2010. "Plus, this is short squeeze rocket fuel after a nice quarter".

Tesla shares rose 11 percent Tuesday, meaning short sellers lost about $1.3 billion in mark-to-market losses, according to estimates from Ihor Dusaniwsky, S3's head of predictive analytics.


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