On Friday TSLA – Tesla Inc. closed at $264.77, down $42.75 or 13.90%. For comparative purposes, Tesla also close around $265 in February, 2014, and September 2014, and July 2015, and March 2017.
We all know the story.
Elon Musk tweeted that financing was confirmed to take the company private at $420 per share.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
Yup. “Funding secured”.
Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote. https://t.co/bIH4Td5fED
— Elon Musk (@elonmusk) August 7, 2018
That was a lie. There was no “funding secured”. That tweet caused the stock to rocket up to $380, and then when it became apparent that he was lying, it crashed. The SEC doesn’t like that.
So they were working on a deal where he would pay a fine, and keep his job. But, egomanic that he is, Elon Musk could not accept a deal where there would be the appearance that he had done something wrong. So, with no deal in place, the SEC had no choice but to charge him with fraud.
Elon Musk will lose this battle.
There are three alternatives:
Elon Musk agrees to step back as chairman, and takes on a more ceremonial role, like “Brand Ambassador”, where he tinkers with technology, and someone else actually runs the company.
Second, he doesn’t go quietly, and Tesla slips into oblivion. Tesla is already insolvent, so a bankruptcy filing is not far away if they can’t raise additional cash.
There is a third alternative: Tesla goes private. At $265 per share, Tesla has a market cap of around $45 billion. That’s a lot less than the $70 billion valuation at $420 per share. So, if Elon wanted to take it private, he just saved $25 billion, or more accurately, he needs to raise $25 billion less to take it private. The stock was $180 in December 2016, for a $30 billion valuation, so perhaps the strategy is to crash the stock, take it private, and then he has no worries about the SEC?
I don’t know what will happen, but I have decided that I will stop playing the short game.
I sold my puts on Friday, at a small loss, even though Tesla’s stock is trading lower than when I bought them. However, time value of money being what it is, I still lost money, and there are better speculations as compared to playing this roller coaster ride. I may take a very small position just for fun, but there are better places to put your money.
Like pot stocks.
I’ll have a full report on that next week.
Until then, thanks for reading.
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