Musk Tweet, Shareholder Lawsuits Cap Roller Coaster Week for Tesla

Tesla Inc. and CEO Elon Musk are facing lawsuits from two investors, capping a roller coaster week in which Musk asserted the company was moving closer to long-term profitability, saw positive analysis of earnings from its mega-battery in Australia, and tweeted that he had investors in place to take the company private.

The Financial Times also revealed that Saudi Arabia’s Public Investment Fund (PIF) had taken a US$1.7- to $2.9-billion stake in the company earlier this year.

“Musk said he had secured funding to take the company private at $420 a share, far above its pre-tweet price of $355, in a deal that could value the company at more than $70 billion,” the Washington Post reported. “In a letter to employees Tuesday afternoon, Musk added that a final decision had not yet been made and that the proposal would need approval from a shareholder vote.”

The lawsuits flew three days later, the Thomson Reuters news service recounts. One of the suits, from plaintiff Kalman Isaacs, asserts that “Musk’s tweets were false and misleading, and together with Tesla’s failure to correct them amounted to a ‘nuclear attack’ designed to ‘completely decimate’ short-sellers.”

Thomson Reuters explains that short-sellers are investors who “borrow shares they believe are overpriced, sell them, and then repurchase shares later at what they hope will be a lower price to make a profit.” Musk has long resented the practice, and apparently believes that some of the negative news reports his company has sustained have been intended to talk down the stock.

Musk’s August 7 tweets drove Tesla shares up 7% before trading was suspended, though it has since lost two-thirds of that increase. “The move prompted immediate blowback from market and legal experts because it broke precedent with how companies traditionally unveil such monumental news: by halting trading or distributing official releases so as not to unduly jolt the markets or boost their share price,” the Post noted.

“What chaos,” said securities law and corporate governance advisor Teresa Goody, a former U.S. Securities and Exchange Commission official. “It is not reasonable to expect investors to monitor and keep track of Elon Musk’s tweets.”

“Isaacs said Tesla’s and Musk’s conduct caused the volatility that cost short-sellers hundreds of millions of dollars from having to cover their short positions, and caused all Tesla securities purchasers to pay artificially inflated prices,” Thomson Reuters notes.

Incredibly, that wasn’t the only Tesla news over the last week to 10 days. The week before the tweet, “Tesla shares made their biggest one-day jump in nearly five years,” RenewEconomy reported, “after second quarter results call that featured apologies and promises—of a sustained production rate of 7,000 cars a week and a ‘sustainably profitable’ business from Q3 onwards.” The stock rose 16%, costing short-sellers more than US$1 billion.

“Wall Street seems to have been impressed by the form this quarter from CEO Elon Musk, who apologized to analysts he sparred with in the May conference call, and thanked his team for a ‘mind-blowing leap forward’ in manufacturing,” RenewEconomy notes, citing a MarketWatch report.

The company still reported a $718-million operating loss for the second quarter of the year, compared to $336 million over the same period last year. But “from an operating plant standpoint, from Q3 onwards, I really want to emphasize our goal is to be profitable and cash flow positive for every quarter,” Musk said.

RenewEconomy also reported that the Hornsdale Battery Reserve, also known as the Tesla Big Battery, earned an estimated A$2.5 million in its first three months of operation. “Assuming it replicates this in the second six months of this year, we can say that HPR will have gross takings of around $18 million per calendar year,” the publication states. “This is surely very satisfying to its investors, for just 30 megawatts of its 100-MW capacity.”