Elon Musk’s erratic behavior has continued to confuse onlookers. Whether it’s because of his new girlfriend, the musician Grimes, or because he is over-worked and under-rested, Musk has made a sequence of seemingly inexplicable decisions.
Most recently, Musk announced that he was considering taking his company private… and that he had already secured the funding. Unfortunately, he may have jumped the gun a bit, the consequences of which was a dramatic slashing of Tesla’s stock price forecast.
Elon Musk to Take Tesla Private
Earlier in August, Musk announced his intention to take Tesla private at $420 a share, a bid to remove short sellers and stock analysts from the equation. To be taken private, Musk would need to re-purchase about 33% of Tesla’s shares, a considerable sum of money. However, Musk also stated that the money had already been raised — with the help of the Saudis.
This announcement was controversial for a few reasons. Not only was the idea of a private Tesla less than comfortable for many investors — it is seen as Musk attempting to take over additional control — but Saudi Arabia has a fairly tumultuous relationship with the western world. Further, Elon Musk hadn’t actually secured funding in the right way before making the announcement.
And that isn’t good. There are strict regulations regarding these types of announcements — announcements that can impact and manipulate stock prices.
Potential Penalties and Sanctions
In order to take Tesla private, Musk will need to raise about $10 billion. This is a substantial sum, but he claims that it has been all but guaranteed by the Saudis. Unfortunately, the SEC might not agree. The SEC is already investigating to determine whether Musk was being deceptive when he claimed that he had funding.
Claiming that he had this type of funding could easily manipulate the stock prices, though with such a controversial decision, it’s difficult to say to what end. Though stock prices did fall precipitously following the initial updates, the stock has since risen very well and continues to rise.
Meanwhile, Musk himself has pulled back on Twitter, possibly seeing the impact of over-sharing his business plans and his social stances to the world at large.
The Consequences of Going Private
If Tesla does go private, what will the consequences be for investors?
Musk is on the record saying that he doesn’t expect most investors to be impacted by going private, and that most of the shares will remain in current owners hands. Musk and the Saudi Arabia investors will be attempting to purchase back shares of about 33% from investors in order to make the company once again privately held, and the rest of the company’s shares will remain where they are.
However, it does mean that an individual share holder may suddenly have quite a bit of influence on Tesla as a company. Musk would not likely sell off more shares than he himself holds, but it is possible he could potentially lose control of the company’s shares in this way. It would require the Saudi investors to continually buy additional shares.
Ultimately, Musk is likely going private to avoid external forces of control on his business. There are those who would see this as a positive — an opportunity for a genius to work unhindered — and those who would see it as a negative, as Musk’s erratic behavior has been growing.
Though JPMorgan Chase does appear to think that Tesla is heading for a crash, recent stock activity would indicate that it’s actually recovering fairly well. It may depend almost entirely on the SEC filing and whether Musk truly goes forward with his deal with the Saudis. If the Saudis do not invest in taking Tesla private, than Musk himself could be in hot water due to his exaggerations.
If the Saudis do invest and take Tesla private, many may become skeptical of the company’s future. Of course, it’s this type of skepticism that Musk is attempting to avoid through the action. Right now, it appears investors may be buying in looking at the projected $420 share valuation.
Regards,
Ethan Warrick
Editor
Wealth Authority
