Elon Musk has been wielding his Twitter account as a weapon over the last few years, but a single tweet of his has now caused the internet to explode with speculation, led to Tesla shares to stop trading, and resulted in an eventual addition of $7 billion (Rs. 47,000 crore) in Tesla’s market cap.
Late last night, Tesla’s shares were halted for trading for “pending news” after Musk tweeted that Tesla could be going private at $420 a share. “Am considering taking Tesla private at $420. Funding secured,” he tweeted out of the blue.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
The move immediately sparked a flurry of reactions. Tesla’s stock, for one, immediately jumped 7% — if private investors believed that Tesla was worth $420 a share, it was natural for its publicly traded price to move towards that number. It also led to other conclusions — company CEOs don’t usually announce moves to take their companies private on Twitter, which led some to speculate that Musk’s account had been hacked. And yet others thought that it was all an elaborate joke, thanks to the stock price that Musk had quoted: 420 is a common reference to the smoking of marijuana.
Musk didn’t help matters by tweeting a “Good morning :)” after this tweet, causing the internet to positively melt in anticipation — was Musk kidding about the whole thing, or was Tesla really no longer going to remain public? This is when stock market authorities stepped in, and halted the trade of Tesla’s stock.
In the meantime, Tesla published an email that Musk had apparently sent to Tesla employees after his tweet. “Earlier today, I announced that I’m considering taking Tesla private at a price of $420/share. I wanted to let you know my rationale for this, and why I think this is the best path forward,” began the email. Musk emphasized that a final decision hadn’t been made, but said that going private was in the best interest of the company.
“As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also 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. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company,” Musk said.
Over the last few months, Musk has appeared to become increasingly frustrated at Tesla’s many critics. He’d told analysts on a conference call last month to not ask him boneheaded questions that were “boring” him, and had been taking on Tesla’s many short sellers on Twitter, alternating between challenging and mocking them. Turning private would help Musk ignore his naysayers — once Tesla is not public, it won’t face the near-constant scrutiny that listed firms face, and could well be able to focus on making cars.
But Musk’s method of choosing to reveal that Tesla intends to go public has unnerved many. Some have speculated that if Musk doesn’t have ready financial backers to actually carry out the buyback, his tweet might amount to fraud — he could’ve misled markets into believing Tesla was worth more than it actually was, and artificially inflated the price of its stock. Musk himself owns nearly 20% of Tesla shares, so the uptick in its price had significantly increased his personal net worth. Others, like VC Benedict Evans, have said that this was no way for a listed company to behave.
Whether this is a joke or real, it’s not how any public company should behave. https://t.co/oVlSjdJZxy
— Benedict Evans (@BenedictEvans) August 7, 2018
Musk, though, hasn’t played by the rules in the past. Nobody thought a startup could actually build cars that would take on global automobile giants, and he’s gone ahead and done that with Tesla. Nobody thought that a private company could send rockets into space, and he’s gone ahead and done that with SpaceX. His methods haven’t always been conventional, but they’ve worked — thus far.
It still remains to be seen if Musk will be able to take Tesla private. It’s been done in the past — Dell Computers had similarly gone private in 2013, and there have been other deals of a similar nature around the world. But at a price of $420 per share, Tesla would be worth around $70 billion, and would make its leveraged buyout the biggest in US corporate history. There’s also the small question of who’ll fund this buyout — Musk has said that funding is secured, but is again sparse on details on who’s putting in serious cash into Tesla.
As of now, Tesla’s shares have started trading again after Tesla made public the email that detailed Tesla’s plans. They’re now nearing Tesla’s record highs — Tesla now trades at $380 a share, not far from the $420 target that Musk has announced for the buyout. And Musk’s tweet which started it out might just be the most valuable tweet of all time — the simple tweet, 63 characters in all, has ended up adding $7 billion (Rs. 43,000 crore) to Tesla’s net worth.