Should Tesla Go Private? 🚗⚡

 Mark Brake / Getty Images

Mark Brake / Getty Images

Elon tweets...markets move

On Tuesday, Elon Musk - CEO of Tesla and the closest thing we have to a real-life Tony Stark - tweeted: Am considering taking Tesla private at $420. Funding secured. Tesla’s stock rose nearly 10% on the tweet and moved so quickly that trading of the stock was temporarily suspended. Short sellers reportedly lost ~$1.3 billion as the stock rose.

 

Wait, wait - “going private”? “short-selling”?

We'll explain the mumbo jumbo. Tesla is a publicly traded company that has to constantly answer to its shareholders. Many investors have “shorted” Tesla’s public stock - which means they are betting the company will fail and hence the stock price will drop. Musk feels these short-sellers are causing the company to be significantly undervalued. When the stock goes up - as it did sharply on Musk’s tweet - short-sellers lose big. By going private, Tesla would avoid all the hassles of being a public company - and screw over what Musk views as his trolls.



Stay public folks think Musk isn’t serious about going private - he’s just out to hurt the short-sellers. Musk says he has funding but hasn’t said from where. Musk could not have raised $66 billion in secret, the naysayers argue. Taking Tesla private would be a transaction twice the size of the largest similar deal in history. It’s much more likely, articles from this side argue, that Musk knew the announcement would drive the stock price up and hurt his enemies - the short-sellers.

Go private folks see this move as a no-brainer. Tesla has faced significant scrutiny for issues that are “short-term” (e.g. missing production deadlines). Going private would provide more leeway to build the grand vision of an electric car company for the masses, without all the distractions and naysayers (aka short-sellers). Finally, the go-private side argues that Tesla's stock price went up on the announcement, so it has to be smart, right?

So will Tesla go private?

It would definitely benefit current shareholders - who would immediately make a 20% return on the current stock price. A more relevant question may be: did Musk break the law with this tweet? If Musk has not lined up financing - as the stay public folks suspect - that could be considered a material misrepresentation that moved stock markets. In other words: securities fraud. So, if he’s bluffing, the more interesting story will be: what punishment falls on Iron Man?

Iron Man fail


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