On August 7, Elon Musk tweeted that he was considering taking Tesla (NASDAQ:TSLA) private at $420 a share, a move that boosted Tesla stock into hyperdrive costing short sellers an estimated $1.3 billion in a single day of trading.
It appears Musk is throwing down the gauntlet at the feet of President Trump in an effort to win the contest for craziest Tweeter on the planet.
It’s Not Illegal
Some have even speculated that Musk’s tweet was illegal and is being investigated by the SEC.
Personally, I agree with CNBC’s Jim Cramer that Musk did no wrong.
“Musk has every right to say that he has a potential $420-per-share takeover bid lined up, provided that he doesn’t sell stock into the hype. As long as there’s no dump with the pump, it’s arguably a legitimate thing to say.”
Why is it okay for short sellers to make all kinds of ridiculous accusations against the company through tweets and special reports with absolutely no consequences, yet Musk muses about a takeover bid he’s considering and the shorts go apoplectic?
It reminds me of the Tweeter in Chief who makes plenty of false accusations and yet complains when the media draws attention to these falsehoods.
In my opinion, the short sellers doth protest too much.
The Real Issue
I first wondered in May if Tesla stock, which was trading around $300 at the time, was headed to $200 or $400.
I went with the latter suggesting that only a disastrous quarterly report would hurt the near-term trajectory of its stock.
Fast forward three months and I was once again asking the same question after New York Post writer Maureen Callahan accused of Elon Musk being a total fraud and a failure in life — two assertions that have no basis in reality.
A volatile personality, perhaps, but a failure? How many car companies are launched each year? Very few. Musk’s accomplishments are obvious to any objective observer.
So, July 23, I doubled down suggestingn Tesla stock was a buy under $300, and would hit $400 by the end of the year; it came within 4% of that high-water-mark Aug. 7 before settling back into the $350s.
The shorts seem to believe that those long Tesla stock would jump at a $420 offer but I’m not so sure.
Why would the Saudi Public Investment Fund acquire an almost 5% stake in the company if it felt $400 or thereabouts was the best-case scenario?
It wouldn’t unless of course, it intends to do the heavy lifting for Musk’s go-private offer in which case I highly doubt other institutions would acquiesce without looking for a little more meat on the bone.
If you’re holding a big short position you’ve got to be worried that Musk is serious because if that’s the case, $420 is nothing more than a stalking horse bid with the ultimate price to move above $500.
The Bottom Line on Tesla Stock
Like my colleague, Luke Lango stated: if you own TSLA stock you must stay the course because things are about to get a whole lot more interesting.
Personally, I think being public brings a lot of PR to the carmaker that it wouldn’t necessarily get as a private company, making a go-private deal a double-edged sword.
On the one hand, it doesn’t have to worry about quarterly production numbers from the Model 3. On the other hand, it loses a lot of free press that likely sells more vehicles.
Is $420 enough? Sorry, Elon, you’ll have to do better.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.