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Tesla shares closed up 11% on Tuesday after chief executive Elon Musk tweeted, ‘Am considering taking Tesla private at $420. Funding secured.’
According to MarketWatch, that single tweet caused mark-to-market losses for the short sellers of $1.5 billion. Tesla shareholder, Ross Gerber, told IGTV he initially thought Musk’s Twitter account had been hacked, before the announcement was confirmed by his investor relations representative.
Shares in Tesla were in fact already moving higher on Tuesday, before Musk’s tweet, on the back of a report from the Financial Times that Saudi Arabia’s Public Investment Fund (PIF) had taken a 3% to 5% stake in the electric carmaker worth $2 billion, which would make the PIF one of Tesla’s biggest shareholders.
Following Musk’s unexpected tweet, a letter was sent to employees, who are also shareholders, explaining his rationale in more detail. He said, ‘we are subject to wild swings in our stock price that can be a major distraction’ and being public ‘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.’
On Wednesday, shares in Tesla came under pressure as investors and analysts started to question how viable it would be to de-list the company. If Tesla were to be taken private at the tweeted price of $420, the deal would be worth more than $80 billion and would represent one of the largest deals of this kind on record. Further skepticism came on Thursday following a report from the Wall Street Journal that the US Securities and Exchange Commission (SEC) had ‘made inquiries’ into whether Musk’s tweeted claim that funding was secured was in fact truthful, prompting speculation about a potential SEC investigation. Ratings agency Moody’s Investor Service added to pressure on the stock by warning that a take-private move would be ‘credit negative’.
According to CNBC, Tesla’s board of directors will meet with financial advisors next week to examine the potential take-private option in more detail. Tesla shareholder Ross Gerber told IGTV he is ‘not thrilled’ about the idea. He thinks the stock could rally sharply above $420 and has a price target on the stock of $571.