TSLA Market Action: 2018 Investor Roundtable

[Toolsmack]

Ihor Dusaniwsky on Twitter

Ihor didn’t see any significant short covering..... not surprising

 

[tinm]

No this is not true. This is seen as an exchange of securities and not a sale. It is not a taxable event. Kind of like have a convertible bond and converting it into common stock. Not taxable as you haven't sold anything. They will be exchanging your public shares for private ones. The more important thing to worry about is the marketability of the private shares. By definition you won't be able to see them on any typical statement from your broker (cuz they won't have them!) Initial thoughts (TBD later) is that they would let you sell or buy more though Tesla on a quarterly basis. Since it's no longer publicly traded you won't have any idea of what a good/fair price would be. I trust they will have a method that will seem right. That detail is not worked out right now. I don't intend to sell no matter what. Didn't want to come across as too negative. Just some of the differences between investing in a publicly traded company and being a part of a private one.

Around 8-9 years ago I used to use a service called SharesPost (sharespost.com) to buy and sell private company stock. At the time lots of FB and Twitter employees were selling their stock thru the service—lots of tech company startups were listed. I listed a bunch of common shares in a company I owned thru SharesPost.

I suspect stock in SpaceX and a private Tesla might be bought/sold thru a service like that.

EDIT: in fact SharesPost has a SpaceX page... Space Exploration Technologies | Invest or Sell Shares | SharesPost

 

[lklundin]

Overall I think Elon made a smart move by announcing that he’s “thinking” about taking Tesla private.

Actually, EM quickly clarified that
"Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote."
which leaves little room for interpretation,
Elon Musk on Twitter

 

[SO16]

I can see 4 basic szenarios:

1) There is no funding.
The stock and Elon will get destroyed.
But the company fundamentals wont be affected beyond financing, which shouldn't be a problem if Q3, Q4, ... are positive. So new Investors might be able to get in at a bargain after the bloodbath.

2) Board denies request.
Because they think staying public is the better path into the future.
Then we're back at the state prior to the announcement, minus the stock equivalent of a CEO getting reigned in by his board..
Company fundamentals are unaffected.

3) shareholders vote No
Because the majority thinks the stock is worth more than 420.-
This should still put a confidence floor at 420.- because 50%+ think below that price is a good buy.

4) shareholders vote Yes
All shorts get a margin call.
35m shares (assuming no covering till vote) can get out above 420.-
Or tesla could raise up to 20% new equity (14B!) without needing a single new shareholder!!
If more want to get out, they'll do so at a guaranteed 420.-

Any guesses on the respective probabilities?

1. 0
2. 0 - the board most likely already support it.
3. 10 - since shareholders can convert.
4 90

 

[SO16]

This irrational hate/distrust of EM is weird.
I actually feel sort of sorry for folks that can't see him any other way.

I don’t feel sorry for them. They probably don’t even believe Elon is lying. Their goal is to just convince the public and SEC. Perception matters more than truth.

 

[Moderatefan]

3. 20%
4. 80%

20% the voting is no? After Elon said "Investor support is confirmed"?
Elon Musk on Twitter
I don't think they need us to vote, 50%+ must have already agreed, this is likely a formality.

Remember, those who stay don't get a payout and they don't really care how much those who leave get. It will be their own concern.

 

[STARR X]

I thought I would check this out and found this CNBC discussion from today:
"Tesla short sellers are shorting the game of being public: Former TrueCar CEO"

- it seemed quite balanced if not pro-Musk, unless I missed something.

This was actually a very reasonable discussion. Of course, no one knows how all this is going to play out but a lot of respect for Elon was shown.

 

[MarcusMaximus]

20% the voting is no? After Elon said "Investor support is confirmed"?
Elon Musk on Twitter
I don't think they need us to vote, 50%+ must have already agreed, this is likely a formality.

I think he meant the incoming investor(s) that'd be funding the move to private, not existing investors that'd need to sell(or carry over into private shares)

 

[saniflash]

20% the voting is no? After Elon said "Investor support is confirmed"?
Elon Musk on Twitter
I don't think they need us to vote, 50%+ must have already agreed, this is likely a formality.

You're confusing "investors" with "shareholders". When Elon talks about "investors" in this context, he means the ones that will finance the going-private. He however said in another Tweet that the delisting is still subject to shareholder vote.

 

[brian45011]

Fwiw: sadly, it seems like every buyout or liquidity event of a public company has a tranche of lawyers that sue.

Tesla is as much of a lawyers' full employment phenomenon as nuclear power plants were several decades ago. Luvb2b may need to adjust his SG&A estimate.

this quarter it's opex jumping mysteriously. i still can't understand how opex net of restructuring charges goes up when you drop 9% of the workforce mid-quarter, purge expensive consultants, and force all big dollar spending to go through elon-approval. one thought i had is maybe the temporary personnel hired in the big delivery centers and the rental of those facilities is going into opex, and probably that's where they belong from an accounting look, but from a business standpoint they're part of the cost of delivering the car.

q2-q4 2018 financial projections​

 

[MarcusMaximus]

GUYS, GUYS, HE'S TWEETING AGAIN!

 

[AudubonB]

"SEC Says Social Media OK for Company Announcements if Investors Are Alerted
FOR IMMEDIATE RELEASE
2013-51

Washington, D.C., April 2, 2013 —

The Securities and Exchange Commission today issued a report that makes clear that companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will be used to disseminate such information..."

link to full PR here.

Now, one could maybe argue, that investors have not been notified that Elon's Twitter is a place where such information will be disseminated. However, I imagine that would be a hard sell to any judge.

1. This is not the first time Elon posts relevant Tesla information on his personal Twitter account. In fact, he has been doing this almost every day ever since he has his official account.
2. Elon tweeted at 12:48 PM. Within minutes, the internet exploded with the news and it was live on CNBC as all relevant financial media follows his Twitter, knowing point No. 1.

Now, whether they should have filed official documentation for this with the SEC at the time of the announcement, IDK. Not sure about the rules and deadlines on that. But with 22m Twitter followers, Elon's account has more eyeballs glued to it than most financial media.

And here is an amicus Curiae brief from the Heart of the Alaska Range:

“Now, inasmuch as all the world knows anything, it knows that no matter how much I depise Twitter with every fiber of all my ancestors’ beating formerly beating hearts for all that it represents and how it is making all of us go to a Very Hot Place in a handbasket not to mention that if the Pony Express was good enough for Wyatt Earp and Ethan Allen and Pocahontas, by gumbo it is good enough for Mr Musk,
Nevertheless, to coin a phrase dropped from a very wise old chestnut tree it is what it is and what it is is that even I, out here, know that anything of material importance to Tesla Inc. is found first on Twitter and only after which on disseminating operations Formerly Known As news services.”

 

[adiggs]

Actually, EM quickly clarified that
"Investor support is confirmed. Only reason why this is not certain is that it’s contingent on a shareholder vote."
which leaves little room for interpretation,
Elon Musk on Twitter

The wording has a couple of different interpretations - looks ambiguous to me.

1) Investors (people with money) are confirmed, but the shareholder vote is an open question.

2) Investors (people with money) that ALSO represent 50%+1 shares are lined up - the shareholder vote is a formality.


Personally, I'll need to see the details for how the private participation will work. I think the basic idea is a good one for the company (focus on building stuff, less focus on quarterly cycle). I think the only detail we know right now, offer of $420, if it goes through will represent a massive shift of wealth to the people buying the company for $420.

I think the size of the underpay will become clear when Q3 earnings are announced, Q4 units are forecasted, and the financial engineers start understanding how much leverage there is in the business and how fast earnings are going to grow starting with Q3.


Side note - (I for one consider $420 to be a big underpay - of course big investors want my shares for $420). To be specific, I see enough pieces of good news and confirmation of execution, and other events coming over the next ~12 months, that I see $840 (2x) to be a more reasonable price today. If I had the billions to underwrite taking the company private that would allow me to pick up a sizable fraction of the company for $420, that looks like a good (wealth shifting from others to me) deal to me. I can easily imagine that Elon has backers lined up to acquire shares at $420.

 

[MarcusMaximus]

The wording has a couple of different interpretations - looks ambiguous to me.

1) Investors (people with money) are confirmed, but the shareholder vote is an open question.

2) Investors (people with money) that ALSO represent 50%+1 shares are lined up - the shareholder vote is a formality.


Personally, I'll need to see the details for how the private participation will work. I think the basic idea is a good one for the company (focus on building stuff, less focus on quarterly cycle). I think the only detail we know right now, offer of $420, if it goes through will represent a massive shift of wealth to the people buying the company for $420.

I think the size of the underpay will become clear when Q3 earnings are announced, Q4 units are forecasted, and the financial engineers start understanding how much leverage there is in the business and how fast earnings are going to grow starting with Q3.


Side note - (I for one consider $420 to be a big underpay - of course big investors want my shares for $420). To be specific, I see enough pieces of good news and confirmation of execution, and other events coming over the next ~12 months, that I see $840 (2x) to be a more reasonable price today. If I had the billions to underwrite taking the company private that would allow me to pick up a sizable fraction of the company for $420, that looks like a good (wealth shifting from others to me) deal to me. I can easily imagine that Elon has backers lined up to acquire shares at $420.

Seems to me, if it were #2, he wouldn't have said "this is not certain".

 

[Moderatefan]

I think he meant the incoming investor(s) that'd be funding the move to private, not existing investors that'd need to sell(or carry over into private shares)

Hmm, ok I guess this is ambiguous. He also called shareholders investors:
"My hope is *all* current investors remain with Tesla even if we’re private."

 

[gringotuanis]

1. 0%
2. 0%
3. 20%
4. 80%

Shorts will have to cover prior to the vote because shares will be recalled. Then, unlike the SCTY vote, shareholders won't release their shares because they need to hold onto them to convert to private. Relatively few shares will be available to cover. Also during the SCTY recall, shorts were allowed to be naked and not have their shorts backed by shares for the couple days they were unavailable. This won't be an option for the shorts this time.

Could Tesla even issue more shares to do an equity raise around the shareholder meeting? IE is there a way for shorts to avoid a squeeze?

 

[Remus]

Shorts believe that Elon is a total fraud, 'evidence' includes predicted 10k per week last year. So "funding secured" must be another fraud.
Well he wins rocket launching contracts from NASA, U.S. military, foreign governments. The short brush that off saying it has nothing to do with Tesla.

But for that to fly he has to be very stupid too, since lying about privatization would get him in jail. I have yet to see an explanation about how he can be smart and reasonable w.r.t. Space X and at the same time extremely stupid when it comes to Tesla. How come the Space X Elon not seeing the Tesla Elon would land them both in jail?

 

[erthquake]

Could Tesla even issue more shares to do an equity raise around the shareholder meeting? IE is there a way for shorts to avoid a squeeze?

Every future buyer of Tesla private shares will be vetted by Tesla, just like SpaceX. Shorting won't be possible in any practical sense of the word.

 

[beachbum77]

BTW., regarding the Tesla board members statement released today:

"Statement from the following members of Tesla’s Board of Directors: Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Linda Johnson Rice, and James Murdoch
PALO ALTO, Calif. , Aug. 08, 2018 (GLOBE NEWSWIRE) -- Last week, Elon opened a discussion with the board about taking the company private. This included discussion as to how being private could better serve Tesla’s long-term interests, and also addressed the funding for this to occur."
​

Of the 9 board members, 3 are missing from the statement: Elon Musk, Steve Jurvetson and Kimbal Musk.

• Elon is probably conflicted out of this board decision due to being a major shareholder and the initiator of the buyout.
• Kimbal Musk owns about 150k shares and might be conflicted out as well.
  
• Jurvetson might still own over 100,000 shares of TSLA, and is I believe also a major shareholder in SpaceX, so maybe he conflicted out too?

I believe the other board members are owning only minimal amount of shares at the moment.

What do you guys think, have I interpreted this correctly?

Actually, no.

All BoD members own shares and have huge amounts of options for more shares. Today's letter from those six directors was a CYA move. against future lawsuits or possible criminal charges IMO. I am sure their lawyers were yelling at them yesterday to put some distance between them and Musk. This letter establishes the timeline when they first learned about this idea from Elon. What it also does point out is there was knowledge before the 10Q was issued to the SEC on Monday. Nowhere in the 10Q was this idea or possibility addressed. This proposal is "material" to the Tesla narrative. That is a violation right there.

I think we can assume the big securities law firms are already salivating over this. Next, they will be going over every tweet for months trying to establish a pattern of Musk using Twitter to spike the stock to burn short sellers. Remember the June promise of a "huge short squeeze to come within weeks"?

Then that could open the door for more lawsuits from longs who got burned with the "pedo guy" tweet and may have been forced to sell when the stock tanked.

 

[Electroman]

We'd sue for damages.

Securities lawyers are already going for it: Tesla, Inc. (NASDAQ: TSLA) | Hagens Berman | National Class Action Litigation Firm based in Seattle, WA

It sure looks like Elon Musk made a materially false statement when he said "funding secured" at a 420/share price, with no majority investor (implying a consortium). The short investment thesis posits that Tesla has limited access to capital markets, which Elon blew away with this tweet.

If it's not true, then we were given materially false information and damaged by it.

Lying to damage shorts is still lying, and is still illegal.

The bulls will have a lawsuit, too. They'll say they saw his tweet and purchased at 370 believing that a 420 buyout was possible. If it turns out that the 420/share buyout was no where close, they'll have grounds to sue for damages as well.

This is why we have securities laws and procedures. It's why Musk should have filed an 8K detailing the plan instead of blabbing on Twitter.

Words matter. "Funding secured" was a huge, huge error for Elon Musk.

------------------------

The list of banks willing to do this is getting very small: Dan Primack on Twitter



Alex Sherman on Twitter

This is akin to a thief that is used to regularly stealing from an owner, suing that owner that he is unable to make a living anymore because he changed the lock and made it impossible to steal anymore.