Streetwise Professor

August 25, 2018

Elon Musk Channels Emily Litella: Nevermind (About That Going Private Thingy)

Filed under: Economics,Energy,Regulation — cpirrong @ 6:49 pm

Elon Musk took to YouTube to make a big announcement about his plans to take Tesla private:


Just kidding.  Like a thief in the night, Elon disclosed that he was not proceeding with his brilliant plan in a blog post that was posted at 11ET last night–Friday night.

Quite the weasel move.  I say when you screw up, man up.  But not our Elon.  He took the coward’s way out with a Friday night–late night–news dump.  Hell, he didn’t even Tweet it.

Of course the statement is filled with argle-bargle rationalizing the decision, and the previous big announcement about funding secured, $420/share, and all that.

He is sticking with the story that there was plenty of funding available.  Really?  Plenty of funding to take out shareholders at $420/share, and allow most of the existing shareholders to remain owners of the private firm in a magical structure never seen before, and almost surely a violation of the securities laws, and allow access to continued funds to fuel Tesla’s cash burn?

Musk of course had an alternative explanation for his U-turn: going private on the terms he had envisioned (or hallucinated) would be “even more time-consuming and distracting than initially anticipated.”

Yes, attempting the impossible usually is pretty time-consuming.

What next? Well, Tesla’s structural financial problems remain.  The company is facing the daunting challenge of navigating between the Scylla of Musk’s promise of no new capital raise and the Charybdis of the incessant cash burn.  Not to mention the problem of a delusional megalomaniac CEO.

Charley Grant of the WSJ has been skeptical of Musk–well, by journalist standards anyways–but he misdiagnoses his and the company’s current predicament.  Grant says that Musk made two mistakes in 2016–buying Solar City, and plunging ahead with the Model 3.  But Musk really had no choice on either: letting SCTY fail or ditching the everyman’s EV would have undermined Musk’s aura in 2016–and that aura is what has kept the capital flowing since.  If he had not done these things, Musk would have faced two years ago the problems he does now.

The other night I watched a BBC documentary about the Wars of the Roses, in which narrator (and historian) Dan Jones argued that Richard III wasn’t evil–the choices he made (killing Lord Rivers, kidnapping and then likely killing the princes in the Tower) weren’t really choices.  If he hadn’t done those things he would have faced immediate doom.  By doing them he bought some time–and delayed his doom.  Richard did what was necessary to survive to fight again another day.

Methinks Musk’s situation is similar.

I was amused that Morgan Stanley had announced Thursday that it was advising Musk on the going private plan, and then Musk pulls the plug about 40 hours later.  Does it really take that long to say “are you out of your fucking mind?”  Or did it take them that long to recover from the giggles? Or maybe Elon just sat on the bad news from MS until he could release it with the least attention possible.

The only real questions remaining are: (a) what caused Elon’s synapses to conceive of this brilliant plan?, and (b) will there be legal consequences?

Insofar as (a) is concerned: LSD? Lack of sleep? Impending mental breakdown? Or was there something more desperately Machiavellian about it?  Regardless, I can’t think of an explanation that bodes well for Tesla.

With regards to (b).  It is so blindingly obvious now (and should have been from word one) that his announcement Tweets were materially false.  They had large impacts on the price of Tesla stock.  They followed years of other dubious announcements, both on Twitter and in SEC filings and investor disclosures. If the SEC lets this slide it will make a mockery of the securities laws, and suggest that there are different standards for some people.

Some have suggested that the SEC is reluctant to take actions that will kill Tesla, or crater its stock price.  Well, why should Tesla be any different than other companies?  SEC actions have cratered other firms. (Dynegy is an example that comes to mind.)   The stock price falls were features, not bugs.  The SEC actions cratered these other firms because they revealed widespread wrongdoing and material falsity in corporate disclosures that had caused stock prices to be greatly inflated.  Why would the SEC want to perpetuate inflation in Tesla’s stock price?  If the stock price can’t handle the truth, well, that would be the problem that the SEC is supposed to be addressing, wouldn’t it?

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  1. In more hilarious news, the Kalashnikov company (the manufacturer of the misnamed Schmeisser rifles) has presented a hull of a Soviet car as a “concept” and announced it intended to compete with Tesla. I hope they mean it, as making Russia poorer is always a good idea.

    Comment by Ivan — August 26, 2018 @ 2:49 am

  2. Musk, Tesla, and the Bright Green Future are all important parts of the swamp narrative. I put the odds of prosecution at 50-50 at best.

    Comment by dh — August 26, 2018 @ 7:57 am

  3. E Musk is a bizarre combination of E L cord and Harold Hill, the Music Man, though no Tesla is as beautiful as a cord or auburn.

    Comment by Sotos — August 26, 2018 @ 1:40 pm

  4. My theory is that Morgan Stanley gave Musk 40 hours to come up with its retainer. He wasn’t able to do it. ;^)

    Comment by Tom Kirkendall — August 26, 2018 @ 4:07 pm

  5. Craig…a brilliant post about a not so brilliant golden calf. Thanks!

    Comment by Carl Larry — August 27, 2018 @ 6:27 am

  6. I would be surprised if the SEC went after Tesla. Tesla just has way too much “aura” as you call it.

    The SEC can collect political capital by running a stake through a polluting energy company. The same cannot be said of killing the tony stark of electric vehicles.

    Nobody on the left will let Tesla die.

    Comment by Ryan Turner — August 27, 2018 @ 8:31 am

  7. >>Musk of course had an alternative explanation for his U-turn: going private on the terms he had envisioned (or hallucinated) would be “even more time-consuming and distracting than initially anticipated.”<<

    Just this year, Musk didn't anticipate: needing automation; finding that his idea of automation wouldn't work; having production problems;having to hire a third shift; having QA problems out the wazoo; having to answer hard questions from analysts; and a few other material issues. He didn't anticipate any of all that. Prior to this year, he never anticipated the issues that have plagued his production volume and Model 3 predictions.

    But still the Musk-cult describes him as 'visionary'. A visionary can see ahead, can anticipate issues, prepare and negotiate them. Musk has never shown any foresight into any of Tesla's issues. Not even the ones caused by his own decisions. he will next claim he didn't realize his tweet would bring an SEC investigation down on him.

    That is because…MUSK IS NOT A VISIONARY. In fact, he is particularly blinded by his own narcissism.

    Comment by Richard Whitney — August 27, 2018 @ 1:38 pm

  8. Agree with your assessment and expectations of SEC. This is not the first time and will certainly not be the last, that the SEC would have different yardsticks for different people. Remember Stanford drop out Elizabeth Holmes and Theranos’s ‘Sunny’ Balwani? I am reminded of a Russian proverb (PUN not intended), “Only in the womb are men equal.”

    Comment by S Rao — August 27, 2018 @ 10:21 pm

  9. Thanks, Carl.

    Comment by cpirrong — August 28, 2018 @ 7:01 pm

  10. Tom–You mean Morgan Stanley wouldn’t take Tesla stock as collateral?

    Comment by cpirrong — August 28, 2018 @ 7:02 pm

  11. Craig, Morgan would view Tesla stock at this point about the same as Theranos stock. My bet is that Morgan took a hefty retainer just to have its name associated with the “go private” initiative for about five minutes. The fee probably exhausted Tesla’s liquidity. ;^)

    Comment by Tom Kirkendall — August 29, 2018 @ 6:22 pm

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