How Musk divides Wall Street and the world
FROM THE COVER
Boring bonehead questions are not cool. Next?” Tesla chief Elon Musk complained in May, shortly before shutting down questions from Wall Street.
The now-infamous conference call in a nutshell represents the unorthodox approach of Musk, whose brazen aspirations to remake the transportation universe and confrontational approach to opponents has aroused both passionate support and furious criticism.
Recognised as one of the most influential innovators in the US, the South African-born Musk, 47, appears to approach his question-and-answer sessions with Wall Street analysts the way a boxer might prepare to enter the ring against a challenger. Though he apologised last week for being impolite in May, he cited the benefits of exiting the quarterly earnings treadmill when he made the shock proposal to take Tesla private.
What is the latest controversy all about?
Many in US financial circles are wondering where Musk will get all this money to take Tesla private, and have turned sceptical despite the reverence in which they normally hold Musk, who founded the company in 2003 to transform cars into tech marvels. The transaction could amount to at least $50 billion if Musk keeps his 20 per cent stake in the company. The irascible entrepreneur tweeted that funding for the transaction at $420 a share had been “secured,” but offered no proof or documentation.
Why is everyone so sceptical about Musk’s funds?
A classic way of de-listing from stock markets is a leveraged buyout, a deal in which investors purchase a company’s equity and finance this with loans. But none of the six major US banks has offered to lend the necessary amount to Musk, and they learned about the plans on Twitter with the rest of the public.
And it is unlikely a Wall Street firm would risk backing Tesla, which is burning through about $1 billion a quarter and has not had a single profitable year in its 15 years of existence, said another. Tesla borrowed at hefty interest rates last year, an additional burden for a company that had only $2.2 billion in cash flow at the end of June.
What are regulators doing about the crisis?
US market regulators are reportedly stepping up their scrutiny of Musk’s claim and have asked Tesla if the CEO’s remarks were genuine. Securities laws forbid market manipulation by corporate leaders who announce pending stock purchases or sales when they have no intention or no means of carrying them out.
Do his random declarations affect Musk’s credibility?
In a research note, Bernstein analyst Toni Sacconaghi said, “if no firmer details emerge [of the funding for Musk]... investors would likely increasingly debate Musk’s credibility and seemingly unhealthy focus on the shares’ price and volatility.”
Is there any possibility of legal action against Musk?
Musk’s tweets could potentially affect his legal situation. The Securities and Exchange Commission (SEC) is investigating Musk’s disclosure of the potential deal. His tweet about taking Tesla private sent the stock soaring 11 per cent and cost short sellers roughly $1 billion. If his motive for the tweet “was frustration with short sellers, then that could be a case of market manipulation,” John Coffee Jr., a Columbia University law professor and corporategovernance expert, said.
How does Musk handle social media in general?
A self-proclaimed visionary for a future transportation system of electric and autonomous vehicles, Musk, who has a Twitter following of more than 22 million, has not shied from trying to squash critics whom he views as enemies of his vision. In July, a contributor to a financial website had to exit the company after Musk personally called the author’s employer threatening legal action following negative Tesla posts.
Another bizarre moment came in July when Musk labeled a British caver a “pedo” - implying he as a pedophile - after the rescuer dismissed the Tesla chief’s idea for bringing 12 Thai boys from to safety in a miniature submarine he designed.
Why do people compare Musk with Donald Trump?
Musk’s conduct has drawn comparisons to US President Donald Trump, another prominent figure who has embraced filter-free social media. And like Trump, Musk has lambasted the media and been picky about appearances, granting a few rare interviews to publications like the Wall Street Journal, while favoring Rolling Stone magazine. Musk has suggested the scepti- cal coverage of the company stemmed from the media’s dependence on advertising from the oil and conventional car industry. He has discussed creating a website to “rate the core truth of any article” that would be called Pravda.
How has Musk reacted to the crisis?
Musk used Twitter Friday to once again taunt investors who have bet against his company. The tweets were aimed at “shorts,” or investors who borrowed shares of Tesla and immediately sold them with the hope Tesla’s share price would fall.
Have the controversies affected the fortunes of Musk?
Tensions with Wall Street have not prevented the company from astronomical growth. With Tuesday’s surge after the announcement, Tesla is now worth $10 billion more than General Motors, the biggest US carmaker. Regardless of his reputation, Musk, who has frequented the Metropolitan Museum of Art’s annual gala among other glitzy appearances, has seen his wealth soar after earlier ventures.