Musk’s next drama: A trial over his tweets about Tesla
Long before the billionaire purchased Twitter in October, he set his sights on taking the carmaker private.
While still grappling with the fallout from a company he did take private, beleaguered billionaire Elon Musk is now facing a trial over a company he didn’t.
Long before Musk purchased Twitter for $44 billion in October, he had set his sights on Tesla, the electric automaker where he continues to serve as CEO and from which he derives most of his wealth and fame.
Musk claimed in a Aug. 7, 2018, tweet that he had lined up the financing to pay for a $72-billion buyout of Tesla, which he then amplified with a follow-up statement that made a deal seem imminent.
But the buyout never materialized and now Musk will have to explain his actions under oath in a federal court in San Francisco. The trial, which begins Tuesday with jury selection, was triggered by a class-action lawsuit on behalf of investors who owned Tesla stock for a 10day period in August 2018.
Musk’s tweets back then fueled a rally in Tesla’s stock price that abruptly ended a week later, after it became apparent that he didn’t have the funding for a buyout after all. That resulted in him scrapping his plan to take the automaker private, culminating in a $40-million settlement with U.S. securities regulators that also required him to step down as the company’s chairman.
Musk has since contended that he entered that settlement under duress and maintained that he believed he had locked up financial backing for a Tesla buyout during meetings with representatives from Saudi Arabia’s Public Investment Fund.
The trial’s outcome may hinge on the jury’s interpretation of Musk’s motive for tweets that U.S. District Judge Edward Chen has already decided were a falsehood.
Chen dealt Musk another setback Friday, when he rejected Musk’s bid to transfer the trial to a federal court in Texas, where Tesla moved its headquarters in 2021. Musk had argued that negative coverage of his Twitter purchase had poisoned the jury pool in the San Francisco Bay Area.
Musk’s leadership of Twitter — where he has gutted the staff and alienated users and advertisers — has proved unpopular among Tesla’s current stockholders, who are worried that he has been devoting less time steering the automaker at a time of intensifying competition. Those concerns contributed to a 65% decline in Tesla’s stock last year that wiped out more than $700 billion in shareholder wealth — far more than the $14 billion swing in fortune that occurred between the company’s high and low stock prices during the Aug. 7-17, 2018, period covered in the class-action lawsuit.
The lawsuit is based on the premise that Tesla’s shares wouldn’t have traded at such a wide range if Musk hadn’t dangled the prospect of buying the company for $420 a share. Tesla’s stock has split twice since then, making that $420 price worth $28 on adjusted basis now. The shares closed last week at $122.40, down from their November 2021 splitadjusted peak of $414.50.
After Musk dropped the idea of a Tesla buyout, the company overcame a production problem, resulting in a rapid upturn in car sales that caused its stock to soar and minted Musk as the world’s richest person until he bought Twitter. Musk dropped from the top spot on the wealth list after the stock market’s backlash to his handling of Twitter.
The trial is likely to provide insights into Musk’s management style, given that the witness list includes some of Tesla’s current and former top executives and board members, including luminaries such as Larry Ellison, Oracle’s co-founder, as well as James Murdoch, son of media mogul Rupert Murdoch. The drama also may shed light on Musk’s relationship with his brother, Kimbal, who is also on the list of potential witnesses who may be called during a trial that’s scheduled to continue through Feb. 1.