Elon Musk Explains Why He's Thinking of Making Tesla Private

Reuters  Rebecca Cook

About a quarter of Tesla shares are on loan to traders who will profit if the share price falls.

The eccentric Musk announced the bombshell move Tuesday on Twitter, writing that he had secured funding to buy Tesla Inc.'s shares at $420 each.

Tesla shares fell as much as 3.4 per cent to US$366.52 before the start of regular trading, though they pared declines after the board statement.

Mr Musk has feuded publicly with regulators, critics, short sellers and reporters, and some analysts suggested that less transparency would be welcomed by Musk. "Oh and uh short burn of the century comin (sic) soon, " he wrote.

Using Twitter to announce materially important information is not common, but the SEC allows companies to use social media to announce key information in compliance with its fair disclosure rules if investors are alerted about which outlets will be used.

Many other companies would halt trading of their stock before disclosing news of such importance to their shareholders, and the announcement would be made in a regulatory filing.

Teresa Goody, a former SEC official, said Musk "did something inappropriate and caused chaos in the market" in a way that would likely draw scrutiny from investigators.

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Some of the fervour for a Tesla buyout faded on Wednesday. The move would also foreclose the option of selling more stock to raise cash every year, a move which Musk has disfavored in recent years. The fund then reportedly proceeded to buy large amounts of Tesla stock on secondary markets, according to the Financial Times, and is now one of Tesla's eight biggest shareholders.

Musk has promised to begin making money on a consistent basis starting in the third quarter, escalating the pressure that he has already publicly acknowledged has taken an vast toll on him.

If we turn to the Street in general, we can see that Wall Street has a neutral point of view on Tesla, with TipRanks analytics exhibiting TSLA as a Hold.

The billionaire has at least been clear about his resentment of life on the public market. "I am not sure it is beating him down, but I am sure he is sick of it".

SoftBank is now not interested in a deal for Tesla after earlier this year taking a stake in General Motors Co's self-driving unit, Cruise, Reuters reported earlier on Wednesday.

Net net, Rusch reiterates an Outperform rating on Tesla shares, with a price target of $385, which represents a slight upside potential from current levels. The board said they ended up meeting several times to discuss the issue and are now "taking the appropriate next steps to evaluate" the proposal.

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