Musk Calls Short Selling ‘Evil’ In Testimony Defending 2018 Tweet To Take Tesla Private

Topline

Tesla’s billionaire CEO Elon Musk took the stand in San Francisco federal court Friday to defend a controversial 2018 tweet in which he said he would take the electric vehicle company private, as part of the high-profile civil trial waged against him by Tesla shareholders over the notorious incident that cost Musk and Tesla millions.

Tesla CEO Elon Musk exits a Manhattan federal court in 2019 in a hearing related to the tweet … [+] fiasco.

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Key Facts

Musk took the stand at about 4:30 p.m. EST to defend himself against the allegation he manipulated Tesla’s share price with his Tweets.

“The causal relationship is clearly not there simply because of a tweet,” Musk claimed Friday, pointing to the historic volatility in Tesla share prices.

Tesla’s being publicly traded while it scaled operations between 2017 and 2019 hurt the company, Musk testified, railing on the pressure Tesla faced at the time from short sellers, who bet on a stock declining in value.

Short selling is “evil” and “should be made illegal,” Musk declared, calling it a way for “bad people on Wall Street to steal money from small investors.”

The beginning of his testimony focused on why he believes his Twitter account is crucial in communicating with investors, explaining he cares a “great deal about retail investors,” calling them among Tesla’s “most loyal” shareholders.

Musk’s testimony ended after 30 minutes and the trial will resume Monday at 11:30 a.m. EST.

Key Background

Musk tweeted on August 7, 2018: “Am considering taking Tesla private at $420. Funding secured,” representing a roughly 20% premium from its share price at the time. The tweet was a “split-second decision” made by Musk using the “wrong words,” Musk’s attorney Alex Spiro said in court Wednesday, explaining Musk believed the funding was available after reading a Financial Times article about the Saudi Arabian wealth fund taking a large stake in Tesla. The Securities and Exchange Commission charged Musk with securities fraud that September, alleging Musk knowingly misled Tesla investors about the extent of negotiations on such a deal. Musk and Tesla subsequently agreed to both pay respective $20 million penalties and to Musk’s removal as the chairman of Tesla’s board. On the day of Musk’s funding tweet, shares of Tesla jumped 10% to a split-adjusted price of $25.30. The stock later slid as much as 34% to $16.60 that October. Tesla shares later skyrocketed to an all-time high of $410 in November 2021, up more than 1,500% from its October 2018 trough.

Crucial Quote

Musk’s behavior was “very unusual” and deviated from how a chief executive would typically behave during a management buyout, Guhan Subramanian, a corporate law professor at Harvard’s business and law schools, testified Friday, asserting Musk’s actions indicate the funding tweet was purely “illusory.”

Tangent

Tesla faked 2016 footage showing off its controversial Autopilot self-driving technology, Ashok Elluswamy, Tesla’s director of Autopilot software, testified Tuesday as part of the civil trial. Musk oversaw the false staging of Tesla vehicles’ self-driving capabilities at the time, according to emails obtained by Bloomberg, instructing employees: “I will be telling the world that this is what the car *will* be able to do, not that it can do this upon receipt.”

Surprising Fact

Musk chose the $420 price per share because of the “significance of that number in marijuana culture, and his belief that his girlfriend would be amused by it,” the SEC’s then co-head of enforcement Steven Peikin said in 2018, apparently referring to the singer Grimes, Musk’s then partner.

Big Number

About 600%. That’s how much larger Tesla’s $418 billion market capitalization Friday is compared to the roughly $70 billion valuation implied by Musk in 2018. Tesla’s market cap peaked in 2021 at over $1.1 trillion, before the stock tanked 65% in 2022 following Musk’s $44 billion purchase of social media giant Twitter, selling billions in Tesla shares to finance the deal. Musk faces three pending lawsuits from Twitter shareholders related to his public attempts to back out of the acquisition agreement to allegedly drive down Twitter’s share price.

Forbes Valuation

Musk is worth $152.6 billion, according to our latest estimates, making him the second-wealthiest man in the world and the U.S.’ richest. Musk was previously the wealthiest person in the world before losing that position to LVMH luxury tycoon Bernard Arnault in December.