Elon Musk's infamous tweet declaring he had 'funding secured' at $420 per share to take Tesla private was sent one year ago today. Here's what Tesla's faced in the year since.
'Am considering taking Tesla private at $420.'
Funding was anything but secured, it was later revealed, when Musk felt impassioned enough to announce his plans to the world around lunchtime on August 7, 2018.
Tesla's stock price, understandably, skyrocketed toward the $420 target, hitting an intra-day peak of $387 — a 14% surge — before closing at $379.
In subsequent tweets, Musk explained his philosophy for leaving public exchanges, where companies are required to disclose financial information to investors every three months and are sometimes subject to more scrutiny.
Shareholders would have the option to sell at $420, or become private shareholders, Musk said. He added that the company would create a "special purpose fund" enabling them to remain investors.
Later that day, the SEC revealed in subsequent months, Tesla's CFO texted Musk offering to draft an employee email alongside the company's head of communications and lawyers. Musk agreed and the team got to work.
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018My hope is *all* current investors remain with Tesla even if we're private. Would create special purpose fund enabling anyone to stay with Tesla. Already do this with Fidelity's SpaceX investment.
— Elon Musk (@elonmusk) August 7, 2018An email to employees
The same day as his tweet, Musk sent an email to Tesla employees with more information that was later published on the company's blog.
"First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best," he said. "As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders."
The blog post made no mention of where the alleged funding support had been found, but did say that the bid to go private would require shareholder approval. Musk said he wanted Tesla employees to remain shareholders, as is the current practice, with options to periodically sell shares and exercise options to buy.
"Basically, I'm trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible, and where there is as little change for all of our investors, including all of our employees, as possible," he wrote.
Another update on taking Tesla private
On August 13, almost a week after the surprising announcement, Musk finally laid out the "secured" funding source: Saudi Arabia.
The kingdom's sovereign wealth fund had been interested in a Tesla stake "going back two years," Musk said in another blog post. At the time, the fund owned a roughly 5% stake in the company on public exchanges.
"I left the July 31st meeting with no question that a deal with the Saudi sovereign fund could be closed, and that it was just a matter of getting the process moving," Musk said. "This is why I referred to "funding secured" in the August 7th announcement."
However, funding was not secured.
"I continue to have discussions with the Saudi fund, and I also am having discussions with a number of other investors, which is something that I always planned to do since I would like for Tesla to continue to have a broad investor base," Musk said. "It is appropriate to complete those discussions before presenting a detailed proposal to an independent board committee."
That didn't sit well with investors. By the end of the day, Tesla's share price had fallen to 8% below its peak when the plan was announced.
To close the blog post, Musk said a special committee was being formed by the company's board. If his plan is approved by the directors, it would be presented to shareholders, he said.
Enter Grimes and Azalea Banks
Azalea Banks told Business Insider amid the flurry of Tesla news that week that she had spent the weekend at Musk's house.
The rapper posted on Instagram: "I waited around all weekend while Grimes coddled her boyfriend." In another story, she wrote that "staying in Elon musks house has been like a real like episode of 'Get Out.'"
"They bring me out there on the premise that we would hang and make music," Banks told Business Insider after posting the initial information to Instagram. "But his dumbass kept tweeting and tucked his dick in between his ass cheeks once shit hit the fan."
"I saw him in the kitchen tucking his tail in between his legs scrounging for investors to cover his ass after that tweet," she said. "He was stressed and red in the face."
A spokesperson for Musk told Business Insider in an email that "Elon has never even met Ms. Banks or communicated with her in any way," but did not deny that Banks had stayed at one of Musk's properties over the weekend.
Subpoenas
By August 15, the SEC had sent subpoenas to Tesla concerning the company's plans to explore going private and CEO Elon Musk's statements about the process, the New York Times reported citing a person familiar with the investigation.
That report followed an earlier Wall Street Journal article which said the SEC had made an inquiry into Tesla about whether one of Musk's tweets regarding the possibility of taking the company private was truthful. That same week, Bloomberg reported that the agency was "intensifying" its inquiry.
Members of Tesla's board of directors, meanwhile, were said to be lawyering up as the inquiries closed in.
Lawsuit secured
The SEC officially filed a lawsuit against Musk on Thursday, September 27, 2018, accusing him of "false and misleading statements" in his August 7 tweet.
Tesla shares fell as much as 11% in after-hours trading on the news. By the end of trading on Friday, shares had sank to $264 from $307 before the lawsuit was filed.
The SEC in its suit said the meeting between Musk and the fund "lacked discussion of even the most fundamental terms of a proposed going private transaction."
From the complaint:
Musk knew or was reckless in not knowing that each of these statements was false and/or misleading because he did not have an adequate basis in fact for his assertions. When he made these statements, Musk knew that he had never discussed a going-private transaction at $420 per share with any potential funding source, had done nothing to investigate whether it would be possible for all current investors to remain with Tesla as a private company via a 'special purpose fund,' and had not confirmed support of Tesla's investors for a potential going-private transaction.
Read the full lawsuit, as filed in September, here »
In its claims for relief, the SEC recommends that Musk pay a penalty and that he be "prohibited from acting as an officer or director" of a public company.
Musk responded to the SEC's lawsuit in a statement: "The unjustified action from the SEC leaves me deeply saddened and disappointed. I have always taken action in the best interest of the truth, transparency and investors. Integrity is the most important value in my life and the facts show I have never compromised this in any way."
Read more: The SEC alleges that Elon Musk's $420 price point was a weed reference to amuse his girlfriend
$40 million settlement
Less than two days after the lawsuit, Musk and the SEC announced an agreement. Tesla and Musk would each pay a $20 million fine without admitting any guilt.
In addition to the financial reparations, Musk agreed to step down as chairman of Tesla's board, to be replaced by an independent board leader. After three years, Musk will be eligible to be reelected as executive chairman. Additionally, the company was required to appoint two new independent directors, as well as a new committee to oversee Musk's communications.
Poking the bear
Less than a month after settling with the regulator, Musk took aim at the SEC in a pointed tweet, calling the agency the "Shortseller Enrichment Commission."
About 40 minutes after his initial tweet, Musk published another in which he addressed a typo in that tweet and appeared to target the SEC again.
"Sorry about the typo. That was unforgivable," he said. "Why would they be upset about their mission? It's what they do."
Later in December, Musk appeared on an episode of CBS' "60 Minutes." "I want to be clear: I do not respect the SEC, I do not respect them," Musk said when asked about the SEC's lawsuit against him.
Just want to that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!
— Elon Musk (@elonmusk) October 4, 2018A new chairman of the board
Robyn Denholm, CFO and head of strategy of Australian telecoms operator Telstra, took over as chairman of Tesla's board in November. She relinquished her roles at Telstra after a six-month transition period.
New independent board members
In December, Oracle cofounder Larry Ellison and Walgreens executive Kathleen Thompson-Wilson joined Tesla's board of directors.
Ellison had previously bought a $3 million stake in Tesla and is a "big believer" in Tesla's mission, the company said in a press release. The philanthropist has turned his sights to green energy after starting Oracle in 1977. He has plans for a "next-generation" power grid on the Hawaiian island he bought in 2012.
Read more: Here's the full list of Tesla's board of directors
For sale
In February, Musk listed his $4.5 million home that overlooks Los Angeles for sale. He originally bought the house — which is considerably smaller than some of his others — with his now ex-wife Talulah Riley in 2013 for $3.695 million. If the asking price of $4.5 million holds, Musk stands to make nearly $1 million in profit from the sale.
It's not clear if the house is still on the market as of August 2019.
Layoffs
In February, Tesla laid off about 8% of its total workforce, its third round of similar layoffs in the year prior.
"I also want to emphasize that we are making this hard decision now so that we never have to do this again," Musk said at the time of previous layoffs.
Another problematic tweet
On February 19, with new board members and an agreement under its belt, Musk tweeted that Tesla would make around 500,000 cars in 2019. That followed Tesla's fourth-quarter earnings letter in which it said it expected to deliver between 360,000 and 400,000 vehicles in 2019. (Musk said during a conference call following the earnings letter that Tesla could deliver up to 500,000 Model 3s in 2019.)
Four hours later, Musk corrected the projection in a new tweet, saying Tesla would by the end of 2019 reach a rate of production that would result in around 500,000 cars if maintained for a full year.
The SEC accuses Musk of violating their agreement
Shortly after the corrected tweets, the SEC said Musk had mislead investors with those vehicle production targets. What's more, the agency said because Musk didn't get preapproval of the tweet by Tesla, he was in violation of the terms of a settlement he and the SEC reached previously, and it asked a judge to hold him in contempt of the federal court that approved that settlement.
"Musk did not seek or receive pre-approval prior to publishing this tweet, which was inaccurate and disseminated to over 24 million people," the SEC said in a filing with the US District Court for the Southern District of New York. "Musk has thus violated the court's final judgment by engaging in the very conduct that the pre-approval provision of the final judgment was designed to prevent."
The newly rekindled legal battle would see Tesla's stock price fall below $300 per share once again, for the first time since the settlement.
Musk's rebuttal
In a March 11 response, Musk's attorneys said he did not violate the settlement and instead argued that the SEC was overstepping the bounds of their agreement.
According to Musk's team, the SEC was attempting to expand the settlement's scope to include any of Musk's tweets about Tesla, regardless of their relevance to shareholders.
"Such a broad prior restraint would violate the First Amendment," Musk's attorneys said.
'A blatant violation'
The SEC didn't buy Musk's argument, saying that the reasoning "borders on the ridiculous."
That the lawyer set up a meeting with Musk to write the corrected tweet indicates that the first tweet did, in fact, violate the settlement, the SEC said.
"Musk's contention — that the potential size of a car company's production for the year could not reasonably be material — borders on the ridiculous," the agency said. "Musk's shifting justifications [for tweeting the projection without approval] suggest that there was never any good faith effort to comply with the Court's order and the Tesla Policy. Rather, Musk has simply elected to ignore them."
Musk's team responded once again, on March 22, saying that the company had followed its communications policies. The attorneys also cited Tesla's first-quarter earnings call, during which Musk said Model 3 deliveries could reach around 500,000 this year, which, when combined with the company's rate of production for its Model S sedan and Model X SUV, would align Musk's February 19 projection with prior estimates.
Closing stores
Tesla shocked investors, employees, and customers in March when it announced that sales would be shifted to the internet and that many stores would be closing.
Employees speaking to Business Insider said that morale dropped drastically when the job cuts began. Those sales changes including a vanquishing of the delineation between solar and vehicles salespeople, as well as shakeups to commission structures, and more.
"It's empty in here right now," one employee, under the condition of anonymity, said of their assigned store at the time. "This is usually an upbeat place to work, but now it feels like a morgue."
Tesla reversed course later in March, saying it planned to close just 10 percent of stores worldwide. Another 20% were being evaluated on an individual performance basis.
Read more: Tesla encouraged its employees to buy cars using their paid vacation days
A courtroom showdown
Musk surprised many who had been following his suit with the SEC by showing up in person to a lower Manhattan courtroom on April 4.
The hearing consisted of 45 minutes for each sides' oral arguments, before a packed courtroom with dozens of spectators spilling into the jury stalls.
"Unless something is obviously immaterial it needs to get pre-approval," the SEC's lawyer said in response to questions from the judge about what kind of tweets require pre-approval.
"Tesla still appears to be unwilling to exercise any meaningful control over the conduct of its CEO," she said.
About an hour after the hearing began, Judge Nathan ordered a new agreement between Musk and the SEC.
"My call to action is for everyone to take a deep breath, put your reasonableness pants on and work this out," Nathan said.
The stock bottoms out
Shortly after the courtroom face-off, Tesla held an investor day focused on autonomy and its plans for a network of robo-taxis. Musk estimated a million strong will hit the roads by 2020. However, the event did little to excite share prices, which stayed relatively flat into the company's first-quarter earnings report.
On April 24, Tesla's financial situation through the first three months of the year fell massively short of Wall Street's expectations on both the top and bottom lines. Model S and X
Among the details shared in the company's letter to shareholders were sales updates on each of Tesla's three models, and demand for its original two, the Model S and Model X, appeared to to be struggling.
The results sent Tesla's stock price tumbling to their lowest prices since early 2017, as low as $235. The quarterly print also forced one analyst to say he could no longer in good faith recommend the stock to clients.
Large institutional investors, some previously among Tesla's largest backers, began trimming their stakes.
Delays in a new SEC agreement
By the end of April, Musk and the SEC were still not able to come to a new agreement, and received two extensions from the court.
Fresh capital
In May, Tesla announced plans to raise about $2 billion in fresh capital through a stock and debt offering.
The proceeds of the sales were to be used for "general corporate purposes," Tesla said, adding that the company would have "significant discretion" over the use of any net proceeds.
The round's size was eventually increased to nearly $2.7 billion.
A rush for the exits
As Tesla's stock continued in free-fall, nearing the $200 level, executives were headed for the exits. From the go-private tweet through August 2019, at least two dozen high-level executives have left Tesla.
Intense cost-cutting
In an email to employees in May, Musk said the company would soon undertake a new series of cost-cutting measures.
"This is hardcore, but it is the only way for Tesla to become financially sustainable and succeed in our goal of helping make the world environmentally sustainable," Musk said, per Electrek.
The stock finally bottoms out
Shortly after the end of the quarter, Tesla's stock price finally bottomed out at $176 per share on June 3. Amid the end-of-quarter rush to deliver cars, the company's VP of interior engineering left the company, Business Insider reported at the time.
A record quarter of deliveries
When the dust finally settled, Tesla was able to deliver a new record 95,200 cars in the second quarter.
"We made significant progress streamlining our global logistics and delivery operations at higher volumes, enabling cost efficiencies and improvements to our working capital position," the company said in a press release.
The news was enough to put some more stability into the stock, sending shares higher by as much as 7%.
But the quarterly financials still fell short
Despite the deliveries beat, Tesla's second-quarter earnings still fell short of what investors had expected, with total losses exceeding predictions on a per-share basis by nearly three times.
A founding executive departs
JB Straubel, an early Tesla executive and chief technical officer, is leaving his post, Musk announced on the second quarter call. He will continue to serve Tesla in an advisory role.
What's on deck?
Tesla has announced big plans for its solar-energy unit, which installed its lowest number ever of roofs and energy products in the second quarter. Management roles have reportedly been shaken up amid an announcement of a new battery pack that's its biggest yet.
The company also plans to have an investor day focused on battery technology in the third quarter, though it has not set a specific date.
Mark Matousek and Linette Lopez contributed to this post
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