Elon tweets about going private

Normally when we mention market movements and tweeting, we are referring to President Trump. In this case it was Elon Musk. See his tweets below. Before his tweet, Tesla was already up around 4.5% because it emerged that the Saudi Arabian sovereign wealth fund has a stake of between 3% - 5%. Then Musk's tweet landed sending the stock even higher.



Shortly after 14:00 New York time, the stock was suspended until the company could release more information. I imagine that Musk will be in trouble given that he used Twitter to publish the news and not the official SENS service. The first problem is that not everyone has twitter, and the second problem is that a tweet has a character limit. When the tweet came out, people weren't even sure if they should take him seriously; the $420 price quoted is a reference to smoking weed, international weed day is April 20. Who are these funders? What timeline is he working on?

The company and Musk then clarified that the end goal is for them to go private, which would allow Musk to focus on building Tesla instead of fighting off short sellers. It makes sense in principle, how will he pay for this idea though? A $420 per share buy-out would be the biggest LBO (Leveraged Buy Out) in history. These transactions usually happen with companies that have strong cash flows, which can then pay down the debt. Tesla is good at burning through cash, not producing it.

My best guess is that the funding will probably come from large long-term sources, possibly the Chinese Government in some form, Tencent and the Saudi Sovereign wealth fund? For China, I'm sure that they would like to become the global capital of electric vehicles. Everything is still up in the air, what we do know though is that the shorts in Tesla lost close to $900 million yesterday, and stand to lose $4.4 billion if Tesla goes private at $420. Ouch!