Whitney Tilson’s email to investors discussing the fear for Tesla short-sellers which is if Musk decides to raise capital.
Whitney – IMHO, the only real fear for a Tesla short is that one day Elon wakes up and decides its finally time to raise capital which delays the inevitable collapse of Tesla for at least a year. Sure it dilutes the stock, but If you are selling at 4x overvalued on the strength of your narrative, why not sell 20%, raise a ton of cash and then sell for 5x with an even better narrative of a more secure future.
It seems like such a no-brainer, so why doesn’t he raise? (In increasing order of likelihood)
- SEC forbids it per an existing agreement.
- Really hard to believe such an agreement, if it existed, could stay secret for this long
- If true, wouldn’t Elon be tweeting foul about government regulations in this space.
- Yet, the SEC let him issue a handful of shares for diesel trucks last month.
- No one will run his secondary.
- It’s hard to believe that an investment bank couldn’t walk up to some hedge funds and offer a private placement to cover their shorts at a nice discount for an instant profit. Maybe something this blatant is illegal? Surely hedge funds could figure out a creative solution.
- Surely some investment banks do want his secondary business - that’s why they tout silly target prices, but Elon is waiting for Google, Softbank, Saudi’s, etc. to give him better terms.
- Musk doesn’t want to show the numbers behind the numbers to anybody. The numbers are either fraudulent or would expose violations of other financial agreements if revealed.
- Elon is worried about short-term price drop initiating margin calls.
- Allegedly, he still has stock to post as collateral down to 120 which would easily cover a temporary 30% drop. I say temporary because, I’d predict a quick short cover rally once everyone realizes the company is safe for another year. Seriously his followers don’t seem to care about the share count, all that matters on Robinhood is the quoted share price.
- Maybe he has over collateralized his Tesla shares and has no more clean shares to post, so his forced selling margin call price is much higher, say 240?
- Elon is just bat shit crazy.
- He needs the money to go to Mars and has cheated financial death before, so he is not budging. Then again, he has changed his mind on a lot of things, so why not on a raise?
- If he is the only reason there is no raise, then when push comes to shove, could not the board force him to agree to raise capital in return for their support the next time the SEC comes calling. At a certain point, the board has to be worried about the stain of a failure on their watch and would want to kick the problem down the road into someone else’s directorship.
What am I missing?