It is now clear that Tesla never had a signed commitment letter from any investor or group of investors, nor did Tesla’s Board approve this transaction. Thus, the comments by Elon Musk on Twitter that “Funding Secured” and that “Investor support is confirmed. Only reason why this is not certain is it is contingent on a shareholder vote” were outright lies about material corporate developments and, therefore, violate securities laws.Due to these facts, along with past statements, the SEC is formally investigating Elon Musk and Tesla. We believe that the outcome of this investigation will be criminal charges, likely imprisonment of Mr. Musk, and his removal as an officer of Tesla.Tesla stock traded at least 10 million shares per day the last 15 trading days. Thus, 150 million shares traded hands. The stock initially rose to $385 and then fell to its current price of $317. We estimate that the purchasers of the shares lost at least $30 per share on average. Thus, the loss to these buyers could be in the range of $4-5 billion (150 million times 30). Adding in punitive amounts, we believe that the total amount of damages will be in the $10 billion range. Tesla does not have these types of sums available to it.
We now know that there are no buyers of the company equity at $420 per share or anywhere close to that valuation. Further, companies under formal SEC investigations have a very difficult, if not impossible, time raising capital from banks, bond investors, equity investors or suppliers. Given the losses that Tesla has been experiencing, which we believe, despite management assurances of profits, will continue over the next 12-24 months, their worsening balance sheet, capital expenditure needs, large working capital needs, expiring tax credits, new competition from Jaguar, Audi, Mercedes, VW, BMW, GM, etc, and a supplier base that is becoming quite nervous, we believe that Tesla will be forced into bankruptcy protection from its creditors by year end or, at the latest, by March 31.In the event that these predictions come to fruition in the next 6-12 months, the Vilas Fund, LP should experience a material gain.
John C. Thompson, CFACEO and Chief Investment OfficerVilas Capital Management, LLC