Tesla’s Critics Are Having A Field Day With Elon Musk’s Most Recent Gimmick

Chris White | Energy Reporter

Tesla CEO Elon Musk’s gambit to take the California automaker private has done little to quiet a growing number of people who’ve worked for years to short sell the company.

Musk’s tweet Tuesday floating the possibility of taking Tesla private was done, in part, to avoid the distractions short sellers pose to his company. But the company’s critics are still talking down Musk even as Wall Street reacted favorably to the tech entrepreneur’s suggestion.

“I doubled my short position the morning after Musk’s original tweet,” Robert Chapman, an analyst at Chapman Capital, told a Bloomberg reporter Friday. “The more one learns about this situation, the more this appears to be a fakeover vs. takeover.” Critics are also hesitant that Tesla devotees will buy into the gimmick.

Private company management is not subject to the usual public monitoring and scrutiny of those that go public. Analysts, short sellers who criticize the future potential of companies like Tesla, and regulatory agencies often provide investors with information before they purchase shares in a company.

Musk’s online behavior, inability to hit important deadlines and criticisms of the media might give future shareholders pause. (RELATED: What Happens To Tesla Devotees If Musk Takes The Company Private?)

“It always ends poorly for companies when they’re trying to squeeze the shorts,” Chris Brown, a managing member at Aristides Capital whose biggest position is a Tesla short, told reporters. “The idea of a transaction itself is idiotic,” he said, referring to the idea of taking the company private to bury short sellers.

Musk’s tweets came shortly after Saudi Arabia’s Public Investment Fund (PIF) bought 5 percent of the electric vehicle maker’s shares this year. The PIF’s position is worth between $1.7 billion and $2.9 billion at Tesla’s current share price. PIF instead acquired the position through secondary markets with the help of JPMorgan. The exact date of the purchase likely happened while the Crown Prince Mohammed bin Salman was touring the U.S. in March.

Tesla traded at $355.90 Friday. The bump came after a CNBC report Thursday showed Musk had previously talked with Saudi Arabia’s wealth fund about a take-private deal. The stock was trading at around $357 at the time of his Tuesday tweet. But the Tesla shorts aren’t giving up the ghost, according to Ihor Dusaniwsky, an executive at S3 Partners, a financial technology and analytics firm.

“We’ve seen some of the larger shorts increasing their positions a bit,” Dusaniwsky told reporters. “In relative terms to the gains and losses Tesla shorts have incurred over the last several year, this is just a drop in the bucket and not enough to force large margin calls to well capitalized large short players, and definitely not enough to scare any of them out of their positions.”

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