Elon Musk, Tesla and the Saudi connection

Virginia Carson
August 28, 2018

Tesla's shares, already down almost 15 percent from a peak on August 7 when Musk tweeted that he had "funding secured" for a buyout at $420 a share, initially fell more than 5 percent in European and premarket trading in NY.

Now, Musk and his team are working to meet them under even more scrutiny from regulators and from shareholders, and with more competition - the Saudi Public Investment Fund recently made what is likely a billion-dollar deal with Lucid Motors, another electric auto company vying for the same milestones and clientele as Tesla. The Securities and Exchange Commission initiated an investigation to learn whether Musk had misled investors about the financing.

Musk stunned markets earlier this month by announcing the plan to go private in a tweet and boasting that funding had already been secured.

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United States securities law requires public company executives to have a "reasonable basis" on which to make representations to the investing public, and that would likely be the focus of an SEC probe, said three securities lawyers. Could the SEC investigation have played a role?

While the Saudis were open to making a significant investment in the effort as a way to help the kingdom hedge against oil and attract technology expertise to the region, the fund mainly was interested in a minority stake to limit its exposure to a single deal and save resources for other projects, the people said.

The case is Wochos v Tesla Inc et al, U.S. District Court, Northern District of California, No. 17-05828. "Public companies need more details about these things and you can't make them up". Banks had at most just a couple of weeks to assess the situation, after being brought in to advise only after Musk's initial tweet, said the people, who asked not to be identified as the details aren't public. As Musk admits: "Although the majority of shareholders I spoke to said they would remain with Tesla if we went private, the sentiment, in a nutshell, was 'please don't do this'".

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It remains unclear what Musk meant by "funding secured".

Lawsuits against Mr Musk, co-founder and chief executive of Tesla, "could linger for a year", Gene Munster, managing partner at Loup Ventures, a venture capital firm, said.

Musk also said the company "absolutely must stay focused on ramping Model 3 and becoming profitable".

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