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Elon Musk Is Working Too Hard on His Tesla Plan: Matt Levine

These translations are done via Google Translate
Aug 17, 2018, by Matt Levine

(Bloomberg Opinion)

It does actually happen occasionally that a short seller will bet against the stock of a company and then do something to sabotage the company. There’s that guy who shorted the stock of Borussia Dortmund, the soccer team, and allegedly planted a bomb on the team’s bus. That’s sabotage! And then there are more metaphorical (and legal) forms of sabotage; Bill Ackman shorted Herbalife Nutrition Ltd. and then spent years pestering regulators to investigate it for being a pyramid scheme. That’s not a bomb, but it is definitely a committed effort to disrupt the company’s operations.

But the vast majority of the time, when a public-company chief executive officer complains that short sellers are sabotaging his company, he is talking nonsense. In general, the short sellers’ thesis is that the company is bad and that eventually the market will find out, not that it is good but they can ruin it. Of course, yes, sure, fine, short sellers have a theoretical economic incentive to publish the company’s trade secrets and blow up its factories and murder its workers. But they generally don’t, because we live in a society with laws, and those things are crimes. Muddy Waters Research once shorted a medical-device company because it claimed that it was possible to hack into the company’s pacemakers and murder their users. But it didn’t actually murder them!

Elon Musk has been banging on for ages about how short sellers are trying to sabotage his company, Tesla Inc. When he got mad at journalist Linette Lopez, he asked her “is it possible you’re serving as an inside trading source for one of Tesla’s biggest short-sellers,” an accusation that was not only unsupported but that also made no sense. (Inside … source … what?) When a whistle-blower/saboteur (depending who you ask) took sensitive data from Tesla, Musk guessed without evidence that short sellers might be to blame, and put them on his “long list of organizations that want Tesla to die.” Part of his rationale for trying to take the company private was to get rid of short sellers: “As the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.” And in this weird weepy interview with the New York Times he blames short sellers for, uh, this:

He blamed short-sellers — investors who bet that Tesla’s shares will lose value — for much of his stress. He said he was bracing for “at least a few months of extreme torture from the short-sellers, who are desperately pushing a narrative that will possibly result in Tesla’s destruction.”

This does seem to be mostly nonsense. If you build lots of good cars and sell them for more money than it costs you to build them, then you will make a lot of money and no amount of desperate pushing of narrative will result in your destruction. If your company is actually good, then it just doesn’t matter that much if some hedge funds say that it is bad. Just do the work and let your results speak for themselves. There is as far as I can tell no evidence that short sellers are, like, breaking into the factory and loosening screws in the cars. The short sellers aren’t even bad for the stock price: “Shorts only depress a share price when they sell,” as Felix Salmon pointed out, and Tesla’s exchange-reported short interest peaked back in April. (Though I bet it ticked up again after Musk’s going-private tweets!)

Still, if you read that Times interview, and look at the last two weeks in the life of Tesla, you could reasonably conclude that short sellers are trying to sabotage Tesla, and that it’s working. It’s just that the weak link they’re targeting for sabotage is not Tesla’s intellectual property, or its assembly line, or its financing sources, or its “narrative.” They’re targeting the CEO. The sabotage goes like this:

Short Tesla stock. Tweet mild criticism of Musk. Watch him spend hours spiraling into rage and depression, ignoring the urgent work of his job, lashing out on Twitter, arguably committing securities fraud and generally driving the stock price down.I mean! Last week Musk infamously tweeted that he had “funding secured” for a buyout of Tesla at $420 per share; it has since come out that that was not, in the ordinary usage of those words, true. “In the interview, Mr. Musk added that he did not regret his Twitter post — ‘Why would I?’ — and said he had no plans to stop using the social media platform.” Why would he regret the tweet about going private? Because he is being investigated by the Securities and Exchange Commission, is being sued by investors, and may well end up costing the company (or himself) hundreds of millions of dollars in damages?  Tesla made about $588 million last quarter from selling cars; my rough estimate of the damages caused by Musk’s going-private tweet is at least $606 million. If the shareholder lawsuits settle for anything like that amount, then Musk’s tweet was as bad as shutting down the assembly line for three months. Sabotage!

And that doesn’t even account for the managerial distraction. Musk told the Times that “he had been working up to 120 hours a week recently” and “had not taken more than a week off since 2001,” but he sure … seems … to have … a lot … of time … to tweet? Even in the last week, he has been tweeting jokes about short sellers, Tesla has been responding to SEC inquiries about his tweets, and Musk has been giving emotional hour-long interviews to the Times about his tweets. He could reclaim like 40 hours a week for work and sleep if he stopped tweeting. But of course he can’t. The short sellers won’t let him. They keep tweeting mean things, or at least being short. Someone is wrong on the internet, and Musk has no choice but to fight them. “If you have anyone who can do a better job” of running Tesla, Musk told the Times, “please let me know. They can have the job. Is there someone who can do the job better? They can have the reins right now.” He’ll give up management of his car company. But he won’t give up his Twitter account.

Meanwhile everyone seems to have stopped pretending that Musk might take Tesla private. Saudi Arabia’s Public Investment Fund, which was the source of Musk’s supposedly secure financing, has never made any public comment on the buyout plan that it is allegedly backing, and “people familiar with the matter …  are skeptical the fund has any serious plans to take a sizable stake in Tesla beyond the nearly 5% it recently bought.” Speculation about how Tesla could “go private” while still letting “all shareholders have a choice” to remain shareholders in the private company has mostly stopped, as people have realized those were just words Musk wrote and not a description of any actual plan or worked-out deal structure. The deal’s apparent requirement that most of Tesla’s big shareholders – many of them public-market-focused institutional investors like T. Rowe Price, Fidelity, Vanguard and BlackRock – roll their stock into the new private company (because there’s no money to actually buy them out) has been undermined by the fact that T. Rowe and Fidelity have been selling Tesla stock.

The whole conversation has shifted from “well it’s a long shot but Musk is good at long shots” to questions of damage control: Did Musk at least have some reasonable basis for saying “funding secured,” even if he doesn’t actually have any funding? Is there some sort of gesture at a deal that he could put together, and have the board or the shareholders reject, in order to save face? Was his intention to be transparent about his plans, or to manipulate the stock and burn the shorts? Does his fragile emotional state mitigate any claims of stock manipulation? Was he at least not using drugs while tweeting about going private? (Musk: “I was not on weed, to be clear. Weed is not helpful for productivity.” Neither is Twitter, bro, neither is Twitter.)

What do you do with this? If Musk were just a bumbling idiot who kept damaging his company with his tweets, the answer would be easy: Get rid of him to save the company. But I doubt even his harshest detractors believe that. It seems more plausible that Musk is a visionary leader with an impressive track record of accomplishing difficult things, who, amid all his distractions, makes good cars. And who keeps damaging his company with his tweets.

All of these things might be true:

Musk is the only person qualified to be CEO of Tesla. Musk is not qualified to be the CEO of a public company. Musk cannot take Tesla private.You need to solve one of these problems. It seems to me that two of them are very hard: It is very hard to replace the visionary who built Tesla up from nothing into a much-admired $50 billion car company, and it is very hard to take a money-losing company private for $70 billion without any cash. Those are also the two problems that Musk is addressing, trying to find investors for his weird going-private plan while also asking the Times if they know anyone who could take his job.

But the other problem – the one he is ignoring – is relatively easy. Lots of people are perfectly adequate public-company CEOs, and many of them are far less impressive than Musk. It is not – sorry – rocket science. You get some independent non-crony directors on the board, you give them some power to constrain Musk, and you sit him down and explain to him that, if he wants Tesla to succeed, his job is not only (not at all?) to work 24-hour shifts in the factory but also to be a responsible public face of the company. He is a smart guy; presumably someone – on his board, or among the legal and financial advisers working on his far-fetched deal – could explain to him that running material announcements by the board, and having a lawyer review them to make sure that they’re true, are not wasteful bureaucratic distractions but rather ways to prevent distractions and drama. And take away his Twitter! Musk seems committed to doing things the hard way, a largely admirable personal quality that has driven him to build electric cars and space rockets, so it is natural that his solution to the problem of people saying mean things about him on Twitter is to try to do a $70 billion buyout without any cash. I am just saying, there might be simpler approaches.

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