Yesterday’s Tweet from Elon Musk May Save Tesla from an Upcoming Billion Dollar Debt
Yesterday Tesla was all over the news after CEO Elon Musk announced he was considering taking Tesla (NASDAQ:TSLA) private for $420 a share, just hours after a Saudi wealth fund was reported to have taken a multi-billion dollar stake in the company.
The result? Tesla stock soared over 11 percent on the day, after a brief suspension of trading in the afternoon hours, closing at $379.57 a share. According to an SEC filing, the automaker has $920 million in convertible bonds coming due on Feb. 27, 2019 at a convertible price of $359.87. However, the bonds' maturity date is a bit sooner on Dec. 1, 2018.
So if their stock is trading at under $360 come December 1st, the company will need to dip into its already strained cash reserves to fork out money to their bondholders.
If the now heavily-boosted stock can maintain a price per share north of $360 then holders will likely want to convert their bonds into equity in the form of stock and Tesla won't need to outlay any cash at all.
Despite a great quarterly earnings statement for the second quarter of 2018, Tesla is still burning cash. 2017 saw the Palo-Alto outfit burn through more than $2 billion in cash and current reserves are sitting at $2.2 bilion. Tesla is currently carrying around $9.5 billion in long-term debt. For their part, Tesla DID specify that they expect to operate cash-positive for the remaining half of the year.
Was Elon's Tesla going private tweet illegal?
We still don't know if any foul play or misleading intentions were behind Elon's tweet from yesterday.
Regulation Fair Disclosure states that companies must “distribute material information in a manner reasonably designed to get that information out to the general public broadly and non-exclusively.”
It could be argued that since Elon Musk has over twenty-two million followers on Twitter that this constitutes a broad and non-exclusive distribution of the information.
Ultimately Elon may have to answer to the SEC if any possible violations occurred.
The Netflix CEO Reed Hastings once posted on his Facebook in regards to strong Netflix viewership and the SEC launched a formal investigation ending in no charges or actions stemming from the case. They DID, in fact, issue a comment that social media posts were not enough unless investors were advised ahead of time that social media posts may be the official outlet of company news.
They might be off the hook, however. In 2013 in a K-8 filing, under a section titled, "Interesting in keeping up with Tesla?" the company tells investors to monitor the official Investor Relations portion of the Tesla.com website, and then goes on to write “for additional information, please follow Elon Musk’s and Tesla’s Twitter accounts.”
So far the SEC has declined to comment.