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Oct 5, 2018

S3 Analytics: E-long Must

Elon Musk, chairman of Tesla, has once-again tweaked the noses of his tormentors by calling federal securities regulators the “Shortseller Enrichment Commission.” His actions could easily put the settlement at risk, depending on the attitude of the federal judge that must approve the deal.

Since Musk agreed to step down as chairman, Tesla shares have slipped from $310 to $281, netting shorts $941 million, a return of 9.6% in less than a week. Friday’s reaction to the insulting tweet pushed the shares even lower and produced more than half a billion in paper profit for the shorts.

Clearly short positions are building in the wake of strong selling by longs, as Musk demonstrates a refusal to keep away from controversy. The SEC is in the awkward position of coming up with ways to contain him without permanently damaging the small investors who speculate in the stock.

Short sellers believe that Tesla shares without Musk would probably not command its current premium. Already previous reports indicated that he has threatened to resign prior to the settlement. Can anything contain him? Perhaps the SEC might experiment with a tweet gag order, or, failing that, force him to change his name to E-long Must.

Research Note written by Jack Willoughby
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Contact: Matthew.Unterman@s3partners.net
Director, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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