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Opinion: Elon Musk pumps Tesla stock with ridiculous $4 trillion target. Will there be a dump next time?




Another earnings call from Tesla Inc., and another fanciful Elon Musk prediction likely fueled another open filing with the Securities and Exchange Commission on Wednesday.

CEO of Tesla Inc. TSLA,
+0.84%
told investors on Wednesday that he believes the valuation of the electric car maker will exceed the combined market capitalization of the two most valuable companies in the world: Apple Inc. AAPL,
+0.08%
and Saudi Arabian Oil Co. 2222,
+0.42%.

“I am of the opinion that we can far exceed Apple̵[ads1]7;s current market cap,” Musk said. “In fact, I see a potential path for Tesla to be worth more than Apple and Saudi Aramco combined.”

Based on Wednesday’s closing price, the combined market value of these two companies is around 4.4 trillion US dollars. But at least he added a caveat – “That doesn’t mean it will happen or that it will be easy, in fact it will be very difficult, require a lot of work, very creative new products, expansion and always good luck.”

Full earnings coverage: Elon Musk teases massive Tesla share buyback as CFO trims forecast for annual deliveries and stock decline

These kinds of outrageous predictions are not new to Musk. He already predicted that Tesla would be worth as much as Apple, and its market cap now is about the same size as Apple’s was then, although his explanation for why Tesla would rise to that level was far off.

However, the situation Musk is in right now is new. Like the soap opera that has erupted from his deal to buy Twitter Inc. TWTR,
+0.10%
nearing its end, he’s believed to need somewhere between $5 billion and $8 billion to complete that deal, as our colleagues at Barron’s recently reported, and his only real path to that kind of cash is to sell Tesla stock.

Musk was barred from selling stock before Tesla’s earnings report due to SEC rules, so what better way to try to pump up Tesla’s stock before that blackout ended than to make some far-fetched predictions about the company’s earnings?

From Barron’s: A Tesla stock sale is coming. We know who, why and when, but not how much.

A $4 trillion price target wasn’t the only eye-opening claim Musk made in Wednesday’s call. He also told investors that he expected Tesla to conduct the first stock buyback in the company’s history next year, and a big one at that: $5 billion to $10 billion.

“Even in a downside scenario next year, given that next year is very difficult, we still have the opportunity to do a $5 [billion] to $10 billion buyback. This obviously awaits board review and approval, he said. “So it’s likely we’ll do some meaningful buybacks.”

It’s very strange to announce a buyback plan before it’s been approved and officially put in place by a board, even though sharing the news early isn’t automatically a violation of securities law, said Stephen Diamond, an associate professor at Santa Clara University. School of Law.

“Best practice would suggest you wait until you have your ducks in a row before making such an announcement, but I doubt that creates any obvious legal problems,” he said.

He added that the Tesla board is likely seeking approval from its auditors and legal counsel for the share buyback, which is why it has not yet been approved.

“There is an accounting test under Delaware law that the company must meet to buy back stock,” Diamond said in an email. “Generally, it can only buy back shares if there is a ‘surplus’ available. Assessing this would require support from their internal finance team to the board and probably external opinions from their auditors and legal advisers as well.”

While early disclosure of buyback plans won’t automatically set off alarm bells at the SEC office, these kinds of statements from Musk will specifically catch some ears in the regulator’s offices. Musk has already faced accusations from the agency over past statements, and has been targeted for not living up to the settlement he agreed to in that case. Musk is also being actively investigated for his conduct when he moved to acquire Twitter, which Twitter appeared to confirm in a legal filing earlier this month.

More: Elon Musk’s legal battle with Twitter may be over, but his war with the SEC continues

On the call, Musk would only say he’s “excited about the Twitter situation,” while admitting that “myself and the other investors are obviously overpaying for it right now.”

Tesla officials did not respond to a request for comment or respond to questions about whether Musk would need to sell more Tesla shares to complete the Twitter deal.

The question for Tesla investors, however, is whether they overpaid for Tesla shares ahead of another round of share sales by Musk, who has already unloaded billions in shares over the past year, reportedly resulting in another SEC inquiry. On Wednesday, however, shares fell more than 6% in after-hours trading despite the CEO’s boosterism, which appeared to be overshadowed by a missed revenue and trimmed forecast.

Perhaps investors are finally seeing through Musk’s earnings-call bloviating that boosted the value of Tesla’s stock earlier. But if Musk sells Tesla shares in the coming days after trying to talk up the company’s value, it won’t be the investors knocking on his door, it could be the SEC again.



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