Unpacking unintended consequences of Elon Musk’s $7bn Tesla tweet

LONDON — Best-selling author Brad Stone and Bloomberg's "Musk Watcher" Dana Hull unpack the nuclear-type fallout flowing from Tesla founder Elon Musk's August 7 tweet. – Alec Hogg.This is the Rational Perspective – I'm Alec Hogg. In this episode we unpack Elon Musk's $7bn tweet..___STEADY_PAYWALL___.It's been an insane six-weeks for South African born and bred super entrepreneur, Elon Musk. At about 14h00 on Tuesday, 7th August, while he was on an aeroplane, the boy from Pretoria launched one of the most expensive tweets of all time. Musk's assertion that he would be taking Tesla Motor Co. private at $420 a share, with funding secured, set the share price soaring before a collapse to its current $300. A market loss of $7bn from the pre-tweet level, and $14bn from its immediate post-tweet peak..In a throwback to the golden age of news gathering, when newspapers assigned specialised watchers to major companies. Bloomberg San Francisco based business reporter, Dana Hull is charged with focussing all her attention on Elon Musk, and his companies Tesla and SpaceX. Brad Stone is the best-selling author of a book on Amazon and its founder Jeff Bezos that actually resulted in the discovery of the man who fathered what is now the world's richest person..That book was a New York Times best-seller. So, is his latest book called The UpStarts: How Uber, Airbnb and the killer companies of the new Silicon Valley are changing the world. In this superb edition of Bloomberg's Encrypted Hull and Stone revisit Elon Musk's story since 7th August, and project what comes next..Brad Stone: So, Dana, let's go back to the innocent days of early August, precisely 7th August. You had just gotten back from vacation if I remember and that is the day, that fateful day, that Elon tweets, "I'm considering taking Tesla private at $420, funding secured.".Do you have a quick reaction to that one before we go? That's something else..Dana Hull: At first people thought that it was a joke so there were all these internal conversations here at Bloomberg about, 'was he hacked – is this a marijuana reference?'.Brad Stone: Right, because $420….Dana Hull: $420 – has some significance in marijuana culture and Tesla's PR team. They don't control his tweets. He doesn't have tweet ghost-writer, and my understanding now is that he was actually on a plane at the time. So, no one at Tesla PR could get hold of him so, we just assumed that it was true. But the crazy thing was that the stock started to explode higher then trading stopped, and no one could figure out what was going on..Brad Stone: And there was a kind of confidence that maybe Tesla and Elon had put the kind of volatility at Tesla stock behind it, like as a private company it wouldn't be susceptible to the hated shorts, right, which he had campaigned against for so long..Dana Hull: Yes, and Musk has talked quite openly for years now, about wishing Tesla was private. SpaceX is private. The volatility of the short-sellers drives him bananas. He's always talking about burning the shorts so, it definitely seems legitimate. Remember, that was the day also, that The Financial Times reported that the Saudis had taken some kind of stake in the company. So, the 'go private' tweet was sort of seen as a reaction to that..Brad Stone: But you know what, it struck me immediately because there's no more of a material announcement than the fact that a public company might be going private. Yet, he had tweeted, right. Not a filing with the SEC, not a press release, from your reporting like how unusual was that and who else at Tesla knew about this?.Dana Hull: It was pretty unusual and I don't think anyone at Tesla knew about it. That was one of my brain questions like, 'so, who on the executive team – what did they know and when did they know it?' Now, it kinda of appears that no one really knew and I think everybody was blindsided by it..Brad Stone: Even the board..Dana Hull: His executives, the board, and large institutional investors..Brad Stone: And now, in the ensuing days there's kind of a scramble to document who the advisors were, right? And we reported that both Goldman and Morgan Stanley are involved in this deal. So, it seems legitimate at this point, right?.Dana Hull: Yes, I think firstly the narrative arch went from 'this is crazy – he must have gotten hacked or he's joking' to 'wow, Elon is going private – okay, who's involved?' There was this appearance of forward momentum and we were hearing from bankers that they were meeting with Elon, that they were flying to LA to meet with him. People kind of felt like well, if anyone can pull this off it's him. This is a man who has been able to raise billions of dollars from the capital markets. He has a lot of long-term, long-prize investors on his side. SpaceX has had a great year. Tesla has had challenges with the Model 3 but there's still this widely popular brand. There was kind of a sense that Elon could potentially do this..Brad Stone: Right, and ironically, we had just written a cover story, which you co-authored about the scramble to meet the Model 3 production goals. A great headline – 'Hell for Elon Musk is amidst Sedan.' And documented his sleeping at the factory and rushing to meet these goals, and he had hit the numbers, right? There was a quarter where they met The Wall Street Competition..Dana Hull: Yes, they had finally kind of gotten to the state where they had even had to build a tent and like manufacture production line at the last minute – there was a feeling that they had finally exited production and that the cars were coming out and you're starting to see more cars here in California I'm sure..Brad Stone: A little more than two-weeks after the initial 'funding is secured' tweet Elon admits that in fact, funding was not really secured..Dana Hull: This was a Friday night news dub. Late at night is when the company posted a blog post from Elon Musk, essentially saying, 'we're going to be staying a publicly traded company and here's the reasons why.' We're not going to go into all of them..Brad Stone: Take us through what happened then?.Dana Hull: So, that was really late on a Friday night. So late that I don't know if East Coast newspapers made their deadlines. The thing that was remarkable about the blog post is that he basically admitted that all of the investors were not onboard with the idea and the prevailing sentiment was please don't do this,' which was completely contradictory to what he had said previously, because not only did he say that funding was secure but he was like, 'shareholders are on board.'.Brad Stone: There was consensus..Dana Hull: 'There's consensus, and it just needs to go before a vote.' So, he was really contradicting himself in a way that was pretty remarkable. Very quickly, it was like, 'all right, so when is the first shareholder lawsuit?' He pulled the plug on a Friday, within a week we had the first of now several shareholder lawsuits filed – that are attempting to get class-action status..Brad Stone: Right, and then the SEC comes in, right, and they serve Tesla with a subpoena..Dana Hull: And the SEC's interest is they're looking at when did he send the tweet? Who knew it? Was anyone involved? Did his board or his executives or large investors have any heads-up that this was coming?.Brad Stone: Well, if nobody traded on the information – has a crime been committed?.Dana Hull: I think that's a really good question. The short-sellers would certainly argue that they were hurt. But how the SEC views that, I'm not entirely sure..Brad Stone: Then we come into early September, September 6th, and Elon, after this plan has been scrapped and Tesla is sort of still wobbly from all of these lawsuits and the investigation, all this negative attention is placed on the company. Elon goes on a podcast called the Joe Rogan Experience..Joe Rogan: Thanks for doing that man, I really appreciate it..Elon Musk: You're welcome..Joe Rogan: It's very good to meet you..Elon Musk: It's nice to meet you too..Joe Rogan: And thanks for not lighting this place on fire..Elon Musk: You're welcome – I don't have a lighter..Joe Rogan: How does one in the middle of doing all of the things you do, create cars, rockets – and has a very profound conversation about very witty issues. Is life a simulation and things like that, the future of electric cars. But all the attention is captured by the fact that he smokes marijuana on this video podcast..Elon Musk: So, is that a joint or is it a cigar?.Joe Rogan: No, it's marijuana inside of tobacco. .Elon Musk: It's weed – so, it's like part tobacco and part weed..Joe Rogan: Yes, have you ever had that?.Elon Musk: Yes, I think I tried it once..Joe Rogan: Come on man. You probably can't because of the stockholders, right..Elon Musk: I mean it's legal, right?.Joe Rogan: Totally legal..Elon Musk: Okay..Joe Rogan: How does it work? Do people get upset at you if you do certain things, there's tobacco and marijuana in there, that's all it is?.Dana Hull: Musk, has talked openly in the past about mixing red wine and Ambien. In this very cheerful New York Times interview that came in the middle of the 'go private' drama The Times reported that he was not sleeping well. That there were concerns about recreational drug use so, this whole narrative around his mental health and his potential substance use and abuse was out there. So, you think, okay… He's pulled the plug. You would think that he would know better than to smoke pot at this particular moment..Brad Stone: I just wonder if he's trolling us with this, right? To go back to the point, we made earlier – he's unscripted, he's unfiltered. In a way, he depends on the media but maybe he doesn't really care about how he's portrayed. Of course, he cares too much, right, because he's so obsessed with it. But it's in a way, is he poking a finger in the eye of everyone who is so absorbed by his behaviour and his communication during this period?.Dana Hull: Well, then conspiracy theorists will have you believe. So, he smokes pot late on a Thursday night. The next morning, 'oh my God – Musk smoked pot. This is so crazy.' But on that same day they filed an AK, which they revealed that their chief-accounting officer had resigned. So, the stock started to tank and it's like well, is the stock tanking because the CEO smoked pot or is it taking because a finance executive quit? The conspiracy theorists believe that Musk smokes pot specifically, knowing that the media will then talk about the pot and ignore the fact that a finance….Brad Stone: That's very Trump-like, isn't it? A little twitter orchestrated misdirection?.Dana Hull: Yes, and there have been a lot of parallels to Trump, just in terms of his use of Twitter, and the passion of his base..Brad Stone: About a week after he smokes pot on the Joe Rogan podcast our colleagues report that the Department of Justice has opened a criminal investigation..Dana Hull: Here is the latest in terms of the DOJ probe of Tesla. Goldman and Silver Lake have also been subpoenaed. The focus is on Elon Musk's tweet in early August when he said….Brad Stone: So, this is on top of the SEC's subpoena. It's on top of these more formal shareholder lawsuits – a criminal investigation. What does that mean and does somebody go to jail if the Department of Justice finds evidence of criminality?.Dana Hull: I think it's still very early stages and we should let the investigation play out but it certainly is like another threat. My understanding is that SEC kind of plods along and if they see anything that seems criminal they flag it to their colleagues at the DOJ and then the DOJ opens its own inquiry. We're not under the impression that FBI agents in blue windbreakers are pounding on Elon's door and hauling away computers. But it does seem like the investigation is continuing. There are multiple investigations on multiple fronts and what was striking about our colleague's report is that Tesla basically, have put out a statement saying, 'that we heard from the Department of Justice last month and we're co-operating.' So, they didn't deny that the Department of Justice is involved. There's some splitting of hairs about whether its definitely criminal or civil. When the Department of Justice gets involved it means that there's concern about possible criminal behaviour. It doesn't mean that they will file charges. It doesn't mean that someone is going to jail, but it means that there is enough there and that they're involved..Brad Stone: And again, what they're investigating is the tweet and the proclamation that funding was secured, which moved the stock price and then we find out, two weeks later, that no such deal ever existed..Dana Hull: Exactly..Brad Stone: So, Dana, we've talked about these dramatic last few months in the lives of Tesla and Elon Musk, and we've talked about the consequences, the unintended consequences of this ill-conceived tweet from Elon Musk that he had a plan to take Tesla private, and had funding secured. So, let's talk a little bit about what it all means for Tesla and the future of electric vehicles, and for Elon Musk's career? Do you think that some of these probes, the criminal probe and the shareholder lawsuit are any kind of a turning point for a company that seems to have had so many of these kinds of episodes?.Dana Hull: I guess my question is how does this impact their ability to raise additional capital? Musk has a laundry list of projects that he wants to complete. A Gigafactory in China, a Model-Y crossover, the solar roof, semi-truck – all of his ambitions need more money and this is a guy who has been able to raise money from the capital markets, handover fist for over a decade now..Brad Stone: Do you really think he'll have a problem the next time he needs to raise money?.Dana Hull: I think a lot of it rides on how this quarter looks in terms of the fundamentals of Tesla's business, which is making and selling cars. For all the drama about Azeala Banks and smoking pot and grimes and this tweet, and the SEC, and the DOJ – like fundamentally, the exocentric question for Tesla is – can they become a mass-market car maker and can they make cars in high volume with high quality? We're going to find out very soon. In early October they're going to release their delivery and production figures and they're kind of sounding good..Brad Stone: You know, I was thinking a little bit about whether there had been any similar episodes in Silicon Valley history? The one that kind of sprang to mind was Steve Jobs at Apple, back in the early 2000's. He had just come back to the company. He had turned it around and him and some members of his management team received some probably well-deserved stock options, which they then back dated to minimise some of the tax impact. Jobs, like Elon, maybe uniquely right, was a CEO who was a visionary ahead of his time, and he really didn't care what the world thought. He wanted to bend everyone to his will and sometimes he skirted the rules. So, it's different and Twitter obviously, didn't exist back then. It would be interesting if we had ever seen what Steve Jobs would have been like on Twitter. He probably would have astute it. But I guess what I'm saying is, is there a little bit of a pattern here among these larger than life Silicon Valley figures..Dana Hull: The other Jobs' comparison is that Jobs was also running Pixar at the time, or at one point, he was simultaneously running both..Brad Stone: Definitely he was, for years, yes..Dana Hull: Even though everyone thinks about Musk and Tesla – his real passion has always been SpaceX. SpaceX has had a phenomenally successful year, and it has been largely drama free. Just on Monday, Musk announced that he's got this Japanese billionaire ready to pay billions of dollars to go to the moon with him..Brad Stone: Right, Yusaku Maezawa and that's interesting because despite all the turmoil around Elon Musk it doesn't seem like this particular business man has lost any faith in him. I mean, has Elon lost any supporters, do you think, through these months of turmoil?.Dana Hull: We'll find out when the next 13F's are filed, whether large institutional shareholders have sold off their holdings. You know, it's hard to say. You're not really seeing a lot of public people break with him. Analysts are like, 'Elon, you should apologise to the cave rescue team.' People were calling on him to tone it down but you're not seeing like a big break. I think people want him to modulate his behaviour but I think they fundamentally recognise that Elon is going to be Elon..Brad Stone: So, before we sat down to record this podcast I put out a request on Twitter to listeners to ask them if there are any questions for you, Dana, and we've got a bunch of good questions. We got one from a 'user @tempworker' asking about the recent executive departures..Dana Hull: Yes, this is sort of an area that I really have delved into this year because Tesla is not super transparent about what their executive leadership is. Unlike in Apple, or even in Uber – if you go to their website there's no org-chart so, I created one of my own and what's kind of striking is that like 14 vice-presidents have left this year, and they have not been replaced by outside hirers. In general, the positions are shuffled around and more and more people are reporting directly to Elon. So, Elon has a lot of direct reports for a CEO who is not a full-time CEO. The people who have departed have been really high-profile people, Jon McNeill who was the president of sales service and deliveries. He left. He's now the CEO at Lyft. Doug Field who was the engineering-chief, he left. He's now back at Apple. There's been this kind of drip-drip of pretty significant departures at a time when Tesla should be doing pretty well. A company like Tesla, at this age in its maturity should have a deep bench of talent, and they just don't have that right now..Brad Stone: Dana, another Twitter question, from a user calling himself, as one does, '@twainsmoustach' the Bloomberg story yesterday, about the DOJ looking into and connecting a criminal investigation of Tesla. He said that they were looking into claims that Elon has misled the market about the health of Tesla, right. So that's markedly different, right, then an investigation in the timing of the tweet or whether funding was secured. This is like, do you have an indication that this is a source of concern here that maybe Tesla isn't as healthy as it has professed to be?.Dana Hull: So, our understanding is that the SEC is looking into two things – the tweet and the public statements that Musk and the company have made about delivery targets and production figures. I'm not under the impression that the DOJ is looking into that but certainly it's like one the door is open, it's kind of a Pandora's box..Brad Stone: Another question from a user calling him or herself, 'blondesforelon' – I don't know if that's a group or not. Are there SEC whistleblowers out there or is there a DOJ whistleblower. So, I guess, are there people inside Tesla that might be the source?.Dana Hull: Yes, there is a former Tesla employee who worked at the Gigafactory, named Martin Tripp, who filed a whistleblower complaint with the SEC. He's hired an attorney and he alleges that Tesla was not being forthright about battery production figures. There's a whole crazy story about him, and the police in Nevada got involved. Now he's on Twitter. He's got to raise money for his legal fees. His attorney has been very outspoken. The attorney has, in turn, been asking other whistleblowers to come forward. I think a second person has also come forward but there are definitely whistle-blowers. Whether any action results come out of it, I'm not entirely sure..Brad Stone: Well, more importantly, a user '@jmt' is asking us about impending competition and how realistic are some of these other companies like Audi that have talked about electric cars? Now, an analysis from Toni Sacconaghi, an analyst at Bernstein said that there was no credible competition, at least on the near horizon. So, what is the environment out there for Tesla?.Dana Hull: My sense is that any time a legacy auto maker like Audi comes out with an electric car – the headline is always 'is this the Tesla killer?' But I went to the Audi event on Monday night and it's a compelling electric car, if you like Audi, if you are brand loyal to Audi – you will probably look at it. But the goal of Tesla was always to accelerate the advent of electric transportation. Electric cars are still such a small part of the market but there's plenty of room for other automakers to come in. The goal is to get people to switch from the internal combustion engine to electric. It's not to get people to switch people from a Tesla to an Audi..Brad Stone: So, Dana let's wrap up this discussion, going back to your life covering Tesla. You, in the last few months have gone through the Model 3 production hell months. You've gone through the funding secured tweets. You've gone through Elon's marijuana smoking podcast, and now the SEC and perhaps the DOJ investigations. What do the next few months look like? Are things going to calm down on the Tesla beat?.Dana Hull: Yes, that would be nice. I think the next few months are really about their ability to retain talent and hire additional talent. It's about the current quarter and are they able to hit these numbers? Then you're going to just start seeing more cars on the road frankly and so, what is the consumer attitude about the car?.A very special to Dana Hull and Brad Stone for those unique insights into Elon Musk and his $7bn tweet..That was the Rational perspective. I'm Alec Hogg. Until the next time, cheerio.

Unpacking unintended consequences of Elon Musk’s $7bn Tesla tweet

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