The 150 Billion Dollar Tweet

By Bob Huxford

Elon Musk has done it again. Put out a tweet that gives investors kittens and sends the share price reeling. This time he's signalled he might be up for dumping $21bn of stock onto the market. His reasoning most likely, is to pay off a $15bn tax bill, with a few billion spare-change put aside for a rainy day. 

In the past he's used his twitter account to provide all sorts of sensitive or damaging information, much to the dismay of his investor base. These include telling followers he was “considering taking the company private… funding secured”; announcing that Tesla stock was “too high”, immediately causing it to crash 10%; and labelling the heroic rescuer of 12 Thai children trapped in a cave, a "pedo".

Following on from those seeming PR disasters, he was told by US securities regulators that Tesla lawyers must oversee his tweets before publication to ensure they didn’t contain information material relating to the share price, and rightly so. Twitter isn’t a regulated news service (RNS), and these services exist for a reason.

They provide investors with a one-stop-shop for price sensitive news, ensuring everybody gets the same information at the same time. When you invest in a stock you can set up your RNS alert safe in the knowledge you’ll always get material news at the point at which it becomes public information. What you probably can’t do, if you have a reasonably diverse portfolio, is be expected to follow every social media account of every board member of every one of your investments to ensure they don’t post any essential information to a select band of followers who can act on it long before you do.

In Tesla's case you also need to be all over the news as Musk frequently engages in erratic activities with the potential to harm the value of his company, including; insulting equity analysts during a results conference; smoking dope on a radio show while babbling incoherently for a couple of hours; getting one of his employees, during the unveiling of his indestructible jeep, to put its windows through with a sledgehammer; and running Theresa May a close second for the title of most embarrassing dance at a conference (Musk dance). I’ve just watched Theresa May again and hers is worse (May dance).

If I'm sounding a bit humpy at all of this, it’s because I've got the hump. I bought Tesla shares just a couple of weeks ago off the back of their stellar earnings update, in which top-line and bottom-line numbers were soundly beaten, and since his tweet they’re off 13%, which equates to roughly £150 billion of Tesla’s value, a pretty expensive tweet.  

Buying Tesla shares is something I've never done before, in the main because Musk's frequent outbursts made any investment in Tesla an activity that carried a serious amount of jeopardy. However, with the ban on dodgy tweets in place I was feeling more comfortable and with the good news out in the market and swarms of retail investors willing to pay any price for a piece of Tesla, I was happy to take a short-term punt. My gamble was paying off as well, until Elon opened his big gob again.

Having said all that, his wild behaviour has likely played no small part in the company's stratospheric share price rise to date. Tesla is up 158% this year and 1600% in the past 2 years. It trades on 141 times next year’s earnings which, like his Space X rockets, is beyond stratospheric. This compares to other trillion pound plus companies like Apple on 26 times earnings, Microsoft, 37 times, and Amazon, 53 times. Admittedly, Tesla is now growing its bottom line faster than these businesses, but its still on a whopping valuation, which looks even more huge next to other car companies which are pouring a fortune into competing with him, and catching up fast.

There’s a reason Tesla attracts these multiples where the other companies don’t, and a lot of it is down to Elon Musk himself and the media image he has wilfully created. His eccentric behaviour serves to confirm that he is the crazy genius with the power to change our world in ways others only dream of. Like the stop-at-nothing Victor Frankenstein who’ll bring us back to life when we’re gone or mad professor Emmett “Doc” Brown who’ll have us travelling back to the future, he is the maverick among company leaders; the genius whose clean cars will eradicate pollution and whose rockets will have us all living on Mars.

This image clearly wasn’t created by accident, he named his company after Nikola Tesla who’s known to be the maddest scientist of them all, having famously fallen in love with a pigeon. He’s cultivated this personality while also cultivating a huge army of fans who believe that, if he can dream it, he'll make it happen. Many of these fans are investors who want to play a small part in changing the world too.  

He can therefore pretty much say what he wants and get away with it – it’s the investment world’s equivalent of Trump saying he can shoot somebody on 5^th Avenue and not lose a vote. When Elon Musk says something that, from where I’m looking in financial PR, appears to be certain suicide, it only makes him more popular, and when he said his share price was too high and it fell 10% in a day it was back above the original level only a week later.

This was all too much excitement for me though. I bailed out this afternoon (Tuesday 9 November) when the market opened in the US with a marginal profit still intact. I won’t be back in a hurry.

Disclaimer: this article was written on 09.11.21 - data and views expressed are all true as of this date