Elon Musk Is Right About Tesla's Stock

(Bloomberg Opinion) -- So what do we call Elon Musk's latest? Funding unsecured?

That was enough to send Tesla Inc.'s stock plunging by as much as 13% on Friday, a cool $18 billion or so. One imagines those analysts who gushed about the peanut-sized profits announced all of two days ago are racing to update their models. In a way, the CEO's tweet does a service, emphasizing once again that Tesla's stock price is an emotional, not financial, construct.

It's also a kick in the teeth for investors. In February, Tesla sold $2.3 billion of new shares at $767 apiece. When Musk put thumb to touchscreen on Friday, the “too high” stock was trading at about $761. I guess the assumed discount rate must have changed or something in the intervening two months or so.

It should have, obviously, given the Covid-19 pandemic piling more risk onto Tesla's already less-than-utility-like model. Indeed, much as Musk's “funding secured” debacle in 2018 coincided with his frustration about short sellers and Tesla's struggles with the Model 3, this week's antics come at a time of increased stress.

Wednesday's earnings call was going rather well — by its peculiar, stage-managed standards — until Musk created a storm by declaring disease-related lock-downs to be “fascist.” While that may reflect a deep libertarian streak, such a stance would seem at odds with running a business that has relied on billions in subsidies and is now expanding in China. Possibly, it reflects anxiety about what the continuing suspension of activity at Tesla's main factory in California means for cash flow.

I had suspected Tesla might soon seek to raise more capital to offset that risk. In a way, a lower price would help with that. Although you also have to wonder how underwriters could square the risk of the CEO intervening suddenly to crater the stock price. On the other hand, everyone somehow learned to live with his earlier, similar intervention pushing it the other way.

Once again, we must ask where the board stands on all this. Tesla revealed earlier this week that Musk will provide directors and officers liability insurance for a year after regular insurers quoted “disproportionately high premiums” for some unfathomable reason. It is a peculiar, and yet distinctly Teslarian arrangement, with Musk embedded at the center as both risk factor and underwriter. Friday's bizarre episode fits the mold perfectly.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.