Elon Musk’s Tesla tweets in 2018 caused billions of dollars in damage to investors, estimates show

A tweet from Elon Musk saying he had the funding to take Tesla private in 2018 caused billions of dollars in damages to investors after the deal fell through, according to estimates presented Tuesday in a lawsuit examining management randomness of the takeover proposal.

The staggering estimates presented by two experts hired by attorneys representing Tesla shareholders underscored the challenges facing a nine-person jury as the three-week trial ends this week. U.S. District Judge Edward Chen plans to hand the case over to the jury on Friday.

According to the verdict, Musk and the electric carmaker he runs could face more financial fallout due to his unpredictable behavior on the Twitter platform, which he now owns. Without admitting any wrongdoing, Musk and Tesla reached a $40 million (approximately Rs 330 crore) settlement with securities regulators after Musk’s embarrassing tweets in August 2018.

In this class-action lawsuit on behalf of Tesla shareholders, jurors must first determine whether two tweets Musk abruptly posted on August 7, 2018, steered Tesla investors in the wrong direction. If the jury decides to hold Musk responsible for tweets that Chen has already found to be false, they will face what could be an even more daunting task – trying to calculate how much Musk – one of the richest people in the world – and Tesla should pay for misleading tweets.

One of Tuesday’s two pundits, economist Michael Hartzmark, reviewed a report peppered with terms such as “but for” and “consecutive inflation” that justifies calculating the damages Tesla shareholders suffered over a 10-year period. days in August 2018 at between $4 billion (approx. Rs. 32,700 crore) and $11 billion (approx. Rs. 90,000 crore), or $22.55 (approx. Rs. 1,800) to $66.67 ( approximately Rs. 5,500) per Tesla share at that time.

Another expert, Steven Heston, professor of finance at the University of Maryland, reviewed an even denser report analyzing the impact of Musk’s tweets on more than 2,000 types of Tesla stock options, drawing heavily on on a formula known as the Black-Scholes model widely used by companies to value executive compensation packages.

Asked by a lawyer for Musk about the reliability of his model, Heston acknowledged: “All models deviate from reality, that’s why they are models.”

Heston, who said he was paid $300,000 (about Rs. 2.5 crore) to $350,000 (about Rs. 2.8 crore) for his work in the case, objected to trying to make a concrete estimate of damages to investors, saying it was a job for jurors.

The crux of the matter hinges on an August 7, 2018 tweet in which Musk declared “funding secured” to take Tesla private. Musk abruptly posted the tweet minutes before boarding his private jet after being alerted that the Financial Times was about to publish a story that the Saudi Public Investment Fund had spent around $2 billion ( around Rs. 16,350 crore) by buying a 5% stake in Tesla to diversify its interests beyond oil, according to his testimony.

Amid widespread confusion over whether Musk’s Twitter account had been hacked or he was joking, Musk followed up hours later with another tweet suggesting a deal was imminent.

During roughly eight hours of sworn testimony, Musk repeatedly insisted he was looking out for shareholders’ best interests and believed he had a funding commitment from the Saudi fund that was retracted after he tweeted “funding secured “. Musk also testified that he could still have got away with the takeover by raising money from other investors and selling some of his stock in SpaceX, a rocket maker he founded.

After consulting with major Tesla shareholders, Musk decided the electric carmaker should remain publicly traded – a move that paid off for him and other investors. Tesla shares are now worth more than eight times what they were worth at the time of Musk’s takeover tweet, after adjusting for two stock splits that have taken place since then.