Another earnings call from Tesla Inc. and another fanciful prediction from Elon Musk that likely led to another open filing with the Securities and Exchange Commission on Wednesday.
The Chairman of the Board of Tesla Inc. TSLA,
told investors Wednesday that he believes the electric carmaker’s valuation will exceed the combined market cap of the world’s two most valuable companies: Apple Inc. AAPL,
and Saudi Arabian Oil Co. 2222,
“I think we can easily outperform Apple’s current market cap,” Musk said. “In fact, I see a potential way for Tesla to be worth more than Apple and Saudi Aramco combined.”
Based on Wednesday’s closing prices, the combined market cap of these two companies is approximately $4.4 trillion. But at least he added a caveat: “That doesn’t mean it’s going to happen or that it’s going to be easy, in fact it’s going to 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 stock buyback as CFO trims forecast for annual deliveries and stock declines
This kind of outrageous prediction isn’t new to Musk. He already predicted that Tesla would be worth as much as Apple, and its market cap is now about the same as Apple’s was then, although his explanation for why Tesla would rise to that level was way off the mark.
However, the situation Musk is in right now is new. As the soap opera that emerged from its deal to buy Twitter Inc. TWTR,
As our colleagues at Barron’s recently reported, it’s believed he’ll need somewhere between $5 billion and $8 billion to close this deal, and his only real route to that kind of cash is by selling Tesla stock .
Musk was barred from selling shares prior to Tesla’s earnings report due to SEC rules. So what better way to try and pump Tesla stock before this blackout ended than to make some far-fetched predictions about the company’s earnings call?
From Barron’s: A Tesla stock sale is imminent. We know who, why and when, but not how much.
A target price of over $4 trillion wasn’t the only telling claim Musk made on Wednesday’s earnings call. He also told investors that he expects Tesla to complete its first share buyback in its history next year, and a big one at that: $5 billion to $10 billion.
“Even in a downside scenario next year, since next year is very difficult, we still have an opportunity to make $5 [billion] on a $10 billion buyback. Apparently pending board review and approval,” he said. “So it’s likely that we will make a significant buyback.”
It’s very strange to announce a stock buyback plan before it’s been approved and formally implemented by a board of directors, although early sharing of the news doesn’t automatically constitute a violation of securities laws, said Stephen Diamond, an associate professor at Santa Clara University Law School.
“Best practice would suggest waiting until you have your ducks lined up before making such an announcement, but I doubt that creates any obvious legal problems,” he said.
He added that Tesla’s board of directors is likely to seek approval from its auditors and legal counsel for the share buyback, so it’s not yet approved.
“Under Delaware law, there is an accounting test that the company must pass in order to repurchase stock,” Diamond said in an email. “Basically, it can only buy back shares if there is a ‘surplus’. Assessing this would require the Board’s support from their internal finance team and likely also external opinions from their auditors and legal advisers.”
While early disclosure of repurchase plans wouldn’t automatically register alarms in the SEC’s office, these kinds of statements from Musk will particularly catch some ears in the regulator’s offices. Musk has already been accused of previous statements by the agency and was targeted for failing to honor the settlement he had agreed to in the case. Musk is also reportedly under active investigation for his conduct when he took over 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
During the call, Musk said only that he was “excited about the Twitter situation,” while admitting that “myself and the other investors are obviously paying too much for this right now.”
Tesla officials did not respond to a request for comment or answer a question about whether Musk needs to sell more Tesla stock to close the Twitter deal.
The question for Tesla investors, however, is whether they overpaid for Tesla stock ahead of another round of stock sales by Musk, who has already dumped billions of dollars in stock over the past year, reportedly prompting another SEC investigation Has. On Wednesday, however, shares fell more than 6% in after-hours trading despite boosterism from the chief executive, who appeared to be overshadowed by a revenue shortfall and a trimmed forecast.
Perhaps investors are finally seeing through Musk’s earnings ballooning, which has historically boosted the value of Tesla stock. But if Musk sells Tesla shares in the coming days after trying to hype up the company’s value, it won’t be investors knocking on his door, it’ll be the SEC again.