Is Elon Musk poking the bear?
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Tesla's CEO took a fresh swipe at hedge fund manager David Einhorn, who in his third-quarter letter accused the Musk of knowingly orchestrating a “significant fraud.”
Musk, in a letter of his own, says it's understandable that Einhorn wanted to “save face” with his investors as his fund's assets under management have fallen from $15 billion to $5 billion, in part due to his bet against Tesla.
Einhorn’s Greenlight Capital was short Tesla’s stock, a bet shares will fall, and endured significant losses as the stock rallied from $223.46 to $240.87 during the June quarter as sales improved more than the hedge fund manager had expected. Tesla shares are up less than 1 percent this year, trading above the $300 level.
In the last quarter, Tesla returned to profitability.
TickerSecurityLastChangeChange %TSLATESLA INC.336.25+0.71+0.21%
The hedge fund’s letter said Tesla has continued to “spin positive PR ahead of the safety and fair treatment of its customers.”
Einhorn accused the electric-car maker of issuing a “software update” that decreased battery range instead of recalling batteries which were at risk of catching fire. He says Tesla did not warn or compensate its customers for the drop in performance.
He also pointed to litigation unsealed in September that showed Tesla was creating Project Titan to covertly replace defective components of its solar panels rather than warn its customers of the fire risk associated with them.
As for Einhorn's allegations of Musk knowingly orchestrating a “significant fraud,” he points to the $2.6 billion acquisition of an insolvent SolarCity, which was another company founded by Musk. He concluded the CEO is “above the law.”
While there is no love lost between the two, Musk has extended an invitation to Einhorn to visit Tesla’s facilities, and said he wanted to send the hedge fund manager a pair of short shorts to help him through this “difficult time.”
It wouldn’t be the first time Musk sent a pair of short shorts to Einhorn, having done so in August 2018.
Einhorn did not immediately respond to FOX Business’ request for comment.
Short sellers like Einhorn have been public enemy no. 1 for Musk.
“These guys want us to die so bad they can taste it,” Musk tweeted in June 2018. He warned them they had a few weeks before their “short position explodes.”
Read an excerpt from Greenlight Capital's Quarterly Update:
Tesla (TSLA) and Chemours (CC) were material losers during the quarter. TSLA shares recoveredfrom $223.46 to $240.87. Unit sales in the June quarter improved more than we expected comparedto the March quarter.
Even so, TSLA appears to continue to spin positive PR ahead of the safety and fair treatment of itscustomers. For example, in August Walmart sued TSLA because its solar panels were catching onfire. Rather than warn its solar customers when TSLA became aware of the fire risk, TSLA allegedlycreated Project Titan – a covert program to replace the defective components while staying out of thenews. Similarly, in response to a series of car battery fires, instead of recalling the batteries, TSLA appears to have quietly issued a “software update” to the battery management system that has a sideeffect of reducing battery range. TSLA has chosen not to warn or compensate its customers for thedecreased performance.
Finally, to the surprise of nobody, documents in TSLA’s SolarCity litigation unsealed in Septembershowed that Elon Musk knowingly orchestrated a significant fraud by arranging the $2.6 billionacquisition at a time when SolarCity was insolvent. Musk and his family had a huge conflict ofinterest, but rather than properly recusing himself, Musk initiated the transaction and drove the process. SolarCity was so cash-strapped, it was trying to delay payments to vendors after parts weredelivered and the vendors had recognized the revenue; SolarCity could not raise any funds atreasonable rates from third parties; and Musk engineered the unveiling of the Solar Roof tile toconvince TSLA’s shareholders to approve the deal, even though the product did not exist at the time.As was the case with Musk’s extraordinary “funding secured” tweet last year, we believe this levelof trampling of standard processes of corporate governance, ignoring methods to deal with related party transactions and self-dealing should lead to substantial consequences. For now, the acceptedreality appears to be that Elon Musk is above the law