Musk is covering the fine to Tesla by buying $20M of Tesla stock. https://www.nytimes.com/2018/09/29/business/tesla-musk-sec-s...

Interesting excerpt from that NYT article - "The terms of the settlement are slightly tougher than those that two people briefed on the talks said Mr. Musk had rejected on Thursday, which called for a two-year bar on serving as chairman and a $10 million fine."

It got harsher just after one day

I dont see how that's covering if he's still getting $20m of tesla stock

I don't know the terms. I'm assuming that this is a new issuance at the current market price and thus would effectively provide $20 million of additional liquidity to counteract the cost of the settlement.

The details will surely be disclosed.

But the company could get approxately the same amount of cash by selling the new issuance on a public exchange.

Maybe not, if the stock is already dropping. This affirms the current price to some extent.

Assuming he is buying newly-issued shares from Tesla, then the money goes directly into their treasury. So, the company will have $20MM more in cash than it did the day before.

He is still getting something out of that transaction. That's like saying buying food at a restaurant is a donation.

I'm no finance person, lawyer, or anything like that. But I suspect that he can't just give Tesla money and it has to be in exchange for something, such as stock.

It will cost the company 20 million yes but will not affect the free cash flows

If it's newly issued the price will be dilution of the other shareholders stock. I guess it's a smallest burden on Elon and the rest of the shareholders.

And all existing shareholders will be diluted by the issuance of those shares.

The shares would lose value via dilution or via a new $20 million debt, this is just an easy way to get the cash on hand.

I meant "covering" in the context of the parent commenter's concern about cash flow. He's not donating the money to Tesla, but he's preventing the fine from making their cash flow worse.

Buying stock on the public market doesn't affect Tesla or its cash flow at all. Tesla is not the counterparty in this transaction.

That wouldn't make sense. Do you have a source?

He's not covering anything, and unless he buys it at the price it was right before he tweeted it's arguably another instance of securities fraud.

For those wondering why, look at the comments elsewhere in this discussion about how the $20mm owed by Tesla will cause them to run out of cash sooner.

I don’t think “covering” is the word you’re looking for here...

Ah yes, just keeping leveraging against debt!

> I think a Tesla shareholder should be pretty happy with this settlement. The $20m fine at a time when Tesla is already running low of cash is certainly tough news, but every other part of this settlement is probably good news for the company's long term health.

Hi there. More than 1/4 of my net worth, and over 1/2 of my equity holdings are in TSLA. I agree with every word of this. The $20M hurts, but on net, I think this is better for Tesla than if Elon had won the lawsuit.

You do you, but having 1/4 of your net worth in any company is extremely risky and ill-advised. I hope it works out for you, but I also really hope you diversify your portfolio.

Granted, we know nothing about the person's current life circumstances, but this is really good advice.

I mean it's the most generic advice you can give. Maybe he enjoys believing in a single company and taking risks. Maybe he's totally fine even if he lost it all. People spend more than 1/4 of their net worth's on hobbies, but suddenly if you have 1/4 of your net worth in a single company it's a disaster and you are crazy.

Maybe he invested 2% of his net worth in Tesla at the IPO, was determined to hold the shares for at least 10 years until they executed on their vision, and has been too stubborn to sell until now.

Re-balancing your portfolio after things have started to go very, very well is certainly sound advice, and so is selling all your equity in a promising startup the moment it has significant market value (it will most likely still be worthless).

Yeah, this is closer to how I got here (cost basis is way more than 2%, but nowhere near 25%). As you hint at though, there's a cognitive bias in holding my position by this reasoning -- my gains are a "sunk benefit" and I am where I am regardless of how I got here.

For me, it boils down to two things:

1. I'm pretty conservative with the rest of my money (index funds, rental property). If Tesla went bankrupt tomorrow, I'd be fine. Don't get me wrong -- it'd be a bad day. But the financial hit wouldn't threaten my long-term happiness.

2. I only buy individual stocks when I feel the market has wildly misjudged a company. Tesla fit this to a tee, particularly (but not exclusively) in the early days. I took a large early position and have been buying dips along the way (yes, still). By my judgment, a dollar invested in Tesla still has a much higher expected value over 10 years than a dollar invested in any other equity that I feel qualified to assess. I would love to diversify the highly aggressive part of my portfolio, but hard as I try, I cannot find a deal this good in any other public company. So I've decided how much I'm willing to lose on what I believe is a great bet, and have invested accordingly.

I agree with your reasoning.

Came to echo this sentiment, though don't know how old you are, and if in fact you are being 100% truthful. Having that much in a single highly risky company under intense conditions is not a sound investment strategy. Rolling the dice, just know the risk.

I'm being 100% truthful, but I recognize that saying this doesn't establish any additional credibility. :)

I didn't mean to make this about me or my investment strategy. I was just trying to back up the sentiment that the poster above me expressed -- that people with skin in the game will see this settlement as a great thing for Tesla. I have a lot of skin in the game and that's exactly how I feel.

Congratulations on the $TSLA rebound today. Best of luck, just to risky for my blood especially to have such a large position.

1/4th of my $500 net worth! :P

> More than 1/4 of my net worth, and over 1/2 of my equity holdings are in TSLA.

No offense, but why???? It is crazy to have this much of your meet worth in ANY single company. I can only hope that you are independently wealthy and if TSLA went bankrupt (of which there is a very large possibility) that you'd be ok.

Interestingly, I was hoping the OP is a poor college student for whom 1/4 of their net worth isn't all that much money...

Well arguably it would be even worse than.

I think it's save to say that the relative amount of money lost is more important than the absolute money lost for most people

If his net worth is $1k, with $500 in cash and $250 in Tesla that makes perfect sense.

Under 35s median net worth is $4k

https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com...

If your earnings are likely to go up dramatically later, then it's fine to take large risks with the money you can invest now. Unless you have large gains, it's not enough money to make much difference anyway.

This assumes of course that you've got the basics covered, like being out of debt and having some kind of emergency backup (savings, insurance, well-off parents, etc).

The only way this could make sense would be if OP was an employee recieving stock they are not yet allowed to sell.

What the others already said; also, I am reminded of Enron and the stories almost 20 years ago of people being wiped out due to the Enron collapse. My internal reaction at the time was "diversify a little."

Or hedge with some puts, or something, to limit your downside risk.

Due to the volatility and the extreme short interest, those puts are quite expensive, and have been for years ;) You could certainly buy out-of-the-money options at 50% of the current market cap expiring in the next quarter, and been doing so regularly during the last five years during which Tesla's prospects have seemed quite dodgy.

But it would have more or less have wiped out your upside. So if that's the insurance you would have liked for such a risky investment, it would have been better to just invest in something else.

I was thinking that one might partially cover (e.g. buy puts for 25-50% of the value of their portfolio) but you're right. the risk premium should be exactly equal to the expected profit on the asset, if the world works the way theory predicts.

Just FYI, but when you hedge with puts your holding period to realize long term gains instead of short term gains gets reset immediately, then you have to wait another year after you close the put position before you can sell as long term gains. Just something to keep in mind.

Interesting, yes, since the ownership of the put is an equivalent to a sale, yes?

I'm a Tesla shareholder and I'm extremely hopeful, an independent chairperson could really cut down on the nonsense that makes the company off-putting to some investors. Just as Google needed an adult in the form of Eric Schmidt, Tesla needs someone who can collaborate with Musk. Eric Schmidt would be perfect but he's probably conflicted out because of Alphabet's Waymo. Though I'm hopeful that they'll find someone who can help Musk achieve goals and instill some discipline and sternness where needed.

However, it could go awry. If the independent board member were to try to combat Musk and get the company wrapped up in internal struggles, it could go badly for the company.

Fun fact. Eric Schmidt was 45 when he was ‘the adult’ who joined Google’s board of directors as chairman in March 2001. Elon Musk is 47.

Worth nothing that Schmidt probably behaved like a 45 year old when he was 30 and Musk behaves like he's 22.