Tesla shares fall 5 percent on Wall Street skepticism, SEC probe reports

Tesla's shares slipped nearly 5 percent on Thursday, wiping out the gains fueled by Chief Executive Elon Musk's announcement of a plan to take the company private, after reports of concern by regulators and on doubt the deal could be done.

Shares fell early in the day, weighed by Wall Street's skeptical response to Musk's idea of going private and a Wall Street Journal report on Wednesday that the U.S. Securities and Exchange Commission was asking Tesla  why Musk announced his plans on Twitter and whether his statement was truthful.

The shares slipped further on Thursday after Bloomberg reported that the SEC already had been looking at Tesla's public statements, citing two unnamed people it said were familiar with the matter.

Meanwhile, reports by the New York Times and Bloomberg indicated that none of the usual big financial institutions involved in such deals had approached or been approached by Tesla. Wall Street analysts have expressed doubts about the billionaire' s ability to gather enough financial backing to complete a go-private deal.

Short sellers, who bet that shares will fall and have been a longtime irritant to Musk — they were his stated reason for going private — had increased their positions slightly on Thursday.

"Instead of seeing slight covering, which we have seen over the last couple of days, we are actually seeing slight short selling today," said Ihor Dusaniwsky, head of research at financial technology and analytics firm S3 Partners in New York.

"The short-sellers right now might be smelling blood in the water," he added.

Tesla disclosed in its most recent quarterly report that it has "received requests for information from regulators and governmental authorities," including the SEC. The company did not disclose in its filings the details of those requests or its responses.

Musk was asked by an analyst on an Aug. 1 conference call whether Tesla had received a notice from a regulator that would prevent it from raising capital. He said that Tesla had not received such a notice, and that he had no expectation of raising new equity.

Tesla and the SEC declined comment on Thursday.

Ratings agency Moody's also said on Thursday that Tesla's consideration of going private based on Musk's letter to shareholders published after his tweets on Tuesday was negative for the company's credit outlook.

Tesla's future rests largely on its Model 3 sedan, and it is ramping up production after months of what Musk called "manufacturing hell." It also faces $1.2 billion in convertible debt maturities through March of next year, the ratings agency wrote.

"Although the company's cash generation will improve during the second half of 2018 and over the coming year as Model 3 production improves, we continue to expect that Tesla will need to access the capital markets in order to fund its operating requirements and repay the maturing convertible debt obligations," Moody's wrote.

Tesla's $1.8 billion August 2025 junk bond fell half a point to be bid at 90.875 cents on the dollar. After Musk's tweets on Tuesday, they had climbed as high as 93 cents, around where they were the day before Moody's downgraded its Tesla rating to "B3" — six notches into junk territory — from its previous rating of "B2."

Musk said in his initial tweet that he had secured financing but has not given any evidence of that.

"People were definitely disappointed there wasn't more information on the financing or the alleged financing, or even what he meant," said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey, who does not own Tesla shares.

Tesla shares fell to $352.45, down about $4 from where they were before Musk's tweets on Tuesday sent them soaring to a near one-year high.

Short-sellers, who had racked up paper losses of $1.3 billion on Tuesday, have since recouped about a $1 billion, S3 Partners reported.

Tesla short interest stood at $12.17 billion on Thursday, up from $11.97 billion on Monday, according to S3 data.