Tesla TSLA (TSLA) shares have fallen as the EV giant is embroiled in a court case that will decide whether CEO Elon Musk’s 2018 tweets about Tesla privatization cost investors billions of dollars.
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The securities fraud drama is playing out in a San Francisco courtroom this week and is scheduled to run through February 1. The class action case largely revolves around a tweet by Musk on August 7, 2018.
“I’m considering taking Tesla private for $420. Funding secured,” Musk wrote on Twitter.
Tesla shares had opened at 341 on the day and rose to 387 during the session. However, such a deal never materialized. A Tesla stock investor, Glen Littleton, has sued the electric vehicle company. The lawsuit alleges Musk’s tweets were bogus and cost investors billions by manipulating large swings in Tesla stock, options and bonds.
Attorneys for Tesla and for and the plaintiffs made opening arguments Wednesday about whether Musk’s tweet to take the company private harmed shareholders. The trial is expected to continue on Friday.
Tesla shares fell 2% premarket on Thursday. TSLA shares reversed opening gains on Wednesday, falling 2% to 128.78.
What investors should know about the Tesla lawsuit
Musk has said he’s really considering privatizing Tesla. According to court documents, he believed he had the backing of Saudi Arabia’s sovereign wealth fund, the public investment fund.
US District Judge Edward Chen, who is overseeing the San Francisco jury trial, ruled back in April 2022 that Musk’s tweets about Tesla’s privatization were inaccurate and reckless.
The Wall Street Journal reported that the case was unusual because securities fraud cases are usually resolved before they even reach the courts. Tesla and Musk could face an “uphill battle” given the judge’s pretrial decision on the veracity of Musk’s statements, according to the Wall Street Journal.
Musk and Tesla agreed in 2018 to pay $20 million to settle civil claims brought by the Securities and Exchange Commission (SEC) over the same tweets at the center of the current lawsuit.
opening statements
Lawyers for the plaintiffs argued Wednesday that “millions of dollars were lost” when Musk’s “lies were exposed,” according to Portal.
Meanwhile, Musk’s attorney said his client was “serious” about taking Tesla private.
“You will learn very soon that this was not a scam, not even close,” Portal reported that Musk’s attorney said.
After opening statements and witnesses from plaintiffs on Wednesday, the trial is free on Thursday before returning on Friday. According to court documents, Musk can take a stand himself. Former Tesla board member Larry Ellison, co-founder of Oracle Corp, and current board member James Murdoch, son of Fox Corp chairman Rupert Murdoch, could also comment.
A jury of nine will decide whether Musk’s tweets manipulated Tesla’s stock price by hyping the funding status for the deal.
TSLA stocks appear largely unfazed by the Tesla lawsuit. Tesla stock slipped after a strong start on Wednesday and found resistance at key levels. However, TSLA shares have recovered from a Jan. 6 low of 101.81.
Tesla stock
On Tuesday, TSLA shares were up 7.4% to 131.49. Tesla stock has moved slightly above technical support at its 21-day moving average, but remains well below the 50-day and especially the 200-day moving average. A number of analysts have also rated Tesla stock and lowered price targets.
Tesla will report fourth-quarter results on Jan. 25. Tesla electric vehicle registrations in China rebounded last week after recent big price cuts there. However, it may be some time before investors get a clear picture of the impact of Tesla’s global price cuts and demand. Tesla earnings for Q4 are due on January 25th.
However, the latest registration numbers seem to reflect some benefits of Tesla’s Jan. 6 decision to cut prices in China. Tesla cut prices for the Model 3 and Y in China, with the base Model 3 dropping more than 13% to $33,570. According to CnEVPost, local media reports in China suggest that Tesla received 30,000 orders within three days of the announced cuts.
Tesla also announced big price cuts in the US and Europe on Friday. Tesla stock closed slightly lower on Friday, even though the price cuts made more of the company’s models eligible for a $7,500 tax incentive under the Inflation Reduction Act.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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