Tesla CEO Elon Musk took the witness stand for a second day on Monday and attempted to explain the thought process behind his controversial “funding secured” tweet from 2018, pushing back at the idea that it was partly a joke.
Musk, Tesla and company directors are facing a shareholder lawsuit over the tweet, in which the billionaire said that he was thinking about taking Tesla private for $420 a share and had “funding secured.” Those two words resulted in the CEO having to forfeit his position as Tesla’s executive chairman and pay millions of dollars in fines and legal fees.
Musk had spoken to executives of the Saudi sovereign wealth fund about the funding he would need to take Tesla private. However, it was anything but “secured.”
During his testimony in a California courtroom on Monday, however, Musk repeatedly said he believed he had a deal in place with the Saudi fund, which invests in entities that are important to the country’s economic growth and claimed to have $620 billion assets under management as of early 2022.
“My understanding was that they would proceed with the deal,” Musk said. At another point, Musk said the head of the Saudi fund had “been unequivocal in his support for taking Tesla private when we met,” but later “appeared to be backpedaling.”
Musk described a previous interaction in which he said the Saudi fund had agreed to buy 5% of Tesla on essentially a handshake deal. He said it was reasonable to expect them to act similarly again.
Musk also claimed he was concerned news of the deal talks would leak in the press and tweeted it out himself to “make sure all investors would be on equal footing.”
Under questioning, Musk denied that he picked the $420 price as a joke given its meaning to marijuana enthusiasts, but rather as a roughly 20% premium on the stock price at the time.
“420 price was not a joke,” he testified. At another point, he said: “There is some karma around 420 although I should question if that is good or bad karma at this point.”
On Friday, Musk took the stand for about 30 minutes and testified that his tweets do not cause Tesla’s stock price to move higher or lower. He pointed to an incident in May of 2020 when he tweeted that “Tesla stock price is too high.” The stock price dropped the day of his tweet but recovered and closed the year higher than it had opened.
But the lead plaintiff, Glen Littleton, testified last week that he lost more than 75% of his investments following Musk’s “funding secured” tweet.
Musk attorney Alex Spiro had argued Wednesday that the CEO’s word choice was wrong, but it wasn’t a case of fraud. “In his rushed, reckless state he tweeted the wrong word choice,” Spiro said. “In his mind funding wasn’t an issue, it was secured. But what he said in that tweet was ‘funding secured’ without elaborating what that meant to him.”
Guhan Subramanian, a Harvard law professor and expert witness for the plaintiff, argued Friday that Musk’s tweet and the proposed deal were a case of egregious corporate governance.
“To have no guardrails is very troubling,” Subramanian said of Musk’s Twitter account. Musk testified Friday that no one at Tesla reviewed his tweets in 2018 before he published them.
Subramanian said that when public companies go private, as Musk was proposing, there’s a much more extensive and rigorous process than what Musk and Tesla had gone through. Typically, a special committee is formed and there are months of engagement with consultants and advisers. Boards of directors typically approve the announcement of a company receiving an offer to go private, which wasn’t the case with Tesla.