Elon Musk Is Facing Three Big Obstacles

The billionaire entrepreneur this month has three very important appointments involving Tesla and Twitter.

Elon Musk starts 2023 as prominent in the headlines as he was at year-end 2022. 

The serial entrepreneur is set to remain the most covered personality in the media for both good and bad reasons. 

He began the year by declaring a price war in the electric-vehicle by drastically lowering the prices of Tesla's  (TSLA) - Get Free Report two flagship vehicles, the entry-level Model 3 sedan and the Model Y SUV. The two models accounted for 95% of the automaker's vehicle deliveries last year. 

This month is a high-pressure period for Musk, as he must address three major matters, with significant potential consequences for Tesla and Twitter, two of his star companies.

Elon Musk's Civil Trial, aka Tweetgate

The first one is a civil trial tied to the billionaire's summer 2018 tweets about Tesla, which was then on the verge of bankruptcy. 

The case, dubbed Tweetgate, involves a complaint filed by Tesla investors who said they lost millions because of the CEO's tweets. 

What's it about? 

On Aug. 7, 2018, Musk had written that he was mulling pulling Tesla off the stock market at a price of $420 a share. In particular, he said that he had secured the financing for such a transaction.

"Am considering taking Tesla private at $420. Funding secured," the billionaire wrote.

Many investors -- especially short-sellers, those who had bet that Tesla shares would drop in price -- said they'd suffered large losses because of these statements. Short-sellers lose money when a stock they bet against rises in price.

Tesla shares opened that day at $347 and jumped to $387 after Musk's tweets. And the take-private transaction didn't happen.

On Aug. 10, 2018, these investors and others filed a lawsuit against the executive, asking the court to certify the case as a class action. They accused him of having artificially manipulated the price of Tesla's stock to ruin the investors who were betting on the price drop.

One of the plaintiffs' arguments is that Musk lied that he had the funds to finance the transaction. The billionaire has indicated that he'd received assurances from the Public Investment Fund, the Saudi sovereign-wealth fund.

U.S. District Judge Edward Chen in California said last April that Musk's statement that he had secured the funding was false. 

The fraud trial opened Jan. 18 in San Francisco with the selection of a nine-person jury and is expected to last three weeks. Musk himself must come to the bar, perhaps as early as Jan. 20, to testify.

The jury must decide whether the tweets artificially inflated Tesla's stock price, that is, whether Musk manipulated the stock price. 

In addition to Musk, Tesla, as a legal entity, and the members of the carmaker's board at the time, are also part of this procedure.

The plaintiffs seek unspecified damages in this rare securities-class-action trial.

Musk and Tesla in September 2018 reached an agreement with the Securities and Exchange Commission to settle Tweetgate. Musk was fined $20 million, with an additional $20 million in financial penalties assessed against Tesla. 

The serial entrepreneur also had to give up his title as Tesla's chairman, and a lawyer for the high-end electric vehicle manufacturer had to preapprove his stock-related Tesla tweets before they were published.

Tesla Earnings on January 25

Matter No. 2 on Musk's agenda: Tesla's quarterly results have never been so anxiously awaited. 

It's not so much the current numbers that are important but rather what the company and CEO Musk are going to say about the road ahead. 

Tesla stock lost almost two-thirds (65%) of its value in 2022, a nightmarish year for the company. 

The stock-market rout created a schism in the Tesla community, where many voices -- including those of investors Ross Gerber and Leo KoGuan -- have publicly criticized Musk and the board. 

Disgruntled shareholders demand that the billionaire refocus on Tesla. They claim he has abandoned the EV leader since he acquired Twitter. Musk last month said he'd resign as CEO of Twitter, but only when he finds a successor. 

Tesla's dissident shareholders are hoping he will make an announcement either before or with the release of the fourth-quarter results. 

Investors also want to hear Musk's logic on the recent sharp price cut of the group's two flagship models. The prices of the Model 3 sedan and the Model Y SUV have been reduced by 7% to 20% until March, which enables consumers to buy them and benefit from the federal tax credit of $7,500. 

The idea behind this unprecedented action was to stimulate demand and sales volumes to the detriment of profit margins. Is this a long term strategy or is it temporary? 

Another question relates to the Cybertruck, considered the future engine of Tesla's sales. Tesla fans and shareholders are hoping Musk will confirm it will start production in mid-2023 as planned. 

And the tech tycoon is expected to announce future Tesla factory locations.

Twitter's Debt Payment

To finance the $44 billion Twitter deal, Musk had taken on $13 billion in debt with interest payments of $1.5 billion a year from seven major banks. 

A first payment is expected by the end of January. The amount to be paid is $300 million. The debt was allocated to Twitter's balance sheet. 

The question is whether Musk, who owns almost 80% of the platform, will pay or file for Chapter 11 bankruptcy to force creditors to restructure this debt. 

The billionaire last month painted a dire financial picture of the social network. He has also used the word bankruptcy regarding Twitter on different occasions. 

Musk is known to be unpredictable. Will he pay or will he force a default? 

The question is open.