JPMorgan sues Tesla for $162m after Elon Musk tweets soured share deal

Tesla ‘flagrantly ignored’ its clear contractual obligation to pay JPMorgan in full, banking giant says

JPMorgan says Elon Musk’s tweet about taking Tesla private at $420 a share was a significant moment (Getty Images)

Elon Musk’s Tesla has been sued for $162.2m (£120m) by investment banking giant JPMorgan, who accused the electric car company of “flagrantly” breaching a contract related to warrants signed in 2014.

A warrant gives the holder the right to buy a company’s stock at a set “strike” price and date. JPMorgan has approached a Manhattan federal court in connection with the dispute, where the bank has said that it had to re-price its Tesla warrants because of Mr Musk’s tweets in 2018.

According to the deal, Tesla in 2014 sold its warrants to JPMorgan that would pay off if the agreed “strike price” was below the car company’s share price once the warrants expired in June and July 2021.

But when Mr Musk announced in 2018 that he was considering taking the company private, JPMorgan had to make adjustments to the value of the warrants. When Mr Musk changed his mind about privatising his company a few weeks later, JPMorgan had to make adjustments again.

JPMorgan has said that it had a contractual right to make those adjustments but Tesla has said that the changes were “unreasonably swift and represented an opportunistic attempt to take advantage of changes in volatility in Tesla’s stock”, according to CNBC.

The bank said in its complaint that Musk’s 2018 tweet showed “dubious intentions” of making Tesla a private entity.

“Am considering taking Tesla private at $420. Funding secured,” Mr Musk had tweeted on 7 August 2018. The SpaceX CEO followed it up with another tweet that read: “Shareholders could either to sell at 420 or hold shares & go private.”

JPMorgan has pointed out that Mr Musk’s decision to take Tesla private at $420 a share was a significant moment, because at that point the shares were priced at $341.99.

The price tweeted out by Mr Musk was a difficult target for JPMorgan to meet and at least $148 less than the strike price set at $568. Eventually, JPMorgan would not have made any money. So, JPMorgan said, it adjusted the strike price downwards and increased its chances of profit.

According to the deal, if Tesla’s share price reached at or above the agreed strike price on the day of expiration of warrants in June and July 2021, it would owe JPMorgan the difference amount.

An already booming Tesla’s stock prices crossed $600 in June this year, allowing JPMorgan to profit from the agreement with ease. But Tesla paid JPMorgan only for the original undisputed portion of the contract and didn’t take into account the changes that were made.

JPMorgan alleged that Tesla has failed to hand over the agreed amount of its stock or cash and hence, violated the agreement. Tesla’s failure to do that amounted to a default, the bank has claimed. “Though JPMorgan’s adjustments were appropriate and contractually required, Tesla has flagrantly ignored its clear contractual obligation to pay JPMorgan in full,” the bank said in a statement.

The investment banking firm has asked Mr Musk to pay an extra $162.2m citing the standard provisions in the warrants, which allowed it to adjust the strike price at a lower level so as to protect itself against the economic effects of “significant corporate transactions involving Tesla”.

Officials from JPMorgan maintain that they have been forced to take the legal route. “We have provided Tesla multiple opportunities to fulfil its contractual obligations, so it is unfortunate that they have forced this issue into litigation,” the bank added.