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Saudi PIF is distancing itself from Tesla, cutting exposure

Musk's failed and unfounded attempt at "taking Tesla private" seems to have rattled Saudi faith in the American manufacturer.

"PIF still holds the shares, but it has taken out other positions that protect it from a drop in Tesla’s stock price" - CNBC Since Saudi's hedge, stocks have fallen 15% Musk earned the ire of investors and the SEC last year with his reckless tweet

The Financial Times (FT) broke the story yesterday that Saudi’s sovereign wealth fund, known as the Public Investment Fund (PIF), has slashed its exposure to American electric automaker Tesla Motors.

It would seem that Elon Musk’s debacle in the summer of last year is catching up with his company once more, following heavy fining by the US Securities and Exchange Committee (SEC).

Safeguarding a risky investment

According to the Financial Times report, the PIF “hedged most of its 4.9% stake in Tesla with the help of bankers at JPMorgan Chase after the market closed on January 17, according to four people with direct knowledge of the trade.”

What this means, CNBC explains, is that “the PIF still holds the shares, but it has taken out other positions that protect it from a drop in Tesla’s stock price.”

It’s not a good sign when one of your largest stakeholders and one of the richest countries in the world show wavering faith in your company. On the day of Saudi Arabia’s hedge, Tesla shares closed at $347.26, FT said, valuing the PIF shares at $2.9bn. The stock price has since fallen about 15%.

(Graph: Refinitiv/Financial Times) 

A magnet for controversy

For the majority of 2018, Tesla’s name had been associated with controversy.

Following the reveal of a high profile $2 billion investment in Tesla in August, of about 5% of Tesla stock, Elon Musk shared on his Twitter account that he was taking the company private at $420 a share. This was seemingly prompted by the reveal of the sizeable Saudi investment.

His plans were later shattered, with an investigation by the SEC revealing that there was no basis for Musk’s proclamation – his statement was based on conjecture and assumption.

As a result, he had to step down as Chairman and pay $20 million in fines, as his actions were considered to be manipulative of the market. The SEC said at the time that his statement was “false and misleading.” He remained on board as CEO, however.

Now, it seems that Saudi has had enough of the company’s unpredictable CEO.

In September, the PIF executed a $1 billion investment agreement with Lucid Motors, a rival American electric automaker of Tesla’s.

The sovereign wealth fund has several tech investments across the world, in line with the Crown Prince’s Vision 2030 plan for diversifying the country’s revenues away from oil.