Black Workers Say Racism Is Rampant Inside Tesla. Now California Could Sue; DWAC's share count is even higher than I thought; TRUTH Social release delayed despite Trump hype; How Much Is Trump's New Social-Media Company Worth? Traders Can't Decide
1) Below is what I sent yesterday to my Tesla (TSLA) e-mail list (to join it, simply send a blank e-mail to: tsla-subscribe@mailer.kasecapital.com). I've already gotten a lot of flak (and I thought watching the Joe Rogan clips – here's South African comedian Trevor Noah commenting on them – would be one of the more racist things I'd encounter today!), but that's OK... Since when have I hesitated to wade into controversial issues?
This Daily Beast article raises troubling questions about "a hostile work environment for women and people of color at factories." Black Workers Say Racism Is Rampant Inside Tesla. Now California Could Sue. Excerpt:
Last week, former Tesla employee Kaylen Barker filed a lawsuit against the electric carmaker for allegedly disregarding her complaints of racial discrimination, saying that "being a Black worker at a Tesla's renowned California factory, is to be forced to step back in time and suffer painful abuses reminiscent of the Jim Crow Era."
The 25-year-old, who is Black and gay, claims a white coworker at the company's Lathrop plant called her the N-word and assaulted her with a hot grinding tool. After Barker complained to human resources, Tesla allegedly retaliated by withholding her wages.
Barker's civil suit is one of multiple cases in recent months to paint a disturbing picture of a hostile work environment for women and people of color at the clean-energy giant's factories. And it comes a mere four months after a jury awarded another former employee, Owen Diaz, nearly $137 million over racism he encountered in the workplace which included coworkers hurling racial epithets and telling him to "go back to Africa."
Now Tesla is facing a civil rights complaint from California regulators over employees' accusations of pervasive racial discrimination. Last month, the California Department of Fair Employment and Housing ("DFEH") issued "a Notice of Cause Finding and Mandatory Dispute Resolution following an investigation into undisclosed allegations of race discrimination and harassment at unspecified Tesla locations," according to the company's annual report with the U.S. Securities and Exchange Commission.
The agency "gave notice that, based upon the evidence collected, it believes that it has grounds to file a civil complaint against Tesla," the filing stated.
As for Diaz's multimillion-dollar case, Tesla's report said "the Company does not believe that the facts and law justify the verdict" and that it has requested a retrial or reduction in the jury's award.
It certainly seems like there are enough stories from enough people to conclude that there's likely a systemic problem at Tesla.
If so, it also raises troubling questions about Elon Musk because there is no daylight between the company and its micromanaging CEO. If there's one thing his fans and critics agree on, it's that he sets the tone and culture at Tesla and knows everything important that's going on inside the company. Thus, this statement is undoubtedly true:
"The company, as I see it, is a reflection of its owner Elon Musk. He's got the ability, if he cared about it, to fix it. It's just not important to him," Alexander told the Daily Beast. "A person who is capable of creating the cars he creates, who is personally able to go into space, if he wanted to fix it, he'd turn his attention to it and it would be fixed."
To be clear, I have never heard even one accusation of Musk personally saying or doing anything racist. That said, given his background, it wouldn't surprise me if he, at best, has a big blind spot in this area and, at worst, is directly responsible for a hostile racial environment at Tesla.
Here's what I mean when I say "his background"...
Musk was born in 1971, right in the middle of the horrific era of apartheid, a "system of institutionalized racial segregation that existed in South Africa from 1948 until the early 1990s." Under this system, especially a) being from a wealthy family and b) living in Pretoria, the executive capital of South Africa, which is known for being one of the most racist areas of the country (see this article: The most racist provinces in South Africa... note that Pretoria is in Gauteng province), the only black people Musk likely would have encountered would have been poorly educated servants.
He certainly would have had almost no black classmates or teachers in school (he graduated from Pretoria Boys High School, which only accepted its first black student in 1981, and for five months attended the University of Pretoria, which only accepted its first black students in 1986).
Musk didn't leave South Africa until June 1989, just as he turned 18, so nearly all of his formative years were spent in a deeply racist environment. (It's hard to fully explain the evil of apartheid, which affected everything in South Africa. If you want to learn more about it, I suggest these five books: Long Walk to Freedom: The Autobiography of Nelson Mandela, Kaffir Boy: An Autobiography – The True Story of a Black Youth's Coming of Age in Apartheid South Africa, Trevor Noah's Born a Crime: Stories from a South African Childhood, Cry, the Beloved Country, and I Write What I Like by Steve Biko, who was tortured and murdered by the apartheid government for his activism.)
In light of the all-encompassing, toxic environment in which he grew up, it would be highly unusual for Musk not to have been meaningfully – and negatively – affected by it, which might go a long way toward explaining why there are so many accusations that "racism is rampant inside Tesla."
2) Following up on yesterday's e-mail, in which I pointed out that Digital World Acquisition's (DWAC) market cap is more than 5 times higher than investors think, I found the source of the pro forma share count of 193.4 million that I referred to: this investor presentation the company filed after the private investment in public equity ("PIPE") deal was announced.
The share count table is on page 5, which shows 193.4 million shares (assuming a share price above $30):
But they have miscalculated the share count – even DWAC's bankers don't understand the PIPE deal!
To arrive at 193.4 million shares, they assume 13.7 million shares will be issued to PIPE investors, which is $1 billion divided by the share price at the time of the presentation, which the footnote says was $72.76.
But, the PIPE investors aren't investing at the price the shares are trading, but at a 40% discount to the weighted average share price in the 10 days after the deal closes, up to $56, meaning the PIPE investors won't pay more than $33.60 (40% less than $56).
And if the share price is $83.88 (yesterday's closing price), the PIPE investors still only pay $33.60.
Yes, you read that right: this company has entered into a deal to sell $1 billion of its stock 60% below its closing price yesterday!
I can't recall ever seeing a worse deal for shareholders or a bigger giveaway to institutional investors – who will, of course, immediately dump the shares they receive on the naïve retail investors propping up the stock.
Assuming the stock price is above $56 on average during the 10 days after the deal closes, the company will issue PIPE investors 29.76 million shares, not the 13.74 million shown in the investor presentation... meaning the pro forma share count will be 16 million shares higher, for a total of 209.4 million.
3) Not that the fundamentals matter for this stock, but DWAC gave up all of yesterday's early 12% gain late in the day on this news: TRUTH Social release delayed despite Trump hype. Excerpt:
The release date for former President Donald Trump's social network has been delayed despite his fervent desire to position the platform as a rival to existing Big Tech platforms.
Trump Media and Technology Group CEO Devin Nunes announced on Thursday that TRUTH Social was still undergoing beta testing and would release by the end of March. That would place the app's release a month after its initial announcement, which said it would debut Feb. 21 on its iOS app page.
4) Sophisticated investors who are trading DWAC's warrants think that the stock is going to fall by more than 50% based on where the warrants are trading. Each warrant gives the holder the right to buy the stock at $11.50, so with the stock at $83.88, the warrants are currently $72.38 in the money.
But yesterday, they closed at a mere $26.30 – 64% less!
Why is there such a massive discount?
Mainly because the warrants can only be exercised after the SPAC deal closes. That could be months away – and a lot of bad things could happen between now and then (most likely, in my view, is that the SEC blocks the deal).
Here's a story in today's Wall Street Journal about this: How Much Is Trump's New Social-Media Company Worth? Traders Can't Decide. Excerpt:
Several factors are likely holding down warrant prices, traders said, namely uncertainty about the deal closing with the stock at current levels. Trump Media & Technology Group still has to release its financial and ownership structure before the deal can be completed and the warrants can be exercised. That process can take several months and could show that Mr. Trump's company is far from becoming a profitable business. The Securities and Exchange Commission is also investigating the merger.
The gap between shares and warrants is evidence that individual investors are driving up more well-known shares and options, some analysts said. Digital World's stock ticker, DWAC, has been trending on some social-media platforms in recent weeks and its trading volumes at times have been comparable to those of much larger companies.
"This is the meme stock of all meme stocks because it's Trump," said Matthew Tuttle, whose firm Tuttle Capital Management runs a few SPAC exchange-traded funds. Meme stocks gain popularity among online traders for reasons other than their business prospects, as GameStop (GME) and others have in the past year.
In summary, I'll repeat: stay far, far away from this epic turd!
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.