This article originally appeared September 18th at 1:22 p.m. ET and has been updated to include Tesla's statement.
All was going well on Tuesday, as shares of Tesla Inc. (TSLA) - Get Report were slowly churning higher. The stock was up more than 2% and back over $300, an encouraging sign for bulls as Tesla stock was threatening to retest its lows from earlier this year just earlier this month.
Suddenly though, traders saw shares down 2%. Then 3%, 4% and 5%. A quick check of the Twitter (TWTR) - Get Report feed told us that the Department of Justice is opening an investigation into CEO Elon Musk's "go-private" tweets.
Shares were down over 5% around 1 p.m. ET, although Tesla has pared some of those losses following a statement from the company.
Tesla's statement on the matter at hand:
"Last month, following Elon's announcement that he was considering taking the company private, Tesla received a voluntary request for documents from the DOJ and has been cooperative in responding to it. We have not received a subpoena, a request for testimony, or any other formal process. We respect the DOJ's desire to get information about this and believe that the matter should be quickly resolved as they review the information they have received."
DOJ Investigates Tesla, Musk
The biggest questions are obviously, what does this mean for Tesla's stock and its CEO. For better or for worse, the latter is a big driver of the former.
Not only does Musk own more than 20% of Tesla stock, but he is also the hype machine that's gotten Tesla to where it is today. While he's been outlandish on Twitter over the past few months, there's possibly no other co-founder CEO that could do what Musk has done to get Tesla to where it is today.
That said, it may all topple over thanks to him as well.
Tesla is apparently under DOJ investigation for public statements made by the company and Musk. If that ends badly for Musk -- say, being forced from the C-suite -- who will lead Tesla at that point? How could shareholders feel as confident in the company without its knight in shining armor?
No matter who Tesla would bring in to replace Musk as CEO, they couldn't fill those shoes.
Gabe Hoffman, general partner at Accipiter Capital Management and Tesla bear, has been saying Musk will be out as CEO ever since the CEO's infamous go-private tweet. "I said this 15 minutes after Tesla resumed trading on August 7th," Hoffman told TheStreet.
He's stuck to that outlook since too, telling us earlier this month that, "the official reason provided, and the exact timing, are irrelevant in perspective to the impact upon Tesla's stock price. Once Musk is gone, 'the cult of Elon' will be finished, in the greatest cult stock of all time."
The question now becomes, what will happen to Tesla's share price? Bears are clearly reveling in Tuesday's news, and with Tesla stock down less than 5%, bulls don't seem to be taking it as bad as one would think. Perhaps investors are still weighing what this means for the stock. Maybe they're unsure of what the consequences of the investigation will yield. After all, a slap on the wrist with a fine or other light punishment will likely be a sigh of relief for investors. Bears are obviously hoping for much more than that.
"Elon Musk committed the most obvious and public securities fraud I have ever seen in my 18 years as a hedge fund manager," Hoffman added. "No CEO of any public company has ever remained in their job, once charged with securities fraud. Elon Musk will be out as Tesla CEO."
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.