Oops, he’s done it again. Elon Musk, the founder and CEO Tesla, has tweeted something he probably shouldn’t have – and now the US financial regulator has asked a judge to find him in contempt of court. It’s no trivial matter. Tesla shares tumbled almost five per cent in after-market trading on Monday.
The tweet, from February 19, forecast how many cars Tesla would produce in 2019. That’s a “forward-looking statement”, and companies that are listed on US stock markets have to follow tight rules on how and when they can make such forecasts.
The US regulator, the Securities and Exchange Commission (SEC), says that Musk has once again provided misleading market information, breaching a settlement reached last October that forced him to run any Tesla-related tweets past his lawyers. The deal also earned him a fine of $20 million (£15m) and temporarily forced him to surrender his role as Tesla’s chairman.
As it happens, one of Tesla’s lawyers saw the tweet and rushed to huddle with Musk. The result: four hours later Musk posted a correction. His first tweet had suggested that Tesla would manufacture half a million cars this year; the correction cut this by a fifth to around 400,000.
In a court filing on Monday night, the SEC says Musk has “once again published inaccurate and material information about Tesla to his over 24 million Twitter followers”.
Some investors are losing patience. “I hope they take away his phone,” says Ross Gerber, the CEO of fund manager Gerber Kawasaki. The fund has about 35,000 Tesla shares. “I am all for the bad-boy attitude, in theory, but this is still a business and he’s costing his company and shareholders a lot of money,” Gerber told Bloomberg.
It’s not clear how the judge will react. In a worst-case scenario, Musk could be removed as CEO. Or fined. Or both. Tesla’s board could also be fined, says Philippe Houchois, a Wall Street analyst at Jefferies. But, he adds, the situation could also end up being dismissed as a misunderstanding – because it’s very easy to confuse the annual production volume of a company.
“Earlier, Tesla said the volume guidance for 2019 is between 400,000 and 500,000 cars – but the ‘run rate’ of production is 500,000,” he says. The run rate is calculated by taking a 10,000 vehicles produced per week and scaling it to 52 weeks in a year. “There’s always a risk of confusion between the natural calendar and the run rate,” says Houchois.
In his second tweet, Musk wrote: “Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k.”
So it could be an honest mistake – albeit one that the CEO of a car company arguably shouldn’t make. The SEC will certainly examine whether the tweet was indeed damaging to investors, says Houchois. Crucially, the SEC’s court filing points out that Musk didn’t seek pre-approval for his first tweet, only for the correction. “Going to be a fun one for the judge. LOL,” was Gerber’s tweeted reaction.
If the SEC has its day in court and wins, Musk’s whole settlement with it could be invalidated, with potentially serious consequences. That would do nothing to soften Musk’s attitude towards the SEC; in a TV interview last year, he said that while he and his company “might make some mistakes,” he added: “I want to be clear, I do not respect the SEC. I do not respect them.”
Houchois says that even if Musk is forced to leave his company, at this point Tesla has become much bigger than just him, and it’s not as critical having him at the helm as it was a few years ago.
For Amanda Wuest, an investor and owner of a Tesla Model 3, Musk should “absolutely stay at Tesla”. His direct line of communication to users via Twitter is “amazing”, she adds, saying that it has improved the product as he welcomes constructive criticism. “If the recent SEC filing hurts that direct line of communication, I’ll be very disappointed. I hope the judicial system does its job, and it’s a non-issue. If they take the CEO title from Elon, he’ll still be the heart of the company in some other whimsical title – or no title at all.”
This article was originally published by WIRED UK
