After Elon Musk a week tweeted a week ago that Tesla will make “around 500K [cars] in 2019,” then quickly corrected/clarified to say Tesla will actually deliver “about 400K” cars, the Securities and Exchange Commission asked a federal judge to hold the Tesla CEO in contempt.
The alleged offense: being a repeat offender. Because Musk’s past off-the-cuff social media posts on Tesla have contained “material” information that were misleading in the past, a 2018 consent decree with the SEC required Tesla’s board of directors to set up a committee that would read and approve Musk’s tweets, and if Musk changed the wording, he had to to go back to the committee to get approval again. The SEC says he failed to do that last week talking about production and deliveries:
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.
— Elon Musk (@elonmusk) February 20, 2019
While some elected officials may get away with misleading social media posts, they’re not under the purview of the Securities and Exchange Commission. One rule that makes the SEC cranky, when violated, is this: If you’re high up in a company and you say something that’s false, misleading, even a meaningful slip of the tongue … and it gives investors the wrong idea about how a public company is doing … the SEC gets on your case. They may slap your hand, issue a fine, seek judicial sanction, or seek to have you removed from your corporate position. All this has happened or may soon be in the offing, for Musk. On the upside, this is a civil issue so, unlike Martha Stewart, Musk wouldn’t wearing an ankle bracelet.
Shareholders could either to sell at 420 or hold shares & go private
— Elon Musk (@elonmusk) August 7, 2018
Going-Private Fib Got Musk in Trouble Last Summer
Musk got in trouble with the SEC in August 2018 when Musk tweeted that he was considering taking Tesla private at $420 a share. TSLA stock had opened that day at $344, then jumped 13 percent to $387 the same day, falling back into the 340s a week later. Trouble is, Tesla didn’t actually have funding secured, the SEC said. The led to SEC charges, separate $20 million fines for Musk and for Tesla, an agreement that Musk step down as chairman (but not as CEO), and an agreement that a committee be set up to oversee Musk’s posts in advance. Sort of like what parents do to young kids who want to be on social media. Except this kid is worth $22 billion.
After Musk sent his inaccurate Feb. 19 tweet that Tesla would make 500K cars in 2019 — oops, we meant deliver 400K cars — this month, the SEC got interested again. That led to bickering between Musk and the SEC. It appears the SEC may be getting the better of the bickering.
The SEC said Musk didn’t ask for, or get, company approval before sending the Feb. 19 tweet, and Musk “once again published inaccurate and material information about Tesla to his over 24 million Twitter followers.”
Tesla responded that Musk did not get advance approval, but he didn’t need it because it was the same as information the company released at its Jan. 30 earnings call with analysts. (Actually, in a letter to investors sent the same day.) Musk ducked a question from Oppenheimer analyst Colin Rusch asking for production guidance by saying, “Well, I think we did [provide guidance], actually. Yes, it’s clear in our letter.”
Monday night, Musk tweeted, “[The SEC] forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing …”
Actually, how embarrassing for Musk: The SEC then recited the fine print of the settlement that Musk and Tesla agreed to: a) Edits or changes made to previously approved social-media language have to to be approved again by one of the committee’s Musk-minders and b) even if no changes are made, the pre-approval has a tweet-by deadline of two days. If Musk holds his tweet for more than 48 hours, he has to get it re-approved. It may sound nitpicky, but that’s what Tesla and Musk agreed to, in order to settle the August SEC complaint. That and pay $20 million, or 1/1000 of his net worth.
Musk didn’t help his cause during a Dec. 9 60 Minutes interview in which he said, “I have no respect for the SEC,” and declared no one at Tesla was reading his tweets in advance. He told interviewer Lesley Stahl,
The only tweets that would have to be … reviewed would be if a tweet had a probability of causing a movement in the stock. Otherwise, it’s … hello, First Amendment.
I guess we might make some mistakes. Who knows? … Nobody’s perfect.
The SEC used the 60 Minutes interview to charge Musk is “not serious” about keeping the faith with the consent decree.
Monday on CNBC, Oppenheimer’s Rusch said, “No” in answer to whether he believes Musk and his forecasts, adding, “We discount what he says pretty substantially.” Still, Rusch says he buys into the Tesla gameplan and its long-term potential. “It’s about the cool-car thesis,” Rush said, adding that traditional automakers are reluctant to cannibalize combustion engine cars for EVs and may delay going over to EVs.
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