Driverless Cars

Musk flips the ‘bird’ at the SEC

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Tesla shareholders must wish Elon Musk would be as silent as his products. It seems the Tesla CEO has learnt nothing from his $20mn fine. Given that Tesla is still under investigation for other reporting  matters, it seems unprofessional to bait the SEC when shareholders want to see stability at the helm. Musk tweeted,

Just want to that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!,”

Just further evidence this CEO has no wish to listen to his board or interact with them in a way that promotes best practice corporate governance. It’s still a one man band. The irony of the tweet is that the SEC’s leniency allowed him to stay at the top causing a 17% jump on the settlement.

Even worse Paragraph 13 of his settlement with the SEC requires him to seek board oversight of any public communications although has yet to be officially signed off by a judge.

In a twist or irony one shareholder tweeted back that he wasn’t just attacking the stock shorters  but the long only owners as well.

Tesla shares closed down 4.4% and indicated at $273 in the after market, a fitter 3% fall. At the start of the SEC decision last week the shares had traded as low as $267. In a sense Musk has been the Shortsellers Enrichment CEO not the SEC.

Musk to recover $1.2bn based on pre-market

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Musk stands to recover $1.25bn in wealth if the pre-market indications of Tesla prove correct. A $20mn fine from the SEC which effectively wiped $1.3bn of wealth will all but be restored. Is it just that investors think that nothing will change even if he isn’t chairman? Did the SEC fold to his star power or did they receive a free flame thrower to lighten the charge? While $20mn looked like a proper slap on the wrist he can shrug off the incident like it didn’t happen. All in all pretty impressive. He lives to fight another day.

Musk’s $20mn fine covered if Tesla shares jump 59 cents

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$20mn sounds like a lot. It is a lot. The SEC has struck a deal with Tesla’s Elon Musk which demands he steps down as chairman and hires two independent directors. Musk owns 33.7mn shares. Technically he would only require a 59c share price rise to cover his fine. Make it a dollar to cover taxes and transaction costs plus legal fees. In any event the fine is peanuts in the grand scheme of things.

To be honest, Tesla disciples will breathe a sigh of relief that their king still remains in the company and more importantly as the figure head. The question remains is whether a new chairman (from outside?) will see to it that the company is not just a one man band which has been painfully obvious with so many senior level defections. Too often the board has seemed to be an onerous burden for Musk in that his intergalactic brilliance shouldn’t require checks and balances.

Will a new chairman demand a thorough audit into business practices to date? It is likely that the SEC will expect a new chairman to lift the standards of the board to make sure that shareholders interests are properly decided with all directors heard. An independent audit should be viewed as the bare minimum. What would that unearth?

Tesla shares should bounce on this news and in aftermarket trading it is up. The question is how a new structure changes dynamics which reveal the short cuts and internal processes which have created so many reporting inconsistencies.

Musk channels the Black Knight?

It has become apparent that the SEC & Musk had a deal which would see him removed from Tesla yet his lawyers have rejected it at the last minute because he’d rather fight the charges. One could argue in favour of his bravery to appeal against what looks to be a very open and shut case about breaching probably the most basic of errors in standard reporting to the exchange to ensure fairness.

Maybe he feels that he is only going to get a slap on the wrist? In the 63 odd charges laid out against individuals by the SEC for reporting violations in 2018, the average fine has been $75,000. Hardly a ripple to Musk’s net worth.

The bigger risk for Tesla shareholders if Musk loses in court against the SEC and is forced out (to be honest his board should demand it) will be losing a figurehead who at the very least has managed to make a company with no profits, monster debts and questionable actions worth more than Ford, FCA & GM combined. Betting against Musk has been a dangerous game. He may well be teflon coated but it remains questionable whether he can strap himself to his reusable rockets and escape the fraud charges.

Musk charged with securities violations

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Tesla CEO Elon Musk has been accused by the SEC of violating Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5]. The SEC claimed,

“Musk’s false and misleading public statements and omissions caused significant confusion and disruption in the market for Tesla’s stock and resulting harm to investors…Musk knew or was reckless in not knowing that each of these statements was false and/or misleading because he did not have an adequate basis in fact for his assertions. When he made these statements, Musk knew that he had never discussed a going-private transaction at $420 per share with any potential funding source, had done nothing to investigate whether it would be possible for all current investors to remain with Tesla as a private company via a “special purpose fund,” and had not confirmed support of Tesla’s investors for a potential going private transaction. He also knew that he had not satisfied numerous additional contingencies, the resolution of which was highly uncertain, when he unequivocally declared, ‘Only reason why this is not certain is that it’s contingent on a shareholder vote.’ Musk’s public statements and omissions created the misleading impression that taking Tesla private was subject only to Musk choosing to do so and a shareholder vote.”

The eccentric and maverick CEO responded,

This unjustified action by the SEC leaves me deeply saddened and disappointed. I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way.”

It is common knowledge to corporates that the exchange is the first port of call for all public releases to be openly documented for consistency and equal access. It is irrelevant whether a social media feed might be deemed as “in the spirit” of open disclosure to Musk’s personal opinions. The SEC rules are the rules. There aren’t soft interpretations. A listing requirement is to follow the rules of fair disclosure. Whether Musk was or wasn’t aware is irrelevant – as the CEO of a $50bn company he should know better or at least sought the advice from those that do.

In any event if he was true to the spirit of good corporate governance he would have the good sense to realise his position as CEO has become untenable. How the board can have confidence in him is beyond CM? The multiple senior resignations give an insight but for all of Musk’s instellar cosmic brilliance as a salesman, unfortunately laws are there to provide safety for investors. The shares are offered 13% lower in the aftermarket.

A court will ultimately decide his fate but the $420 a share with secured funding unraveled so quickly as to question his judgement.

Investors, even the die hard believers, don’t need a CEO already under the pump to be distracted anymore than he already is. It is a shame because he is undoubtedly a brilliant mind. Unfortunately that would seemingly make him feel he’s somewhat untouchable leading him to make knee jerk decisions such is what he’s been charged over.

Is BMW hurting bad enough to offer 10yrs free servicing?

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10 years? Sounds a bit desperate. A bit like the Korean makes a few decades back using monster incentives to lure customers by a value to good to refuse proposition. Have luxury car sales become so hard to get in Australia that the prestige make has to offer 10 years of free servicing and 1yr free insurance?

BMW sales in Australia fell 12.2% year on year in August 2018. Audi crumbled 25.8%. Benz did better at -3.4%. Land Rover fell 32%, Lexus down 11.7%. Porsche crumpled 25.4%.

It is likely the fine print in the 10 years free servicing basic package isn’t transferable between owners so if most buyers hold their BMWs for 5 years the total incentive is much less to roll out. If the fine print allows transfers it only adds to the desperate state of having to hurl freebies to shift metal. Dealers tend to make less on the sale of the car but plenty on gouging customers for service and spares.

Seems the tyres are going flat. Total car sales in Australia were down 1.5% in August. Passenger car sales fell 13.4% while those eco conscious Aussies bought 8.3% more SUVs. Medium and large sedan segments fell 24.1% and 60.3% respectively. Every SUV segment rose except upper large. Toyota finished up 1.7% for the month with 19.8% share.

Is Musk losing it?

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Is Tesla CEO Elon Musk losing it? More senior resignations from accounting and HR this week  reveal more cracks in the automaker. He emailed a journalist, calling him a “mother f*cker”. He went further to say he hoped the cave rescuer he called a “”pedo” sued him because a UK man who is single and spent so much time in Thailand must be a child rapist.

He rattled off he had “secured” funding of $420/share to go private and then all of a sudden he didn’t, prompting the SEC to investigate. He was then on radio with comedian Joe Rogan toking what is reportedly a mixture of tobacco and marijuana. Are these the actions of a man running a $50bn market cap company?

Clearly his board can’t control him.  With the shares collapsing and bond prices falling, refinancing will become problematic. Chief  Accounting Officer Dave Morton quit the company after revealing his concerns about the various obstacles Tesla faces.

Tesla’s Chief People Officer, Gabrielle Toledano, took leave in August and said she wouldn’t be returning to Tesla.

Musk has been a genius and visionary to get Tesla where it is today. Yet he is a direct victim of his own hubris. Sleeping under boxes with Tesla bankrupt written on them to living on the factory roof to rattling off about production hell while accusing families of drivers dead due to over reliance in a system he aggressively promoted.Tesla was technically asking for suppliers to refund a portion of the monies they were paid since 2016 to the EV maker so it could post a profit which is borderline accounting manipulation in an attempt to give the impression of an ongoing concern.

He also complained at the lack of support in the media despite being called out on this nonsense.

Musk’s compensation is also linked to a $650bn market cap, which is effectively saying to the market that his company will be worth more than Daimler, BMW, VW, GM, Ford, Toyota, Nissan, Honda, Renault, Fiat-Chrysler, Ferrari and Porsche combined. Just read that last sentence again. Do investors honestly believe that Tesla which consistently misses and is going up against companies that have been in the game for decades, seen brutal cycles, invest multiples more in technology and forgotten more than they remembered will somehow all become slaves to a company which has no technological advantages whatsoever?

The Tesla story is on the ropes. Expect more mega-releases on new products to try to keep the dream alive and the disciples faithful. I guess ‘Lucy in the sky with diamonds’ worked for The Beatles…