SEC needs to rescue Tesla investors from Musk

GLOBALCAPITAL INTERNATIONAL LIMITED, a company

incorporated in England and Wales (company number 15236213),

having its registered office at 4 Bouverie Street, London, UK, EC4Y 8AX

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

SEC needs to rescue Tesla investors from Musk

Musk_Tesla_230x150

There is a fantastic case for owning Tesla shares, but investors cannot realistically asses its merits when the price is prone to huge daily moves, often driven by the whim of its errant leader. The Securities and Exchange Commission (SEC) needs to muzzle Musk.

The regulator has asked a US federal court to hold the Tesla CEO in contempt after he tweeted confusing production numbers in mid-February.

Musk said that after making no cars in 2011, the company expected to make 500,000 cars in 2019, 100,000 more than Tesla’s official forecast of 400,000 deliveries for the year, made at the end of January.

Musk corrected his tweet several hours later to say that annualised production would “probably” be around 500,000, but he still expected deliveries to be around 400,000.

The incident is important as it may violate a deal the Musk cut made with the SEC last year, after the infamous "funding secured" episode when he suggested he would take the company private at a price of $420.

The deal Musk made with the regulator is contingent on his communications being controlled by the company. In a letter to the SEC his lawyers admitted to the agency that the 500,000 cars tweet was not pre-approved.

Should the court find Musk in contempt, the SEC should act to once again protect shareholders from a CEO who has shown almost no remorse for his previous wildcard approach to company announcements or, according to the agency, a "diligent or good faith effort to comply" with the settlement.

Tesla’s shares have fallen by almost 15% since last Thursday, on the back of this latest episode, disappointing updates on profitability and store closures, knocking $8.2bn off the company's market capitalisation in the process. 

Not all of the movement in Tesla’s price is Musk-related but few analysts would dispute that he is quite often the biggest driver behind its rise and fall.

Tesla is a liquid stock which captures huge public attention, so is likely to be volatile. But investors should not lose money due to Musk's rogue pronouncements.

Analysts often say that volatility is just something that Tesla shareholders have to accept. Nevertheless, they shouldn't have to accept unnecessary volatility.

Equity buyers seeking pure exposure to the electric car market have few other listed options other than Tesla in which to invest and have the right to feel confident that they can trust the what the company and its senior staff say. Future stock fluctuations based on Musk's Twitter feed is an almost impossible risk to assess, and investors in publicly-listed company shouldn't have to. 

Tesla shareholders should be protected from damage by way of a misleading, and perhaps materially incorrect, tweet for which any other public company CEO would likely face serious sanction or even lose their job.

Musk may dislike many of the responsibilities that come with being the boss of a listed company, including the communication restrictions. However, these restrictions are there to protect investors and if a court finds Musk to be in contempt, then it should be robust in demanding Tesla’s board rein him in. 

If he will not be controlled, for the good of investors, it may have to remove Musk's phone, or even the man himself.    

Gift this article