Elon Musk Is Having a Very Bad Week. So Are Tesla Investors

Things are looking downright messy right now for Elon Musk and Tesla following a lawsuit by the Securities and Exchange Commission on Thursday accusing the CEO of securities fraud for his infamous "funding secured" tweet about taking the automaker private.

Tesla was off about 11 per cent at $273.60 following a bombshell announcement by the US Securities and Exchange Commission late Thursday that it was charging Musk for making "false and misleading" statements on Twitter on a now-aborted effort to take the electric vehicle maker private.

A protracted conflict could sidetrack employees and spook investors during one of Tesla's most critical points in company history, as it struggles to emerge from a chaotic period of executive exits and factory crises that Musk has called "production hell". The SEC wants a court to order Musk to stop making false and misleading statements and repay any gains he made. Stock prices rose almost nine percent following Musk's announcement of securing privatization funding, resulting in the SEC opening an investigation to ensure that the CEO was in accordance with his legally required fiduciary duties.

At $268.10 - the stock's lowest price in the first few minutes of regular trading Friday - Tesla had a market capitalization of about $45.7 billion, down from $64.8 billion at the close of trading on August 7, the day Musk sent his take-private tweets.

Musk denied the charges, saying in a statement, "This unjustified action by the SEC leaves me deeply saddened and disappointed".

"His ego is so clearly tied to the company, so what would be best for Tesla's investors would be for him to realize the company is more important than his ego", Munster said. "Funding secured." And where did that number come from?

Gordon Johnson, an analyst at Vertical Group who has been predicting a collapse in Tesla's shares for months, is less optimistic. It recommends Musk pay a penalty and seeks to bar him from being an officer or director at a public company. The department of justice too is now looming into Musk's tweets and could bring a criminal case if it finds he deliberately misled investors.

Musk, Tesla's chairman and chief executive, has been directly involved in nearly every detail of its product development and technology strategy, and is credited as the driving force behind the loss-making company's ability to raise capital.

Even without further action by another regulator, UBS says it will pose clear challenges to Tesla in the immediate future - including the possibility of a new boss.

Tesla stock plunged 14 percent to $264.77 Friday, wiping out $7.3 billion in shareholder value.

Tesla laid off 9 percent of its workforce this summer and has endured a mass exodus of executives, including heads of engineering, sales, supply-chain management, human resources and finance.

'The conduct is so obvious, if the SEC hadn't responded, it would make you wonder, what's the point of the SEC?'
Despite this, we think the company will survive.

  • David Armstrong