Tesla CEO Elon Musk is once again investigating dubious comments he made to Wall Street analysts, this time involving the status of his company’s vehicle production.
At a Jan. 27 conference to discuss Tesla’s fourth-quarter earnings, Musk said the company was producing new versions of its oldest models, the S sedan and the X-SUV. He added that a ‘Plaid’ high-performance version of the electric S would be available in February.
In fact, Tesla did not produce either model during the quarter, according to delivery and production figures released by the company late last week. Instead, all of the approximately 180,000 vehicles that Tesla made from January to March were of its other models, the three small sedans and the Y small SUV.
Experts believe that the difference between Musk’s statement to analysts and the figures showing no production risk draws attention to Musk’s long-standing nemesis, the Securities and Exchange Commission. The agency has been struggling for years with Musk over dubious statements he made on Twitter affecting Tesla’s share price.
“I think he may have some problems with the SEC,” said Anthony Sabino, a lawyer and professor of law at St. Louis University. John’s University, said. ‘These are fairly direct statements. They are pretty unequivocal. ”
John C. Coffee Jr., a professor at Columbia University who is a leading authority on security law and corporate governance, said Musk’s statement sounds like a statement of fact and not merely a prediction of Tesla’s future production. . If the SEC agrees, Coffee said, he could initiate an investigation.
Tersla can at the same time claim that Musk’s ruling was only a prediction and not a factual statement, and that something later happened to change the prediction. If regulators agree, Musk’s statement will be protected by Tesla’s standard indemnity over the uncertainty of forward – looking statements, Coffee said.
The SEC declined to comment. The messages to Tesla, which had dissolved its press office, remained unanswered.
This is hardly the first time Musk has asked questions with an allegation about Tesla’s vehicle production. In 2017, the SEC investigated statements he made about Tesla’s production of the Model 3 at its plant in Fremont, California. The agency closed the investigation in 2019 without taking action, according to Tesla’s annual financial report for 2020. The Department of Justice also asked for production information. The status of his investigation is unknown.
“To our knowledge,” Tesla’s report said, “no government agency has concluded in any ongoing investigation that any violation has taken place.”
In 2018, the SEC sued Musk for security fraud because of statements he made on Twitter, saying he had the necessary funding to take Tesla privately – a fight that raised Tesla’s share price. In fact, Musk did not secure the money. The case was settled, with Musk and Tesla each agreeing to pay a $ 20 million fine and hiring someone to review Musk’s tweets before sending them.
Musk made no secret of his contempt for the SEC. He distorted the meaning of the agency’s acronym and called the SEC a ‘short-selling enrichment commission’ – short-sellers bet a share price would fall – and said in a television interview that he did not respect the commission.
There is no doubt that Musk said at the conference that Tesla manufactures the S and X models.
“We are very excited to announce that the new Model S and Model X Plaid are now in production and will be delivered in February,” Musk said. ‘So we were able to bring the Plaid Model S and X to the fore. Model S will be delivered in February and Model X a little later. The Model S Plaid, we are now actually in production and delivering next month. ”
Although Musk’s claim is protected by indemnity over production estimates, legal experts say they expect the SEC to at least investigate the case and perhaps initiate an investigation.
“Sometimes the personality power of certain corporate leaders and the potential impact of their statements heighten the fear of regulatory inquiry,” said Jacob Frenkel, a former SEC attorney and former federal prosecutor who practices with the firm Dickinson Wright in Washington.
Frenkel said much depends on whether the SEC considers Musk’s statements to be ‘material’ – that is, something a reasonable investor would find important in deciding whether to trade a company’s shares.
“Disclosure of production can be considered material,” Frenkel said.
Frenkel also noted that the SEC is under new leadership under the election of President Joe Biden and may have a different view of accountability than under the Trump administration.
Musk’s claim does not benefit Tesla’s stock. The share price fell 3% the day after the conference. Since then, it is more than 20% lower because the glare has expired technological and electric vehicle supplies. For the whole of 2020, however, Tesla shares have risen more than 700%.
Before the company released its numbers last week, analysts expected Tesla to deliver about 13,000 S and X models in the first quarter.
At the 27th conference call, Tesla chief financial officer Zachary Kirkhorn reflected on Musk, saying the company manufactures S and X models, though Kirkhorn warned that production would be low due to the transition to new versions.
Kirkhorn added that the company was trying to manage a global shortage of semiconductors – a shortage that had undermined the entire automotive industry, forcing many automakers to reduce production. Some analysts attributed Tesla’s zero S and X production to the shortage of chips.
“I doubt they would pursue him if there was a legal issue or problem,” Coffee said.
But Frenkel said Tesla’s indemnity may not help.
“One cannot dismiss a false statement or failure to disclose a material fact,” Frenkel said. “Otherwise, it gives no credibility to corporate disclosure.”