Is this how it ends for Tesla, the corporate collapse triggered by a desperate and foolish tweet from an increasingly erratic, perhaps even unhinged CEO who surely must now recognize the impossible task – no tasks – ahead?
Events in the Tesla saga are moving Ludicrously fast. When CEO Elon Musk Tweeted out his apparent plan to take Tesla private, funding secured, he set in motion events that have since spun completely out of control. The Wall Street Journal reports that Tesla’s board has been subpoenaed by the U.S. Securities and Exchange Commission. The New York Times reports that the Tesla board is in full damage control. Catastrophe has arrived all because the company’s billionaire CEO seems to think that rules and laws don’t apply to someone as obviously brilliant and inspired as himself.
The SEC is, it appears, aggressively digging into whether Musk attempted to manipulate the share price and attack short sellers by suggesting a buyout share price of $420/share – considerably higher than shares were trading when the Tweet was posted. This is serious, something so devastatingly serious that even a genius like Musk might find it impossible to think and charm his way out of the consequences.
Surely someone of Musk’s incredible intelligence and the CEO of a very public company must understand that using Twitter to manipulate his company’s share price in public – intentionally or otherwise — is fraught with regulatory risks. Seasoned CEOs are careful when they discuss share pricing, they certainly do not get anywhere near insider trading and public share price manipulation, and they know that even the appearance of misdeeds put boards and corporate officers in legal jeopardy. The financial markets need to operate free of any clouds of suspicion and mistrust and the SEC is charged with ensuring trust in the system.
Which brings me to Martin Tripp. Musk, in Trumpian fashion, has called him a “saboteur” and Tesla has denied his accusations. Still, reports suggest Tripp has claimed whistleblower status with the SEC. He, in fact, tweeted out several damning photos which if true and accurate would be devastating for Tesla. The photos purportedly show damaged batteries, toxic waste at the company’s Nevada Gigafactory and identifying VIN numbers of vehicles with allegedly damaged battery modules.
We don’t yet know if any of Tripp’s claims are accurate and his Twitter account is now closed. What we do know is that regulators had to quickly to address Musk’s Tweet. The suggestion that Tripp is working with the SEC further inflames the problems Musk and Tesla face.
Thankfully, the system is not so damaged by the broader influences of a thoroughly corrupt White House such as to ignore Musk’s utterly irresponsible and potentially illegal attempt to manipulate the value of Tesla, damage short sellers and distract the broader marketplace from the huge problems Tesla is facing. If Tesla has also been hiding production problems, battery issues and the “production hell” that has become the Model 3, so much the worse.
Musk appears desperate to change the conversation. Taking his cue from President Trump and Omarosa, he has chosen Twitter as the place to change the conversation. Thus, the bold, audacious, idiotic, and potentially illegal tweet about taking the company private. All that’s missing are tapes of conversations.
It seems Musk has finally recognized the obvious: The Model 3 launch is shaping up to be a disaster, with production well behind one-time promised goals. The car, while a brilliant drive, has been widely criticized for quality problems, even by Tesla’s own slavishly loyal owners. Just have a look at the Owner’s Forum.
Tesla is incinerating cash at an alarming rate, as it has for years. What must surely terrify Musk is the reality about revenues: EV credits in the U.S., the federal ones, have dried up and Tesla’s largest market in Canada, Ontario, has stopped giving taxpayer subsidies to EV buyers, too. If the 400,000-500,000 people who we’re told slapped down a deposit on a Model 3 turn away, worried about quality and sick of waiting for delivery, then Tesla will need to return hundreds of millions of dollars in deposit money. Another blow to cash flow and the balance sheet.
On top of that, the Model S is now tired and needs a significant update. The Model X seems almost to be an afterthought, despite competing in the hottest corner of the new vehicle market. And a flood of competitive models is on the way to battle with Tesla in not just the segments in which Tesla competes, but right across the entire marketplace. Indeed, Jaguar’s I-Pace is now being touted as the EV standard of luxury.
Even if the I-Pace is merely a “me-too” model, it’s a threat to Tesla. Jaguar is a well positioned luxury brand that has a global footprint, strong cash flow and an established global distribution and service network. Tesla can’t compete with that without a cash infusion in the billions.
Worse, the Germans are coming with a host of new electrified models. Daimler’s Mercedes-Benz brand, the entire Volkswagen Group and BMW have all made massive commitments to electrification and all have the strength and resources to muscle Tesla out of the marketplace entirely.
The car business is tough. It requires massive amounts of capital, creative and astute product development, superb marketing, smart regulatory management, and a global support and sales network to underpin its offerings. Tesla made a pretty, low-volume Model S and it captured the public’s imagination. It also terrified established automakers, especially one competing in the luxury space. No one seriously thought the existing car companies would just let Musk roll over them.
Surely someone as brilliant as Elon Musk understood and anticipated the challenges of launching from scratch a car company. Our man Musk – Thomas Edison, Henry Ford and Albert Einstein rolled into a starlet-loving, swashbuckling visionary – could see that he’d need billions and billions and billions in capital and then a whole lot of luck and brainpower to succeed with the Tesla. Surely, he anticipated every possible challenge.
Or perhaps Elon Musk is not what his cheerleading fan base thought him to be. Perhaps, as so many have said, he’s just a huckster with a trigger-happy Twitter finger – a digit that has now landed him, his board of directors and the entire Tesla enterprise in very deep trouble.
Tesla, as I’ve said before, is a strong brand and that brand will survive. But Tesla as an independent company is a trickier proposition. I doubt even the Saudis would be foolish enough to throw billions at this mess. Speaking of investors, start closely watching what Tesla big institutional investors do next – the Fidelities, Goldman Sachs, and Morgan Stanleys in the game. We’ll know the end is near when they start heading for the exits in a big way.