Elon Musk gets off the ropes with SEC settlement with Tesla
‘A victory for Tesla,’ investment banker says of negotiations
It looked like it was curtains for Elon Musk.
The Securities and Exchange Commission charged Tesla Inc.’s chief executive with fraud, and it seemed to some like an airtight case: Musk tweeted to his 22 million followers Aug. 7 that he had a deal to take the company private at a premium price, though no such deal existed.
But a swift settlement of the government’s lawsuit — with Musk staying on as CEO as part of the agreement — has given the beleaguered entrepreneur another shot at fixing the ailing Tesla.
The company he’ll continue to helm is beset with troubles and facing significant challenges, including penalties stemming from the legal settlement announced Saturday.
Musk and Palo Alto, Calif.based Tesla agreed to pay a total of US$40 million to settle the case, and he’ll give up his chairship for at least three years. The electriccar maker is also required to install an independent chair and two new board members, though Musk will remain on the board, according to terms of the settlement.
Musk and Tesla will each pay $20 million to settle the case; both reached the deal without admitting wrongdoing. The company declined to comment.
The SEC charged Musk with fraud Thursday, alleging that his tweets about taking Tesla private — at $420 a share — were “false and misleading.” As part of the lawsuit, the agency asked a federal court to remove him from the company’s leadership and ban him from running a public company.
Several observers believe Musk and his company struck a good deal, given the circumstances.
“In three words, the SEC blinked,” said Lloyd Greif, CEO at Los Angeles investment banking business Greif & Co. “This is clearly a back-off; it’s a victory for Tesla. The SEC had him with an open-and-shut case. But maybe they went too far with the original complaint.”
Michelle Krebs, executive analyst at Autotrader, said that given the drastic punishment Musk could have faced, he and Tesla “got lucky.”
Although the case was settled quickly, it marked yet another ugly chapter in a difficult stretch for Tesla, which has contended with several issues, among them strange behaviour by Musk.
In recent months, the billionaire inventor has smoked marijuana on a comedian’s podcast livestreamed on YouTube, feuded with countless Twitter users and made derogatory comments about a diver involved with the rescue of boys trapped in a cave in Thailand, prompting a lawsuit from the man.
Musk, who founded rocket company SpaceX in 2002, is considered a visionary. He joined Tesla as a startup in 2004 and became its CEO in 2008, producing powerful, attractive vehicles that forced the auto industry to take electric cars seriously.
But his personal foibles come at a crucial time for Tesla: It faces significant cash shortage issues and problems surrounding the rollout of the Model 3 sedan.
Musk had told investors the company would be making 10,000 Model 3s a week by now, but it is turning out less than half that amount. Twitter, Facebook, Reddit and Tesla online forums are filled with customers complaining about poor service, slow deliveries and quality problems that range from poor paint jobs to dead batteries to software glitches that won’t let them start their cars.
Tesla is scheduled to release third-quarter production and sales figures early this week. Over the weekend, the company was trying to achieve record results at the end of the quarter, putting executives to work at delivery centres and recruiting Tesla owners and fans to volunteer to help train new owners in how the cars work.