Why Elon Musk’s SEC deal is good for Tesla
Company can move on and benefit from second wind, experts say
Elon Musk, above, has a cult-like following and a knack for grabbing headlines. “People can replace him as chairman, but nobody can replace his visionary point of view,” says Rebecca Lindland, executive analyst at Kelley Blue Book.
Now that Tesla CEO Elon Musk has settled fraud charges that arose from an errant tweet, what’s next for the billionaire, his electric-car company, and the many customers and investors who have a financial stake in both?
Musk will stay on as CEO, but he must leave his position as chairman of Tesla’s board for three years and fork over a $20 million fine for having made what the Security and Exchange Commission deemed a “false and misleading” statement when he tweeted that Tesla had enough financing to go private. Under the settlement, Tesla also will add two independent directors to the company’s board.
The ramifications of the deal likely are to be positive overall, staving off an investigation that could have dragged on indefinitely and sapped the relatively young company of car buyers’ confidence and revenue.
But it also is a rare loss for Musk, an innovator who’s made bold strides in industries from electronic payments to space exploration.
Here’s a look at what the future likely holds:
For car owners
Those who’ve shelled out tens of thousands of dollars for a Tesla vehicle should be breathing a sigh of relief, some industry watchers say.
“Everyone should be pleased that ... this is over with,” says Rebecca Lindland, executive analyst at Kelley Blue Book, who says an extended inquiry could have pushed the niche company, which has steadily lost money, into financial peril, even bankruptcy.
“This is a company people are actively investing in, both in the stock market but also in their own garage,” Lindland says. “So it would have been damaging to a lot of people if the company had gone bankrupt or if this (investigation) had gone on for years.”
For Elon Musk
The charismatic Musk has achieved an almost cult-like following and has a talent for grabbing headlines whether he’s dating a famous actress or sniping
at a fellow mogul. But the tussle with the SEC may dim some of his celebrity glow.
“I think this is the first hairline crack in the Elon Musk personal image,” says branding expert Rob Frankel, who adds that Musk personifies Tesla in much the same way that Steve Jobs personified Apple. “Musk by now is known as much for his erratic behavior in both his personal life and his business life as he is for his creative and innovative genius. This is the first formal rebuke that has resulted from that behavior, and that could be a problem.”
But others say Musk caught a break, retaining a top-level role and avoiding what could have been far harsher penalties.
“Musk at least remains at the helm of the company, and adding a couple of board members is a good thing,” says Michelle Krebs, executive analyst at Autotrader.
And with the SEC settlement calling for an independent chairman to be appointed to take Musk’s place, he may be freed up to do what many believe he does best.
“People can replace him as chairman, but nobody can replace his visionary point of view,” Lindland says.
For Tesla
Tesla will need to add the two new independent directors within 90 days. And the SEC deal calls on the company to create a permanent committee to oversee the executive’s communications with shareholders, via tweet and other means.
Such steps could infuse Tesla with some much-needed stability.
“It will provide some independent governance that Tesla is lacking right now as it grows and as it continues to develop as a company,” Lindland says.
For stockholders
Shareholders likely will be relieved that the shadow of an SEC inquiry is no longer hovering over the car maker.
“The settlement means the stock can form a base and build from here without being choked off from the fear of a long and withering SEC fraud trial,” says investor and brand management expert, Eric Schiffer, CEO of the Patriarch Organization.
The company’s stock had closed Friday at $264.77 a share, down 13.9 percent from its Thursday close, just before the SEC announced that it charged Musk with securities fraud.
Investors still will probably keep a wary eye on how Tesla’s new diversified leadership steers the business.
“Typically these strongly led companies will withstand a few shocks,” says Frankel, “but eventually if the situation isn’t corrected, they fall apart. So I would imagine that Tesla investors would be on yellow alert.”
For rival automakers
For others eager to plant a stake in the electric car space, Tesla’s missteps may provide a primer for what not to do.
“I’ve had a lot of startup clients, and I can tell you from experience, it’s always better to be second or third in the market because you don’t have to put up nearly as much in human and financial capital to invent the market as the first guy does” Frankel says.
But thanks to the SEC deal, Tesla may be getting a second wind.
Other “manufacturers may not be directly impacted by a new chairman at Tesla,” Lindland says. But “it reinforces that they’re going to continue to be a formidable rival.”