The SEC announced yesterday that it is suing Elon Musk for misleading statements he made via twitter about taking Tesla private. The SEC is seeking to ban Musk from being an officer or director of a publicly traded company. Without Musk steering the ship, the cult-of-Elon premium is likely to fall out of the shares. Tesla is a startup electric car maker in a fiercely competitive industry with high capital requirements and competitors all over the globe that are viewed as national champions by their political leaders. That’s a tough business to enter. Warren Buffett advised long ago that “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
If Elon gets 86’d, Telsa investors are likely to find out what the economics of a startup car company look like.
“If Elon Musk resigns or is not the CEO, Tesla is a fundamentally different company that is less attractive to us,” said Ross Gerber, chief executive officer of Gerber Kawasaki in Santa Monica, California, which holds Tesla stock.
Aside from the drama surrounding Musk’s tweet saying Tesla may go private — and his decision less than three weeks later to stay public — the company has been grappling with the departure of several top executives, most recently its vice presidents of global supply chain management and worldwide finance. The Justice Department has also opened a fraud investigation.
Tesla and its board “are fully confident in Elon, his integrity, and his leadership of the company,” directors said in a joint statement Thursday. “Our focus remains on the continued ramp of Model 3 production and delivering for our customers, shareholders and employees.”
Read more here.
Jeremy Jones, CFA
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