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You should forgive yourself if it's the first time you hear that billionaire entrepreneur Elon Musk, staring at him and without flinching, showed up in front of a judge Thursday in Manhattan.
He was surrounded by his security guards and three lawyers. The Securities and Exchange Commission was present, represented by three other lawyers. There were journalists, amateurs, and short sellers in the packed house, all waiting to see if Judge Alison Nathan would judge Musk in defiance of the court.
The US Securities and Exchange Commission had ordered Musk to stop making important statements regarding its automaker, Tesla, on Twitter without the approval of a court-appointed lawyer. You will remember that Musk had caused chaos at the company's scale last August when he had tweeted that he had "secured funding" for the company to remain private. He finally settled with the SEC, who described this tweet and others as "false and misleading".
But the SEC said Musk broke rules of regulation in February when he tweeted that Tesla would manufacture 500,000 cars in 2019.
It will not be.
We know that not only because the company itself has announced lower forecasts (400,000 at the top), but also because of the other disaster currently raging in Tesla: it does not sell enough cars.
The same day, Musk was sitting in the audience room, Tesla's stock was down about 9%. A few hours earlier, Wednesday night – after two days of mowing – the company released its delivery figures for the first quarter. They were worse than most analysts had imagined. Tesla only delivered 63,000 cars, down about 31% from the previous quarter. And most devastating, Tesla has been hardest hit by its most lucrative cars, the luxurious Model S and Model X, whose sales have been reduced by more than half.
Given all the problems on Musk's plate, it's no wonder that he seemed relieved when the judge postponed his decision on contempt of court and asked his lawyers to meet the SEC once in the next two weeks to see if they could get away with it. a thing. "Put on your reason pants," she said, otherwise she would decide Musk's fate.
Musk left the courtroom and quickly issued a declaration full of revenge. "I have a lot of respect for Judge Nathan and I am delighted with her decision today," the statement said. "The tweet in question was true, irrelevant to the shareholders and in no way constituted a violation of my agreement with the SEC." (Nathan did not say anything about it.)
"We have always thought that we should be able to settle disputes directly with the SEC, rather than rushing prematurely to court." Today, that's exactly what Judge Nathan asked for. "
In a week of defeats, Musk could be forgiven for trying to win a victory. None of the major struggles – legal or financial – of Musk or Tesla is resolved in any way, and even long-time investors are beginning to worry.
"Yeah, I own the stock.It's not one of my favorite positions.I just think cars are leaps ahead of everything in this area," said Andrew Left of Citron Research, a man who went from very short to Tesla. about that.
"It would be better without Elon," Left said, adding, "I think this guy is just a big distraction, he's killing me, it's coming from the top."
"Communication is terrible," he said. "This guy is crazy."
Legal issues could worsen rapidly. The nightmare scenario in the coming weeks is that the SEC and Musk's lawyers can not hear and that Nathan condemns him in contempt.
Financial problems could also get worse quickly. Tesla is expected to release its first-quarter balance sheet in the coming weeks, giving investors a more accurate picture of the company's financial situation. Any other bad news could send them running to the hills.
Do you have a story to share about working for Tesla or interacting with her? Contact Linette Lopez of Business Insider at [email protected].
2019 was supposed to be cold at Tesla, not like 2018, when Musk "bet the company" about the success of the Model 3 car and that Tesla was "on the verge of death" trying to to achieve its objectives. This seemed to bear fruit in the third and fourth quarters, when Tesla achieved profitability in consecutive quarters for the first time.
But then, things started to go very badly. There has been a series of layoffs that have shot down 7%. Sales of more expensive versions of Model 3 (originally promised to the public at $ 35,000) have begun to decline. To cut prices, Musk said he would close most of the company's stores, but took over. The price of cars dropped and then increased again (there were literal protests in China about this). A problem with Chinese customs has delayed sales. There was Musk's wandering tweet and Tesla's lawyer resigned after two months spent in the company. Then the SEC hit. If it sounds chaotic, it's because it's been. One of Tesla's most loyal shareholders said that Musk "does not have to be a CEO".
In brief: Elon Musk's mandate as CEO has been tortured.
Some investors are like Gene Munster of Loup Ventures. He still thinks that Tesla and Musk need one from the other, but he considers their relationship as a challenge as much as an asset.
"It's a catch-22," he told Business Insider. "It would be better if Elon did not complicate things more easily.As an investor, you have to concede some things and you have to concede the stability of a conventional business."
Thursday, in court, Tesla submitted a letter of support to Musk, but the company was not sanctioned by the SEC for Musk's tweet. That's why the SEC's attorney testified that Tesla had "for whatever reason cast his sights on Mr. Musk … and that's a problem." She added that the agency was still investigating whether or not Tesla had fled from his obligations by allowing Musk's wandering tweet.
As a solution, the SEC suggested setting up a new system to approve and monitor Musk's tweets. He also suggested a scale of fines when he tweeted wrong information again.
"The company definitely needs a more professional management," said Business Insider Chester Spatt, finance professor at Carnegie Mellon and former chief economist at the SEC.
"Musk's lawyers must also be afraid of him, they can not control him," said Spatt. "I think there's a reasonable chance in the next two weeks that Musk and Tesla are out-playing their hand in negotiations with the SEC … I think the SEC, by not trying to reduce it, gives a lot, but in reality, Tesla has to comply with the previous agreement, not two ways about it. "
Meanwhile, in the context of all this legal drama, the SEC and the Department of Justice are still investigating Tesla and Musk to find out if they misled investors about the production of Model 3.
It is because of Model 3 that Tesla is currently in a difficult financial situation. Tesla started making a more expensive, longer-range version of the car, but it was initially marketed as a $ 35,000 vehicle for all men. Thousands of people donated $ 1,000 to the company to reserve one.
But this $ 35,000 car has not arrived yet. And unfortunately, sales of the high-margin long-range version fell in the first quarter. Tesla's luxury cars are even worse. Analysts are beginning to wonder if there is strong demand for cars that will make Tesla a profitable business.
"Today we are lowering our estimates and price targets for Tesla shares (from $ 215 to $ 200 to $ 200), due to weak first quarter shipments and the impact of what we consider to be a reduction in the underlying demand for a higher ASP. [average selling price] S & X, "wrote JPMorgan analysts.
Like all auto companies, Tesla's operation is expensive. It needs 1.5 to 2 billion dollars to keep the light on. In March, he repaid a loan of $ 920 billion and still has a debt to pay over the next year. That's partly why Moody's, a rating agency, warned that, despite Tesla's success in 2018, "significant pressures are weighing on Tesla's credit profile."
And that was even before the first quarter deliveries turned out to be a failure. The company is expected to report earnings in the coming weeks, and other bad news will put additional pressure on management to recover its finances. This will probably ask an old question: will Tesla raise funds? The company had a habit of saying in clear terms that it would not do it. Towards the end of last year, he eased his position.
"They are going to lose money in March and they did not think they would, and they could lose one in September." Said Munster. "Why they do not have [raised money] until there? They do not have as much money as they announced six months ago. "
Tesla needs money not only to survive, but also to finance his projects. He is currently building a factory in China for which he has raised $ 500 million (expected next March) from a syndicate of Chinese banks.
It has also just unveiled a new car, the Model Y, which should go into production next year. The unveiling of Model Y last month was in itself a sign of Tesla's hard times. Something was missing.
This was not the cars. There were a lot of cars. Every model that the company had already made or proposed to manufacture was presented to everyone; The Roadster, the S model, the X model, the model 3, the semi truck. This was not the hype, because Musk, in a pair of custom made Jordans, was full of it.
What was missing, it was the usual end of this business. You see, in Tesla-land, at the end of each unveiling, there is a moment "and one more thing" where the company sends a last wow to the faithful, taking another trick from his sleeve. But there was nothing this time and Wall Street sent the stock down 4% the next day.
The market did not seem impressed anymore.
Do you have a story to share about working for Tesla or interacting with her? Contact Linette Lopez of Business Insider at [email protected].
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