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Tesla and Elon Musk have had a horror week – it can get worse quickly

Elon MuskElon Musk.Brendan McDermid / Reuters

Elon Musk strokes quickly and without blinking left or right past the journalist. He is accompanied by his guards and three lawyers. It is Thursday in Manhattan, New York. And the Tesla boss has a court date.

The US Securities and Exchange Commission also appears with three lawyers in front of Judge Alison Nathan. Not only court reporters are there, but also spectators and short sellers who want to know if the frivolous statements of Musk on Twitter will have consequences.

The SEC has instructed Musk to stop making major announcements about its e-car business on Twitter without the approval of a court-appointed lawyer. In August 2018, Musk caused havoc in the company when he wrote that "financing was secured" to remove the company from the stock market. He later reached an agreement with the SEC, who had described his tweets as "false and misleading."

The SEC accused Musk of violating the February agreement when he wrote on Twitter that Tesla would produce 500,000 cars in 2019.

That will not happen.

We know that because the e-car company has now lowered the forecast down (up to 400,000) and because Tesla is still struggling with another major problem – the company is not selling enough cars.

Judge to Musk: "Put on the pants of reason"

When Musk was in court on Thursday, the Tesla shares lost nine percent. Wednesday evening – after Tesla had spent two days of rumgedruckst – the company released its delivery figures for the first quarter. They were worse than most analysts feared. Tesla delivered only 63,000 cars in this period, 31 percent less than in the previous quarter. What doesn't make things any better: Tesla suffered the most from the most lucrative cars, Model S and Model X, where sales were halved.

So Elon Musk can be relieved, because this Thursday the judge postpones the decision whether he will be brought to justice. Musk & # 39; s lawyers are scheduled to meet the Securities and Exchange Commissioner in the next two weeks to reach a friendly settlement. "Put on the pants of reason," the judge says – otherwise she would determine Musk's fate.

Musk leaves the courtroom and is promptly carried away by a lavish statement: "I have a great deal of respect for Judge Nathan and am satisfied with her decision," he said in a statement. "The tweet in question was intended to be serious, not crucial for shareholders, and therefore not a violation of my agreement with the SEC." (Nathan did not claim it.)

He continues: "We have always believed that we can resolve any inconsistency directly with the SEC and not have to go straight to court. That is exactly what Judge Nathan has instructed today. & # 39;

In a week of setbacks, Musk should not be offended if he wants to claim something like a win. None of the problems of Musk and Tesla – legal or financial – have been solved in any way. And even long-term investors are starting to worry.

"Yes, I own shares. It's not my favorite position. But I think cars are still the best on the market," says Andrew Left from Citron Research, who has always defended Tesla.

"The company would be better off without Elon," says Links, adding, "This guy is a huge distraction. That drives me crazy. It comes from above."

"The communication is terrible," he says. "This guy is damn crazy."

The legal issues can get worse, and very soon. If the regulators and Musk & # 39; s lawyers disagree, Musk can be prosecuted for ignoring the court.

The financial problems can also get worse. In the coming weeks, Tesla will publish its statement for the first quarter to give investors a better picture of how the company is positioning itself financially.

There are also reports of a poor working climate in Tesla. According to a Bloomberg Friday report, Elon Musk allegedly verbally abused a former employee who had come to the Tesla site after his resignation to say goodbye to his former colleagues. "I want nuke you" (reportedly: I'll finish you off) would have called Musk the former employee. Tesla confirmed in a statement to Business Insider that such an incident had happened. There must be no "threat of violence".

asdfThe share price of Tesla 2019The share price of Tesla.Markets Insider

2019 should be a quiet year for Tesla, not like 2018, when Musk "put" the entire company on the success of Model 3 and Tesla was "in harmony" to deliver on the promise. In the third and fourth quarters it seemed that it was worth the effort. Tesla was profitable for the first time in two consecutive quarters.

But then it went downhill. Seven percent of the employees had to be fired. Sales of the more expensive versions of the Model 3 went down. The prices of cars were lowered and then increased again (there were even protests in China). There were also customs issues in China, which delayed the sale. There was Musk & # 39; s notorious tweet in February. And then Tesla's lawyer stopped in the company after just two months. Oh, and the SEC was right. Sound turbulent? That's it so far. One of the most loyal shareholders of Tesla recently said that Musk "does not have to be a CEO".

In short: Musks Image as director is battered.

Some investors also take it as Gene Munster from Loup Ventures. He still thinks that Tesla and Musk need each other, but at the same time he sees their relationship as a problem and an enrichment.

"It's a catch-22," he told Business Insider. "Elon Musk makes it harder than he should. As an investor, there are a few things you need. And one of them is the stability of a normal company."

While Musk is in court on Thursday, Tesla is submitting a letter appealing to Musk's support (Tesla itself was not sanctioned for Musk's tweet). The SEC lawyer says that Tesla & # 39; relies on Mr. for whatever reason. Musk & # 39 ;, what they consider as & # 39; a problem & # 39; see. She adds that the agency is still investigating whether Tesla has not fulfilled its obligations by allowing Musk & # 39; s tweets.

The Securities and Exchange Commission proposes to find a system to check and check the Musk tweets. She also suggests the amount of fines if Musk again disseminates incorrect information.

"The company urgently needs professional management," said Chester Spatt, a professor of finance at Carnegie Mellon University, who was a former chief economist at the SEC, talking to Business Insider. "Musk's lawyers must be really scared of him. You can't control him. I think there is every reason to believe that Musk and Tesla are fighting the SEC. & # 39;

Spatt adds: "I think the stock market regulator cares a lot by not dropping him. But in the end, Tesla has to live up to the agreements, there are no two ways."

Incidentally, the Securities and Exchange Commission and the US Department of Justice are still investigating whether Tesla and Musk have misinformed investors about the production of the model.

Tesla devours money

Model 3 has Tesla in its difficult financial position. Tesla began producing more expensive models of the car with a greater range, although the Model 3 was initially announced as an accessible Tesla car with an entry price of $ 35,000. Thousands of people gave the company a down payment to reserve a model.

But the $ 35,000 car does not yet exist. And the sale of the more expensive model decreased in the first quarter. It looks even worse with the luxury Tesla models. Analysts wonder if there really is such a big demand for Tesla's e-cars that the company can ultimately be profitable.

"We are reducing our predictions and prices for Tesla shares today from $ 215 to $ 200, with weak Q1 deliveries and weak S and X with higher selling prices," said JPMorgan analysts.

Like all car companies, it costs tons of money to run Tesla. $ 1.5 billion to $ 2 billion is needed to keep the lights on at the production sites. In March, the company paid loans for a total of $ 920 million, with more debts next year. This is one of the reasons why rating agency Moody & # 39; s warned that despite Tesla's success in 2018, "pressure on Tesla's credit profile" should not be ignored.

And this warning came before the Q1 releases were released. The company will announce revenues in the coming weeks – more bad news is putting more pressure on management to get a grip on their finances. Above all, it will lead to a well-known question: will Tesla collect money? So far, the company has often denied it, but it looks different.

"They will lose money and they thought they would not," says Munster, adding that the company could also lose money in the next quarter. He wonders why Tesla has not collected money before. "They don't have as much money as they claimed six months ago," he said.

Tesla needs money – not only to survive, but also to finance his plans. China is currently building a large factory for which it has raised $ 500 million (until next March) from a Chinese bank syndicate.

Elon Musk Model YMusk at the presentation of the Model Y.Jae C. Hong / AP

The company also recently unveiled a new car, the Model Y, for which production will begin next year. The presentation of Model Y was an indication that Tesla was sailing through stormy waters.

Something was missing. It wasn't the cars & # 39; s. There were many cars. Every model of the company was on display – Roadster, Model S, Model X, Model 3, Semi-Truck. It was not the hype. Musk aimed for a hype in his custom-made Jordan shoes.

The grand finale was missing. At Tesla there is always an "oh yes, and one more thing" moment when the company presents a hopeful final wow. But that didn't exist. And Wall Street sent the stock down four percent the next day.

The market is no longer impressed.

Update: An earlier version of this article incorrectly refers to $ 920 billion. The error has been corrected.


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