Tesla faces a reckoning with CEO Elon Musk's job in jeopardy

Media playback is unsupported on your device                  Media captionTesla's Elon Musk'mislead investors SEC alleges
Media playback is unsupported on your device Media captionTesla's Elon Musk'mislead investors SEC alleges

30 September, 2018

Tesla investors ran for the hills on Friday after the Securities and Exchange Commission accused Musk of misleading investors with an August tweet declaring he had "funding secured" for a $420 a share take-private deal.

A successful prosecution by the Securities and Exchange Commission (SEC) could see Mr Musk being barred from holding an executive role within the company as well as fined.

Shares fell 13.9 percent to $264.77, wiping about $7 billion off Tesla's market value.

Musk has at least two other ongoing lawsuits; one filed by a British cave diver he called a "pedo" and another by various shareholders who claim that the above-mentioned Tweet was a method of defrauding investors.

The SEC complaint also alleges that "Musk did not discuss a $420 price per share with any potential funding source for a Tesla going-private transaction" prior to emailing the board about his proposal on August 2.

Musk tweeted the information to his 22 million followers without discussing it with Nasdaq, the index on which Tesla stock is traded.

"People buy Teslas because of Elon Musk", the investor said. On Friday, he tapped Chris Clark, a USA attorney who successfully defended Mark Cuban from insider-trading charges, to head up his defense. Tesla shares are trading at $US269 a share - a full 11% below the Street's pre-lawsuit average price target of $US305.

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Musk has "gone from looking like the visionary genius to looking like the out-of-control guy who probably is on the borderline of a breakdown", said Erik Gordon, a professor at the University of Michigan Ross School of Business. Based on the leak, it seems the program will be running throughout the next year or so; it's unclear when Tesla plans to enable the fully autonomous capability.

"This unjustified action by the SEC leaves me deeply saddened and disappointed", Musk said in a statement provided to The Drive.

Musk has driven the company to the verge of profitability with a costly ramp-up of production of its Model 3 sedan over the past year. Musk has blamed short-sellers, investors betting on a collapse in a company's share price, for Tesla's woes. One prominent Silicon Valley investor, who spoke on condition of anonymity to offer his candid assessment of the company, said Tesla faced a "total vacuum" of capability and confidence if Musk was kicked out.

The company has projected profitability under generally accepted accounting principles in the second half of 2018, but some analysts think it will have to raise cash in coming months.

Musk clearly thinks Tesla can not run without him. "The problem for investors is that an investment in Tesla is an investment in Elon Musk", he said.

Jeffrey Osborne, an analyst at brokerage Cowen, said investing in Tesla equity and bonds over the past few weeks had been "a game of choose your own adventure".

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