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Elon’s Carelessness Bites Tesla (Again)

Tonight, the SEC asked a judge to hold Elon Musk in contempt for tweeting that Tesla would produce 500k cars in 2019. The message was not approved by the company beforehand, which is one of the conditions from Musk’s settlement with the SEC in October. Musk later corrected the tweet to say the company will probably reach a 500k production rate. It’s unclear what the potential penalty would involve if Musk is held in contempt.

Musk’s behavior remains careless. In this case, the tweet wasn’t as careless as the disrespect for the process he agreed to in the October settlement. He should expect to be under an unforgiving microscope not only because of his prior settlement with the SEC, but also because he publicly stated he didn’t respect the organization after the settlement. While this tweet (after market hours) and the quick correction seem innocuous, the SEC isn’t likely to cut Musk any slack. When you make things personal, it’s not just personal for you.

Given the stock is down ~5% in the after hours, it seems investors still view Musk as a net positive as part of the company, although we expect the debate of whether Tesla is better off without Musk will return. We still view Musk as a net positive for the company given four key constituencies:

  • Investors: net negative for the overall story given volatility incurred by his actions.
  • Product: net positive for product vision and pace setting for production.
  • Customers: net positive for his focus on pace of innovation and delivering great customer experiences.
  • Employees: net neutral – positive among rank and file, negative for recruiting and maintaining senior management.

This new SEC situation reminds us of a note we wrote last October about how Elon’s need to win every battle might cost him the war, and when strengths in excess become weaknesses. A healthy disregard for the rules is what makes Elon, Elon. It lets you start an electric vehicle company when no one believes it can be done. When you’ve “made it,” rules become more important. Musk’s unwillingness to follow the rules is part of what you have to be willing to accept as an investor in Tesla.

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