Tesla CEO Elon Musk is under scrutiny again for questionable comments he has made to Wall Street analysts, this time regarding the status of his company’s vehicle production.
In a Jan. 27 conference call to discuss Tesla’s fourth-quarter earnings, Musk said the company was producing new versions of its oldest models, the S sedan and X large SUV. He added that a high-performance “Plaid” version of the electric S will be available in February.
In reality, Tesla did not produce either model during the quarter, according to delivery and production figures the company released late last week. Instead, all of the roughly 180,000 vehicles Tesla made from January to March were from its other models, the 3 small sedan and the Y small SUV.
Experts say the difference between Musk’s statement to analysts and the numbers showing there was no production risk caught the attention of Musk’s longtime nemesis, the Securities and Exchange Commission. For years, the agency grappled with Musk over questionable statements he made on Twitter that affected Tesla’s stock price.
“I think he might get himself in trouble with the SEC,” said Anthony Sabino, attorney and law professor at St. John’s University. “These are fairly direct statements. They are fairly straightforward. “
John C. Coffee Jr., a professor at Columbia University who is a leading authority in securities law and corporate governance, said Musk’s claim sounded like a statement of fact and not just a projection of Tesla’s future production. If the SEC agrees, Coffee said, it could open an investigation.
At the same time, Coffee noted, Tesla could argue that Musk’s statement was just a prediction and not a statement of fact, and that something happened later that changed that prediction. If regulators agree, Musk’s statement would be protected by Tesla’s standard disclaimers about the uncertainty of forward-looking statements, Coffee said.
The SEC declined to comment. Messages left for Tesla, which has shut down its news agency, went unanswered.
This isn’t the first time Musk has questioned with a claim about Tesla’s vehicle production. In 2017, the SEC investigated statements he made regarding Tesla’s production of the Model 3 at its Fremont, California plant. The agency closed the investigation in 2019 without taking action, according to Tesla’s annual financial report for 2020. The Justice Department also asked for production data. The status of his investigation is unknown.
“To our knowledge,” said the Tesla report, “no government agency has concluded in an ongoing investigation that anything has gone wrong.”
In 2018, the SEC accused Musk of securities fraud over statements he made on Twitter saying he had the funding he needed to take Tesla private – an allegation that boosted Tesla’s stock price. In fact, Musk had not secured the money. The case was resolved, with Musk and Tesla each agreeing to pay a $ 20 million fine and hire someone to view Musk’s tweets before sending them.
Musk has made no secret of his disdain for the SEC. He twisted the meaning of the agency’s acronym, calling the SEC the “short seller enrichment committee” – short sellers bet a stock price will fall – and said in a televised interview that he does not respect the committee.
There is no doubt that during the conference call, Musk stated that Tesla produced the S and X models.
“We are super excited to announce that the new Model S and Model X Plaid are now in production and will be delivered in February,” Musk said on the call. “So we were able to bring up the Plaid Model S and X – Model S will be delivered in February and Model X a little later. The Model S Plaid, we are actually in production now, and we will deliver next month. “
Even if Musk’s claim is protected by disclaimers about production estimates, legal experts say they expect the SEC to at least investigate the matter and perhaps open an investigation.
“Sometimes the strength of the personality of certain business leaders and the potential market impact of their statements evokes the specter of regulatory oversight,” said Jacob Frenkel, a former SEC enforcement attorney and ex-federal prosecutor who works with the firm of Dickinson Wright. Washington.
Frenkel said much depends on whether the SEC considers Musk’s statements to be “ material ” – that is, something that a reasonable investor would consider important when deciding whether or not to trade a company’s stock.
“Production statements can be considered material,” said Frenkel.
Also, Frenkel noted, the SEC is under new leadership with the election of President Joe Biden and may have “a different view of accountability” than it did under the Trump administration.
Coincidentally, Musk’s claim did not benefit Tesla’s stock. The stock price fell 3% the day after the conference call. Since then, it has fallen by more than 20% as the shine of technology and electric vehicle stocks has worn off. However, for all of 2020, Tesla’s stock is up more than 700%.
Before the company released its figures last week, analysts had expected Tesla to ship approximately 13,000 S and X models in the first quarter.
On the Jan. 27 conference call, Tesla’s Chief Financial Officer, Zachary Kirkhorn, reiterated Musk saying the company was producing S and X models, although Kirkhorn warned that output would be low due to the transition to new versions.
Kirkhorn added that the company was trying to contain a global shortage of semiconductors – a shortage that has plagued the entire auto industry and forced many automakers to cut production. Some analysts have attributed Tesla’s zero S and X production to the chip shortage.
“I doubt they would chase him if there was a legitimate outage or problem,” said Coffee.
But Frenkel said Tesla’s disclaimers may not help.
“One cannot take away a false statement or failure to disclose a material fact,” said Frenkel. “Otherwise, it wouldn’t make the company disclosures credible.”