Tesla CEO Elon Musk is reviewing his dubious remarks to Wall Street analysts, this time involving the state of his company’s vehicle production.
At a Jan. 27 conference call to discuss Tesla earnings in the fourth quarter, Musk said the company is producing new versions of its older models, the S sedan and the big X SUV. He added that a version ” Plaid ”high-performance electric model S will be available in February.
In fact, Tesla did not produce either of the two models during the quarter, according to the delivery and production figures that the company released at the end of last week. Instead, all of the approximately 180,000 vehicles Tesla made from January to March belonged to its other models, the 3 small sedans and the small Y SUV.
Experts say the difference between Musk’s statement to analysts and figures that the production posed no risks, drawing the attention of Musk’s longtime enemy, the Securities and Exchange Commission. For years, the agency has been confronting Musk about his dubious statements on Twitter that affected the price of Tesla shares.
“I think he might have problems with the SEC,” said Anthony Sabino, a lawyer and law professor at St. Paul University. John’s. “It simply came to our notice then. They are quite unequivocal. ”
John C. Coffee Jr., a professor at Columbia University who is a leading authority on securities law and corporate governance, said Musk’s statement sounded like a statement of fact and not just a projection of Tesla’s future production. If the SEC agrees, Coffee said, it could initiate an investigation.
At the same time, Coffee noted, Tesla could argue that Musk’s statement was only a prediction and not a statement of fact, and that something later happened to change that prediction. If regulators agree, Musk’s statement would be protected by Tesla’s standard liability statements regarding the uncertainty of forward-looking statements, Coffee said.
The SEC declined to comment. The messages left for Tesla, which disbanded its press office, went unanswered.
This is not the first time Musk has raised questions with a statement about the production of Tesla vehicles. In 2017, the SEC investigated statements it made about Tesla’s production of the Model 3 at its plant in Fremont, California. The agency closed the investigation in 2019 without taking action, according to Tesla’s annual financial report for 2020. The Justice Department also requested information on production. The status of his investigation is unknown.
“To our knowledge,” the Tesla report said, “no government agency in any ongoing investigation has concluded that any wrongdoing has taken place.”
In 2018, the SEC accused Musk of securities fraud for statements he made on Twitter saying he had the funding he needed to take Tesla private – a statement that raised the price of Tesla shares. In fact, Musk did not have the money insured. The issue has been resolved, with Musk and Tesla agreeing to pay a $ 20 million fine and hire someone to review Musk’s tweets before they are sent.
Musk made no secret of his contempt for the SEC. Distorting the meaning of the agency’s acronym, he called the SEC “the commission to enrich short sellers” – short sellers bet that the share price would fall – and said in a television interview that he did not respect the commission.
There is no doubt that Musk told the conference that Tesla produces the S and X models.
“We are very pleased to announce that the new Model S and Model X Plaid are now in production and will be delivered in February,” Musk said in the call. “So, we managed to present Plaid Model S and X – Model S will be delivered in February and Model X a little later. Model S Plaid, we are actually in production now and we will deliver next month. ”
Even if Musk’s claim is protected by waivers of production estimates, legal experts say he expects the SEC to at least examine the issue and probably open an investigation.
“Sometimes the strength of the personality of certain corporate leaders and the potential impact of market statements raise the spectrum of regulatory control,” said Jacob Frenkel, a former SEC attorney and former federal prosecutor who practices with Washington’s Dickinson Wright.
Frenkel said it depends a lot on whether the SEC considers Musk’s statements to be “material” – meaning something a reasonable investor would consider important in deciding whether to trade a company’s shares.
“Production disclosures could be considered significant,” Frenkel said.
Frenkel also said the SEC is under new leadership with the election of President Joe Biden and may “have a different view of responsibility” than it did under the Trump administration.
As it happened, Musk’s statement did not benefit Tesla’s stock. The share price fell by 3% the day after the conference. Since then, it has fallen by more than 20% as brilliance has depleted stocks of electric and technology vehicles. However, by 2020, Tesla shares have grown by more than 700%.
Before the company announced its number last week, analysts expected Tesla to deliver about 13,000 S and X models in the first quarter.
At the January 27 conference call, Tesla chief financial officer Zachary Kirkhorn echoed Musk, saying the company was producing S and X models, although Kirkhorn warned that production would be reduced due to the transition to new versions.
Kirkhorn added that the company was trying to manage a global semiconductor shortage – a shortage that affected the entire car industry, forcing many carmakers to cut production. Some analysts have attributed the production of Tesla zero S and X to the chip deficit.
“I doubt they would follow him if there was a legitimate problem or a problem,” Coffee said.
But Frenkel said Tesla’s statements of responsibility might not help.
“A false statement or omission cannot be rejected to reveal a material fact,” Frenkel said. “Otherwise, it would not give credibility to corporate disclosures.”