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Tesla CEO Elon Musk is once again drawing scrutiny for questionable comments he made to Wall Street analysts, this time involving the status of his company\u2019s vehicle production.<\/p>\n
On a Jan. 27 conference call to discuss Tesla\u2019s fourth-quarter earnings, Musk stated that the company was producing new versions of its oldest models, the S sedan and X large SUV. He added that a \u201cPlaid\u201d high-performance version of the electric S would be available in February.<\/p>\n
In reality, Tesla produced none of either model during the quarter, according to delivery and production figures that the company released late last week. Instead, all the roughly 180,000 vehicles that Tesla made from January through March were of its other models, the 3 small sedan and the Y small SUV.<\/p>\n
Experts say the disparity between Musk\u2019s statement to analysts and the figures that showed zero production risks drawing the attention of Musk\u2019s longtime nemesis, the Securities and Exchange Commission. For years, the agency has grappled with Musk over questionable statements he has made on Twitter that affected Tesla\u2019s share price.<\/p>\n
\u201cI think he might have himself into a bit of trouble with the SEC,\u201d said Anthony Sabino, an attorney and law professor at St. John\u2019s University. \u201cThese are fairly direct statements. They are fairly unequivocal.\u201d<\/p>\n
John C. Coffee Jr., a Columbia University professor who is a leading authority on securities law and corporate governance, said Musk\u2019s assertion sounded like a statement of fact and not merely a projection of Tesla\u2019s future production. If the SEC agrees, Coffee said, it could initiate an inquiry.<\/p>\n
At the same time, Coffee noted, Tesla could argue that Musk\u2019s statement was only a prediction and not a declaration of fact, and that something later happened to alter that prediction. If regulators agree, Musk\u2019s statement would be protected by Tesla\u2019s standard disclaimers about the uncertainty of forward-looking statements, Coffee said.<\/p>\n
The SEC declined to comment. Messages left for Tesla, which has disbanded its press office, went unanswered.<\/p>\n
This is hardly the first time Musk has raised questions with a claim about Tesla\u2019s vehicle production. In 2017, the SEC investigated statements he had made about Tesla\u2019s production of the Model 3 at its factory in Fremont, California. The agency closed the inquiry in 2019 without taking action, according to Tesla\u2019s 2020 annual financial report. The Justice Department also asked for production information. The status of its inquiry is unknown.<\/p>\n
\u201cTo our knowledge,\u201d Tesla\u2019s report said, \u201cno government agency in any ongoing investigation has concluded that any wrongdoing occurred.\u201d<\/p>\n
In 2018, the SEC charged Musk with securities fraud for statements he had made on Twitter saying that he had the funding he needed to take Tesla private \u2014 a contention that drove up Tesla\u2019s share price. In fact, Musk did not have the money secured. The matter was settled, with Musk and Tesla each agreeing to pay a $20 million fine and to hire someone to review Musk\u2019s tweets before they are sent.<\/p>\n
Musk has made no secret of his disdain for the SEC. Distorting the meaning of the agency\u2019s acronym, he has branded the SEC the \u201cshortseller enrichment commission\u201d \u2014 short sellers bet that a stock price will fall \u2014 and said in a television interview that he doesn\u2019t respect the commission.<\/p>\n
There is no doubt that Musk stated on the conference call that Tesla was producing the Models S and X.<\/p>\n
\u201cWe\u2019re super excited to announce the new Model S and Model X Plaid are in production now and will be delivered in February,\u201d Musk said on the call. \u201cSo we have been able to bring forward the Plaid Model S and X \u2013 Model S will be delivered in February and Model X a little later. The Model S Plaid, we\u2019re actually in production now, and we\u2019ll be delivering next month.\u201d<\/p>\n
Even if Musk\u2019s assertion is protected by disclaimers about production estimates, legal experts say they expect the SEC to at least look into the matter and perhaps open an investigation.<\/p>\n
\u201cSometimes the force of personality of certain corporate leaders and the potential market impact of their statements raises the specter of regulatory scrutiny,\u201d said Jacob Frenkel, a former SEC enforcement attorney and ex-federal prosecutor who practices with the firm Dickinson Wright in Washington.<\/p>\n
Frenkel said much hinges on whether the SEC finds Musk\u2019s statements to be \u201cmaterial\u201d \u2014 that is, something a reasonable investor would find important in deciding whether to trade a company\u2019s shares.<\/p>\n
\u201cProduction disclosures could be considered material,\u201d Frenkel said.<\/p>\n
Also, Frenkel noted, the SEC is under new leadership with the election of President Joe Biden and may \u201chave a different view of accountability\u201d than it did under the Trump administration.<\/p>\n
As it happened, Musk\u2019s assertion didn\u2019t benefit Tesla\u2019s stock. The share price fell 3% the day after the conference call. Since then, it is down more than 20% as the shine has worn off tech and electric vehicle stocks. For all of 2020, though, Tesla shares soared more than 700%.<\/p>\n
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Before the company announced its numbers last week, analysts had expected Tesla to deliver about 13,000 S and X models in the first quarter.<\/p>\n
On the Jan. 27 conference call, Tesla\u2019s chief financial officer, Zachary Kirkhorn, echoed Musk, saying the company was producing S and X models, though Kirkhorn cautioned that the output would be low because of the transition to new versions.<\/p>\n
Kirkhorn added that the company was trying to manage a global shortage of semiconductors \u2014 a shortage that has bedeviled the entire auto industry, forcing many automakers to cut production. Some analysts have attributed Tesla\u2019s zero S and X production to the chip shortage.<\/p>\n
\u201cI doubt they would pursue him if there was a legitimate glitch or problem,\u201d Coffee said.<\/p>\n
But Frenkel said Tesla\u2019s disclaimers might not help.<\/p>\n
\u201cOne cannot disclaim away a false statement or omission to disclose a material fact,\u201d Frenkel said. \u201cOtherwise, it would give no credibility to corporate disclosures.\u201d<\/p>\n