Elon Musk - Giving Up the Tesla Driver’s
Seat (September 2018)
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Follow-up to AIM FINA 4310 Class Discussion of Elon Musk’s Twitter Problem
What's going on here?
What an expensive tweet! On
Saturday, 9/29/18, Tesla’s CEO Elon Musk agreed to pay $20 million to US
regulators and step down as chairman of the company after being sued for fraud.
What does this mean?
In August, Musk tweeted that he’d
secured funding to take Tesla private at $420 a share – cueing regulators to
begin looking into the company and its CEO, as they thought investors may have
been manipulated and misled.
Since Musk hadn’t discussed (let alone confirmed)
a deal with potential buyers, his tweet was more fiction than fact (as chairman
and CEO, he has to ensure his public statements are indeed factual). On Friday,
Musk was hit with a lawsuit – and Tesla’s stock fell by 14%. A day later, he
agreed to a settlement. In addition to Musk’s personal fine, Tesla will have to
pay a $20 million fine, too.
Why should an undergraduate finance
student care?
The bigger picture: Many more hands
on the wheel. Some investors wanted to
split the roles of chairman and CEO into two jobs – sometimes-irreverent Musk
held both at Tesla – hoping to improve transparency and governance at the
company. But in a June vote, most shareholders backed Grimes’ boyfriend
continuing in his dual role.
Now, as part of the agreement with regulators,
Musk will be relinquishing his chairman duties post haste (he’ll still be CEO)
and Tesla will add two new independent directors to its board. Regulators
likely hope that the fresh faces will help the company make better decisions
for its shareholders.
For markets: Why are investors putting the
brakes on?
It’s been a tough ride for
investors buckled into Tesla’s stock – it’s fallen 17% this year, while US tech
stocks have risen overall.
Earlier in the year, Tesla’s car production was
slower than expected (machine automation problems were to blame), and some
investors worried the carmaker might go bankrupt altogether – it was reportedly
asking its suppliers for partial refunds to help it achieve its profit goals.
We are studying legal and regulatory issues this semester - and attempting to make the curriculum as realistic as possible. Elon Musk's 'going private' tweets gave us an opportunity to study various SEC disclosure issues.
