Tesla CEO Elon Musk lost $1.1 billion from his net worth yesterday morning (April 4) amid his court showdown with the Securities and Exchange Commission. In the first few minutes of trading, Tesla stock cratered as much as 11% before staging a tepid recovery by day’s end.
Tesla (TSLA) closed on April 4 at $267.78 — down 8.2% on unusually heavy trading volume of 23.7 million shares. Average daily volume is 8.6 million shares.
This massive spike in trading activity suggests there was a major sell-off amid Musk’s ugly ongoing feud with the SEC over his Twitter usage.
That said, Musk’s net worth still tops $20 billion, so one bad trading day is neither here-for-there for the South African business mogul.
TESLA ROILED BY SEC FEUD AND DELIVERY SHORTFALLS
Another factor that is hurting Tesla is the electric-car maker’s record drop in deliveries during the first quarter.
Tesla delivered 63,000 vehicles in the first quarter ended March 31 — down 31% from 90,966 in the fourth quarter of 2018.
MUSK: SEC AND I CAN SETTLE OUR DIFFERENCES
All this is obviously bad news for Elon Musk, who has been pummeled by an unending stream of negative press reports and investor backlash, including several shareholder lawsuits.
However, one silver lining to yesterday’s court showdown was that federal judge Alison Nathan did not find that Musk was in contempt of a September 2018 SEC consent order.In fact, Judge Nathan did not even rule on the motion. Rather, she ordered the SEC and Musk to “take a deep breath, put on your reasonableness pants” and settle their differences out of court.
ELON MUSK: THE JUDGE AGREED WITH ME
When Musk left the Manhattan courthouse yesterday, he smiled and praised Judge Nathan (see video below).
Musk also expressed optimism that he and the SEC will sort out their differences over the next two weeks.
The settlement will probably result in Musk paying another huge fine, but won’t lead to his removal as Tesla CEO or from its board of directors.
BREAKING: Judge orders SEC and Elon Musk to confer over next 2 weeks to try to settle issue and doesn't rule on contempt. Elon Musk told CNBC they will "most likely" work it out as he left court.https://t.co/KyFWIUIAI2 pic.twitter.com/VPRQ7eUIfq
— CNBC Now (@CNBCnow) April 4, 2019
Musk later issued a statement, where he suggested that the judge agreed with him that he did not violate the SEC consent order. Under the consent decree, Musk agreed to get approval from Tesla’s board before tweeting anything that could impact TSLA’s stock price.“I have great respect for Judge Nathan, and I’m pleased with her decision today. The tweet in question was true, immaterial to shareholders, and in no way a violation of my agreement with the SEC.”
“We have always felt that we should be able to work through any disagreements directly with the SEC, rather than prematurely rushing to court. Today, that is exactly what Judge Nathan instructed.”
MUSK: SEC IS BEING UNREASONABLE AND IDIOTIC
Meanwhile, Musk remains defiant in his insistence that the SEC is being unreasonable and overreaching. In a March court filing, Musk torched the agency, saying its contempt filing “is wrong at virtually every level.”
At the time, Musk said he understands that he needs to exercise caution before posting anything on Twitter. However, he says the SEC’s “overbroad interpretation” would restrict his free-speech rights.
Moreover, Musk underscored that his use of Twitter is an important part of Tesla’s marketing and consumer-outreach efforts.
'Wrong at Virtually Every Level': Elon Musk Torches 'Radical' SEC for Twitter Gag Attempt https://t.co/qBTAvBkrgK
— CCN.com (@CCNMarkets) March 24, 2019
On April 5, Musk was back on Twitter and apparently in a good mood. “Stay positive,” he cooed.
Stay positive 🧁 pic.twitter.com/UJFreuacNP
— Elon Musk (@elonmusk) April 5, 2019
Elon Musk is 100% Right. 3 Reasons Tesla Must Go Private…Or it’s Doomed
Wednesday’s earnings report was a bust for Tesla. The company reported a huge loss of $702 million and missed revenue expectations.
In the conference call that followed, forlorn Tesla boss Elon Musk mused about taking Tesla private again:
“I would prefer we were private, but unfortunately I think the ship, that ship, has sailed.”
Elon Musk desperately wants to pull Tesla off the stock market and return it to private investors. And he’s right. Going private is exactly what Tesla needs right now to avoid a death spiral.
“TAKING TESLA PRIVATE… FUNDING SECURED”
Musk first hinted about his ambition to take Tesla private in August 2018. In a now infamous tweet, he said “Am thinking about taking Tesla private at $420. Funding secured.”
Am considering taking Tesla private at $420. Funding secured.
— Elon Musk (@elonmusk) August 7, 2018
The tweet landed him in hot water with the Securities and Exchange Commission (SEC). The Commission accused Musk of fraud, claiming the “funding secured” tweet was “false and misleading.”
3 REASONS TESLA SHOULD BE A PRIVATE COMPANY
Although Musk is resigned to keeping Tesla public, it’s the wrong decision for three reasons:
- Tesla is forced to perform to an arbitrary quarterly earnings cycle rather than focusing on long-term ambition.
- Tesla is open to short-sellers which ravage Tesla and its stock (and Musk can’t stop baiting them).
- Tesla still operates like a startup. It needs time to experiment and mature.
Let’s go through them one at a time.
1. TESLA SHOULD FOCUS LONG-TERM, NOT QUARTERLY REPORTS
Being public means delivering knock-out performances every single quarter. But a company like Tesla should be looking five years in the future.
Listening to Wednesday’s earnings call, you could sense this conflict in Musk’s delivery:
“If we were to fully optimize for profitability in Q2, I think we could do it, but then we would be unable to unwind this crazy wave of deliveries.”
Rather than focusing on Tesla’s long-term strategy, Musk is being forced to think about how to appease investors in the next three months.
Stock price is noise generated by commercial investors scratching their heads because they don't get what he's trying to do. Main reason Tesla should've been private, but here we are. It's not just about profits, although they are of course essential.
— Mark B (@voytechs) April 25, 2019
Going private would allow Tesla to ditch the quarterly pressures and get back its ambitious roots. Elon Musk himself admitted:
“Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term.”
2. SHORT-SELLERS RAVAGE TESLA ON PUBLIC MARKETS
Tesla is notoriously one of the most shorted stocks on the market. There is an entire community on Twitter dedicated to betting against Tesla, known as $TESLAQ.
The sheer volume of shorts means there’s an incentive to find and spread negative angles on Tesla for financial gain. As one analyst explains:
“[Short sellers] puts downward pressure on the stock, and that’s not good, when your daily report card is the stock price.”
Elon Musk’s war with #Tesla's short sellers just got weirder as shorts rise again. The electric carmaker claims a California man who it says is part of an online group of short sellers has been stalking its Fremont factory and harassing its employees. https://t.co/s9YMZBU1QN pic.twitter.com/vhp95qOHSh
— Holger Zschaepitz (@Schuldensuehner) April 22, 2019
More importantly, Elon Musk gets massively distracted by short-sellers. He constantly baits them and interacts with them.
The constant obsession with short-sellers and stock price volatility is pulling Elon Musk’s attention in all the wrong directions.
Oh and uh short burn of the century comin soon. Flamethrowers should arrive just in time.
— Elon Musk (@elonmusk) May 4, 2018
3. TESLA STILL OPERATES LIKE A STARTUP
Companies typically go public when they are sufficiently grown, stable, and somewhat predictable.
While Tesla is a large, well-capitalized company, it still operates like a startup. Its forecasts are volatile and unpredictable. Tesla constantly shifts focus and explores new directions in a mission to define the future of driving.
Going public means there’s less freedom to experiment which is Tesla’s modus operandi.
Ultimately, Tesla should go private while it hones and defines the company. And as Elon Musk said, the company could return to the public markets at a later date:
“In the future, once Tesla enters a phase of slower, more predictable growth, it will likely make sense to return to the public markets.”
Wall Street Bashes Elon Musk’s ‘Twilight Zone Act’ in Tesla’s Meltdown
By CCN: Everyone is running out of patience with Elon Musk and his antics as the CEO of Tesla. Following the company’s spectacularly disappointing earnings report, Goldman Sachs and Wedbush downgraded Tesla’s stock on Thursday.
The downgrades weren’t a surprise given the dismal numbers Tesla reported. However, the scathing lashing given out by the Wedbush analyst did take some aback.
THE RESEARCH NOTE THAT COULD MAKE HISTORY
Clearly frustrated with Musk, Wedbush analyst Daniel Ives’ note to investors was part venting, mostly true, and should be a scream to Musk to get it together.
“In our 20 years of covering tech stocks on the Street we view this quarter as one of top debacles we have ever seen while Musk & Co. in an episode out of the Twilight Zone act as if demand and profitability will magically return to the Tesla story.”
The analyst went on to describe a “demand story at Tesla” that is evolving. Unfortunately, the company has not been able to adjust.
“We no longer can look investors in the eye and recommend buying this stock at current levels until Tesla starts to take its medicine and focus on reality around demand issues which is the core focus of investors.”
With that said, the firm lowered its rating to neutral from outperform. It smashed the price target to $275 from $365. While it had been comfortable with its price targets, this last quarter was too much.
TESLA’S FUNNY MATH
Goldman Sachs cut its price target to $200 from $210. It maintained its sell rating.
In its note, Goldman Sachs analyst David Tamberrino raised concerns about the Tesla’s guidance numbers.
“Ultimately, we believe the company’s ‘if we build it, they will come’ mantra likely requires incremental incentives (or some form of this) in order to entice incremental sales – which also will weigh on gross margins.”
WORST QUARTER EVER
Tesla reported a loss of $702 million in the quarter. Its loss per share was $2.90, which was far more than the $0.69 analysts had expected.
QuadrigaCX CEO’s Was Afraid of Being Kidnapped, May Have Set Up ‘Dead Mans Switch’
QuadrigaCX CEO Apparently Feated For His Life Former Colleague Says
The QuadrigaCX controversy seems not to have an end. This time, a former colleague and friends, said that the CEO of the platform, Gerald Cotten, feared for his life due to the large number of funds he exclusively controlled. The information was released by Global News on April 19.
QuadrigaCX CEO Feared For His Life
As per the colleague, Cotten mused to him about being kidnapped due to the large fortune controlled. Adam O’Brien explained that it was difficult to know how seriously Cotten’s references were. O’Brien is the owner of a cryptocurrency business.
On the matter, O’Brien commented:
“Gerry was holding, we know, over $100 million, almost $200 million dollars in funds. That makes people do some pretty crazy things. And I think Gerry was aware of that, and I think he was kind of worried that something might happen.”
At the moment, the funds that people held in the QuadrigaCX exchange are locked and cannot be recovered. Mr. Cotten, who passed away back in December 2018, was the only person that knew the private keys of the wallets where the funds were stored.
O’Brien mentioned that he was shocked about Cotten’s death and that he doesn’t believe in conspiracy theories that suggest that Mr. Cotten faked his death. At the same time, he mentioned that he does not believe that customers will recover their funds.
As O’Brien explains, it will be good for Bitcoin and the industry to have one leg up in a dead man’s switch. A dead man’s switch would allow the funds to be moved to another address if the users do not enter their wallets for a specified amount of time. At the same time, the switch activates by itself and it sends the encryption codes to someone that the user designates before.
At the moment, there is an ongoing investigation related to the funds lost by QuadrigaCX. Nonetheless, there is no information about the funds lost.