Tesla's Musk Settles SEC Fraud Charge, Remains CEO
We think the settlement is wise, but Musk is better in a role other than CEO.
As discussed in our Sept. 27 note, the SEC has charged
We think Musk was wise to settle this complaint. The penalties are not severe, in our view, and it puts one legal matter behind the company. The U.S. Department of Justice still has a criminal probe regarding Musk’s Aug. 7 “funding secured” tweet about taking Tesla private. Tesla’s stock fell 13.9% on Sept. 28 as a result of the complaint, which could have resulted in Musk receiving a lifetime ban on being a director or officer of a public company, something Tesla probably cannot afford, in our opinion.
We think Musk is effectively Tesla, and without him, Tesla is just an automaker burning too much cash and holding too much debt. In our view, the company needs Musk in order to remain able to raise capital to fund building many more Gigafactories over time, along with development of new vehicles such as the Model Y crossover, pickup truck, Semi, and a $25,000 vehicle. However, given more than one debacle on Twitter, taking a puff of marijuana on a podcast, and a New York Times interview where Musk sounded very worn out, we think his skills would best serve the company in a creative role around design and product development, rather than as CEO. The problem for Tesla, in our opinion, is finding someone who will be willing to take on the CEO role while effectively working with Musk, who is a known nano-manager and owns about 20% of the company.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.