After a promising Q1 report despite a global pandemic, Elon Musk may have shot himself in the foot. Again.
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Bizarre Musk Tweets Hit Stock Price, May Draw SEC Ire Again
In the immortal words of Jay-Z, it was all good just a week ago.
Despite the global pandemic that's currently hammering just about every car company, Tesla managed to squeeze out a surprise $16 million profit for Q1 (on the back of regulatory credit sales, but hey, rules are rules) and posted a record number of cars both produced and delivered in a first quarter. All things considered right now, last week's Q1 earnings call was great news for Tesla.
Then CEO Elon Musk drew headlines for all the wrong reasons by railing against "fascism" as it (in his mind) relates to the ongoing stay-at-home orders over the virus. And then Musk went and made things even worse by tweeting, which you should never do:
Now, as amusing as the usual Muskian tweetstorm is, that last one may land him in some hot water, because it worked. Tesla's stock price did indeed fall 10 percent that day, as Bloomberg reported, and Musk confirmed that his tweets were not vetted by the lawyers or Tesla's board or anyone before he posted them.
All of this is uncomfortably reminiscent of Musk's 2018 debacle where he tweeted he had "funding secured" to take Tesla private, which led to both Musk and Tesla paying a $20 million securities-fraud settlement to the U.S. Securities and Exchange Commission and a shareholder class-action lawsuit. That agreement also said Musk is supposed to get approval before he fires off such missives, so that in the future his offbeat ramblings about anime catgirls or whatever don't grease or tank Tesla's stock price.
So did this violate SEC rules? The Verge dug into that, and the answer is... maybe? But there's no consensus:
Usually, when a company wants to convey to its shareholders that it may be overvalued, it does so by providing facts and risk factor, says Alma Angotti, a partner and co-head of the global investigations and compliance practice at Guidehouse who’s previously worked in enforcement at the SEC, among other agencies. “You give facts so the market can analyze those facts,” she says. “There’s not a good reason for him to say he thinks it’s overvalued that I can think of, especially in an informal way.”
According to Angotti, market manipulation — that is, when someone takes steps to artificially affect the prices of a security — requires only intent. “He doesn’t need to benefit, though benefit is often how the government proves intent,” she says. And the SEC is already watching him because of his previous actions.
[...] Jay Dubow, a partner at Pepper Hamilton who focuses on white collar litigation, thinks the SEC is in a tough position. On the one hand, Musk is openly flouting their settlement if he didn’t get his tweets approved. On the other hand, if the SEC goes so far as to force Musk to dissociate himself from Tesla, that potentially hurts the shareholders who bought into the stock because they believe in him. “They’re going to have to react and do something,” Dubow says. “Because this was a clear violation of the order and I don’t know how they’re going to let that go.”
If nothing else, this is another weird, self-inflicted black eye for Musk, and it detracts from what should've been great Q1 news. My take is not novel but it remains good advice: never tweet.
'Survival Trumps Investments'
Speaking of the coronavirus—since, you know, we don't talk about that enough—this economic downturn is about to have a profound effect on "mobility" and autonomous vehicle technology development.
It's one thing to make advanced driver aids like Super Cruise better; it's another thing to be dumping billions and billions into Level 4 and Level 5 autonomy right now, especially when the path to those systems actually making money felt ambiguous before. Ford is pushing back commercial autonomous services for two years; General Motors ended its flagging Maven car-sharing service.
Automotive News has a nice deep-dive on the self-driving game right now, and it says that shrinking capital may impact a lot of projects:
Technologies that enable higher levels of autonomy could be shelved because they do not provide an immediate return on investment, parts makers said in an IHS survey of 140 suppliers and automakers in North America, Europe and Asia.
According to the survey, conducted March 30 to April 9, advanced research projects are expected to be impacted more than general product-development activities this year and next.
"For a lot of the automakers that are still developing their automated driving systems, even a Level 2-plus or Level 3, those launches that are a little bit further out … that's where we might see a little bit more flexibility and probably slower deployment as a result," said Jeremy Carlson, principal analyst of autonomous driving for the automotive team at IHS Markit. "Less wide deployment, maybe more targeted deployment in terms of packaging, trims, models and nameplates."
As I've covered here before, autonomous tech development is much more likely to be impacted than EV projects. Thanks to tough regulations in Europe and China, and a need for competition, the EV market is more or less on track as planned.
Buffett Out On Airlines
The airline industry may be faring the worst amid the pandemic and now it has even more bad news: airline stocks tanked this morning as the Oracle of Omaha announced his Berkshire Hathaway has dumped all its stocks in that sector, for good, calling it a mistake to be there in the first place. Ouch.
Buffett explained at the meeting that he thought he was getting roughly 10% of the four largest airlines for an attractive price. He also owned stakes in American Airlines Group Inc. AAL, -7.08% and United Airlines Holdings Inc. UAL, -6.42%. Collectively, those airlines, represent some 80% of the passenger miles flown in the U.S., Buffett said.
But he determined recently that his decision, in light of the emerging pathogen, was ill-advised and he sought to unload his position: “I just decided that I’d made a mistake.”
As of the most recent filings, Berkshire had held 70 million shares of Delta representing 1.7% of the conglomerate’s portfolio, according to data provider Whale Wisdom. Berkshire also had roughly 54 million shares of Southwest, representing 1.2% of its holdings, 22 million shares of United Airlines, representing 0.8% and 42.5 million shares of American Airlines, about 0.5% of Berkshire, according to the site.
“The airline business, and I may be wrong, and I hope I’m wrong, changed in a major way,” he explained, noting that it has been through no fault of the CEOs of the companies. “I’ve been basically told not to fly,” he added, noting that he may not fly commercial going forward.
It'll be years before that business is back to its 2019 levels, even if the larger economy starts to recover from the pandemic.
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What's your take on the Musk tweets? Is it just Musk being Musk, or is he becoming more of a liability to Tesla than an asset?