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Musk’s U-turn on Tesla deal could intensify his legal, regulatory woes

28 August, 2018, 18:12 | Author: Sara Gill
  • Elon Musk

The high price investors have put on Tesla's shares has allowed Musk to expand USA production, invest in building out a vehicle charging network and start work on new models including a small sport utility vehicle, a new Roadster and a semi-truck even as the company burned cash.

A federal judge in San Francisco dismissed a securities fraud lawsuit in which Tesla Inc (TSLA.O) shareholders accused the electric auto company and Chief Executive Elon Musk of misleading them about the progress of production of its Model 3 vehicle.

Now, Musk and his team are working to meet them under even more scrutiny from regulators and from shareholders, and with more competition - the Saudi Public Investment Fund recently made what is likely a billion-dollar deal with Lucid Motors, another electric vehicle company vying for the same milestones and clientele as Tesla. He said he had expected a challenging process to take Tesla private, but concluded that "it's clear that it would be even more time-consuming and distracting than initially anticipated".


With Musk's idea of a buyout backed by Saudi Arabia's sovereign wealth fund off the table, investors will focus on Tesla's efforts to become profitable, the company's cash reserves and what steps Musk could take to raise fresh capital. The U.S. Securities and Exchange Commission is now investigating his tweets and blog posts, which triggered the stock gyrations throughout August. Several investors have also sued Tesla, alleging that Musk's announcement was meant to manipulate the price of the company's stock.

"What happened on Friday will be of interest to the SEC because it will allow them to probe whether Musk's pulling back from the go-private somehow indicates that he did not have a reasonable basis for his statement". "Public companies need more details about these things and you can't make them up".

But shareholders said Musk knew Tesla was "woefully unprepared" to meet its production goal of 5,000 Model 3s per week, and that Tesla's share price was inflated until after the company finally cut its production target last November. Was it the advice of equity firm Silver Lake, or investment juggernaut Goldman Sachs? Musk's exhaustion, which the CEO described in a New York Times interview, is the "most critical near-term concern".

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