If you thought Tesla and Elon Musk escaped the clutches of the Securities and Exchange Commission with a fairly modest punishment, settling civil fraud charges for a mere $20 million each, think again. A clause requiring Tesla’s board to establish a committee to supervise Musk’s communications might be the biggest threat the company has faced.
For years, Musk has had free rein to hype Tesla’s technology, spin media coverage -- and burnish his image as a quirky yet heroic visionary. Considering Tesla’s persistent operational and financial challenges, yet heady market valuation, Musk’s promotional efforts may at least be as important to Tesla as his day-to-day management.
To comply with the SEC settlement, Tesla’s board must control Musk’s impulses -- impulses that clearly have boosted the company’s stock price -- even as nearly a billion dollars in convertible debt comes due in March. If Musk’s new overseers prefer to repay this debt with stock rather than nearly half of the firm’s dwindling cash hoard ($2.24 billion as of the second quarter), they need to boost its share price by $50. Unless Tesla’s financial performance improves dramatically, letting Musk back off the leash might be the only way to accomplish that.
It’s not clear how much self-control Musk is even capable of. Since the SEC filed charges against him, he has rejected its first settlement offer, released a statement referring to Tesla as “the most successful US auto company in over a century,” written an email claiming Tesla is “close to achieving profitability” and sent a roguish tweet suggesting that he is “naughty by nature.”
And overnight Thursday to Friday, he unleashed yet another avalanche of 15 tweets in five hours -- mocking the SEC as the "Shortseller Enrichment Commission." Tesla shares fell another 7 percent to $261.95 on Friday as influential business network CNBC covered it as a running story.
With Tesla’s fans on Twitter celebrating his wry defiance, the feedback loops that encourage the brashness that got Musk into trouble with the SEC are proving resilient. For all of Musk’s accomplishments, his ultimate challenge might be simply resisting the urge to put on a show.