Tesla: Can the Electric Car Company Overcome its CEO’s Erratic (and sometimes illegal) Behavior?

Joe Hallman, MJLST Staffer 

Elon Musk, the ingenious and at times controversial CEO of Tesla, Inc., has been a fixture in the national news cycle of late with many questioning his erratic behavior. Musk has garnered negative attention recently for incidents ranging from publicly smoking marijuana to hurling wild accusations against critics on Twitter. However, Musk’s most significant faux pas in recent months was likely a tweet that resulted in him being charged with securities fraud by the Securities and Exchange Commission (“SEC”).

On August 7, 2018, Musk tweeted “Am considering taking Tesla private at $420. Funding secured.” The SEC sued Musk in federal court on September 27 for misleading investors with his tweet. Musk settled with the SEC two days later on September 29. The terms of the settlement required Musk to pay a $20 million personal fine and step down as chairman for three years, although he was allowed to remain CEO of the company. Although not charged with fraud, Tesla also settled with the SEC for $20 million.

Tesla’s stock price plummeted shortly after the SEC’s lawsuit was filed. Tesla shares were trading at about $305 prior to the lawsuit and on September 28, the day after the SEC filed suit, Tesla’s shares dropped to about $269. However, after that initial dip Tesla’s stock rebounded, eventually closing at $341.06 on November 6.

Many have questioned Tesla’s viability as a company over the years and it has been a common short sell among investors. However, considering Musk’s curious recent behavior, the stock price has been resilient. Meanwhile, on October 24, Tesla released its 2018 third-quarter earnings report showing surprise profits and positive cash flow. The earnings report is good news for shareholders who eagerly wait to see if Musk’s electric car company can eventually turn the corner and achieve a significantly higher market cap as Musk has promised.

Although Tesla seems to have been largely unaffected by the SEC’s lawsuit and other strange behavior by Musk, other top executives of publicly traded companies will likely take notice and learn from Tesla’s tumultuous past few months. Going forward, I would expect CEO’s of high-profile companies like Tesla to be careful about Twitter usage and seek to avoid negative attention in the press.