Nikola's ex CEO Trevor Milton arrested for lying to investors. Some ask, "What About Elon?"
Many of Milton's lies are very different vs tales Tesla CEO Elon Musk has told investors for years. Others seem troublingly similar. With new bosses at every US regulator, should Tesla be worried?
Nikola’s ousted founder/CEO Trevor Milton was charged in federal court today with criminal and civil fraud for lying to investors for years about “nearly every aspect of the business” to juice the stock price.
This comes just two weeks after Tesla (TSLA) CEO Elon Musk defended himself in court over his role in pushing Tesla in 2016 to buy SolarCity for an insupportable $2 billion without revealing its near-bankruptcy distress in order to bail out his relatives who ran it. Tesla already paid $60 million last year to settle the case, but Musk, true to form, stubbornly resists any efforts to hold him accountable for just about anything, no matter the harm.
It could cost him $2 billion to refund the purchase price for SolarCity if he loses, and the Tesla shareholders suing have a credible case, but Musk is used to getting off without serious consequences.
After all, he has defied courts, federal regulators, police, state and local government authorities for years with little more than a slap on the wrist.
But this year things have changed, whether Elon Musk realizes it yet or not.
We See You
The problem is not new. Musk has always welds nearly universal, unchecked control over Tesla and every company he owns, no matter what he does.
As I wrote last year:
Like Milton, Musk was forced to step down as chairman of his own company as part of pleading guilty to securities fraud after he lied in August 2018 about a fake buyout of Tesla with "funding secured" (see Musk Fought the Law and the Law Won, So What? on 9/29/18). Musk cost Tesla investors more than $20 billion in evaporated market cap as the stock plunged after his stunt was revealed. However Musk, one of the richest people on the planet, paid only a modest $20 million fine.
A key difference between Tesla and Nikola seems to be that Nikola's board apparently exercised its fiduciary responsibility to protect the company and its investors from a damaging and potentially corrupt CEO. More importantly, Nikola's board had the power to make its actions stick, "encouraged" no doubt by General Motors Co (GM US) which is Nikola's new $2 billion best friend.
Tesla's sycophantic Board has been virtually useless as Musk defied the SEC, US Occupational Safety and Health Administration (OSHA), the Environmental Protection Agency (EPA), the National Transportation Safety Board (NTSB), court orders and law enforcement, and so on—with impunity.
Meanwhile, Tesla's cars and solar roofs have a disturbing propensity to catch fire. At best they remain plagued with persistent quality and reliability problems. Tesla's factories are more dangerous for its workers versus plants operated by all its top competitors combined (see The Trouble With Tesla's Arrested Development on 7/17/19). Regulators are investigating ongoing Autopilot-related injuries and deaths and Smart Summon which Consumer Reports declared an expensive "science experiment" that was "glitchy" that worked "intermittently, without a lot of obvious benefits for consumers."
Nikola’s Troubles And Tesla’s History Shadow Battery Day, 9/21/20
All of this remains true a year later, with now dozens of ongoing investigations into Tesla crashes and fires. And Tesla’s board oversight remains a glaring failure.
They can’t even stop him from tweeting in violation of a twice amended court-ordered policy per agreement with the SEC to bolster their required control.
And when the SEC followed up again last summer to make sure Tesla was monitoring Musk’s tweets, which it couldn’t stop, he tweeted in response an implied reference to a sex act: “SEC, three letter acronym, middle word is Elon’s.”
The judge hearing the SolarCity case might be interested in how 50-year old Elon responds to someone telling him no.
New Year, New Bosses
The SEC Musk was defying was chaired by Jay Clayton, a Trump appointee who, in his former life, defended clients mired corporate shenanigans, including Deutsche Bank, UBS, Volkswagen, SoftBank Group, The Weinstein Company, Bill Ackman’s Pershing Square Capital Management, and Valeant Pharmaceuticals.
The other US regulatory agencies Musk defied also were managed by Trump appointees who came to their jobs, many with more political aspirations than qualifications, more interested in gutting and dismantling their departments rather than pursue vigorous oversight.
They’re all gone now, replaced with seasoned, well qualified management and staff aiming to restore regulatory oversight absent the previous four years. And all their agencies are conducting investigations into Tesla.
That includes Tesla’s problematic Autopilot, which the company recently revised again to eliminate radar to reduce the already questionable system to cameras only.
Meanwhile, China has cracked down hard on Tesla this year after serious complaints about locally made cars’ poor quality, reliability, customer service, and safety. Tesla has been summoned more than once before China regulators and multiple government agencies as a result. Tesla has been forced to execute several major recalls and provide formal public apologies for the trouble it has caused (see Tesla Q2 "Complications" on 6/29/21).
It’s no wonder Tesla has been losing market share with all of its models in all of its markets (see Tesla: Don't Drive Angry on 2/28/21)
So it’s probably a good idea for Tesla to tread more carefully when discussing the capabilities expected with its long delayed, oversold, overpromised, or otherwise dubious deliverables like robotaxis, the Semi truck, Cybertruck, the 4680 battery.
Tesla has enough trouble on its plate with its existing product line—and its CEO.
Tesla's 5.3% senior notes due 2025 are little changed since my last report and now trading near the lower call price at 102.8 (1.6% ytw; 90 bps). This offers no credible upside, particularly given good odds that the bonds get refinanced soon and likely at an inordinately cheap, unappealing yield (see why in Tesla Goes To Record Extremes To Create Q1 "Profits” on 4/28/21). Maintain "Underperform."
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