Tesla (TSLA 264.77, -42.75, -13.90%) stock is trading lower after the Securities and Exchange Commission (SEC) charged Chairman and CEO Elon Musk with securities fraud for misleading investors.
The SEC says Elon Musk made a series of misleading statements, most notably when he tweeted that funding was secured to take the company private at $420/share on August 7.
This news did not come has a huge surprise considering reports indicated the SEC was investigating the matter, and it was apparent that he did not in fact have funding secured.
Elon Musk issued the following statement to CNBC: "This unjustified action by the SEC leaves me deeply saddened and disappointed. I have always taken action in the best interests of truth, transparency and investors. Integrity is the most important value in my life and the facts will show I never compromised this in any way."
The Board of Directors backed their Chief Executive last night. Corporate governance issues at Tesla have become increasingly apparent.
This morning, CNBC reported that Elon Musk had an offer to settle with the SEC by relinquishing his Chairman role for two years (while remaining a Director), but he decided against it. He wouldn't have had to admit or deny wrongdoing, but the Board would've also had to appoint two independent Directors.
Apparently, Mr. Musk is not willing to lose any control over the Board. It appears that he is digging himself and his company into a deeper hole.
Real risks now stem from the company's ability to raise capital, which will be needed eventually, and from whether Elon Musk will be able to lead the company going forward.
While much of the value of Tesla is dependent on Elon Musk's ability to deliver innovation, it has become very clear that the company is far too reliant on him for functions across the corporation.
Wall Street has consistently looked past the company's inability to meet lofty production targets in recent years. Elon Musk's latest pledge was to be profitable and free cash flow positive in the second half of the year. The company has been cutting capital expenditures and expenses to meet that goal.
However, one would think that the company's product pipeline is also getting pushed back as a result. Tesla plans to produce a Model Y (crossover version of the Model 3), followed by a Tesla Semi Truck and a new Tesla roadster in the coming years. Meanwhile, competition in the electric vehicle market will intensify rather significantly in the coming years.
Tesla is expected to announce deliveries for the third quarter next week. The company guided for Model 3 production of 50-55K units in the third quarter, with deliveries outpacing production. Electrek just reported that the company met its production targets for the quarter. However, Elon Musk has recently acknowledged logistics issues with respect to scaling its delivery operations.
Long-term investors remain focused on Tesla's plans to disrupt the transportation sector, but risks continue to pile up for the company near-term.