On the very day that Tesla Inc. Chief Executive Elon Musk faced a federal judge to argue that his tweets have not violated an agreement with U.S. regulators, the company’s recent data offered further proof that his words must be taken with a grain of salt.
Wednesday evening, after the close of both the regular trading and after-hours sessions, Tesla TSLA, -8.23% released its eagerly anticipated first-quarter vehicle-delivery data, and it wasn’t pretty. Tesla said it delivered 63,000 vehicles in the first quarter, while analysts had been expecting 76,000. Its stock tumbled about 8% in regular trading Thursday.
The company also reaffirmed its 2019 guidance of 360,000 to 400,000 total vehicle deliveries for the full year. On Feb. 19, Musk tweeted that “Tesla made 0 cars in 2011, but will make around 500k in 2019,” a tweet that clearly confused some of his followers, because he clarified later, in another tweet, to say Tesla would make about 500,000 cars, but deliveries were still estimated at about 400,000.
Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k.
— Elon Musk (@elonmusk) February 20, 2019
Those tweets were part of the Securities and Exchange Commission’s argument in a Thursday hearing in Manhattan, as the regulator sought to convince U.S. District Court Judge Alison Nathan that Musk was in contempt of a previous settlement agreement over his tweets that also removed him as chairman. For those investors who may have forgotten what started the whole brouhaha, last August, Musk tweeted that he was considering taking Tesla private at $420 a share, “funding secured.”
That did not happen, and triggered a fraud investigation. As part of a settlement with the SEC in September, Tesla said it would put in place additional controls and procedures to oversee Musk’s communications. But Musk admitted his initial Feb. 19 tweet had not been pre-approved, and the SEC said he had not sought pre-approval of any of his tweets since the settlement was made.
SEC attorney Sheryl Crumpton said during Thursday’s hearing that there is a “huge gap” between Tesla’s delivery guidance and Musk’s statement that Tesla will produce 500,000 cars in 2019. Crumpton told the court that the Feb. 19 tweet was a “material statement,” with the difference between vehicles produced and delivered worth “billions of dollars,” and was clearly in violation of Tesla’s settlement agreement with the SEC, according to Bloomberg’s live blog of the hearing. Musk and his attorneys have argued the tweet was not material to the company.
But some worry Musk’s tweets muddied the company’s forecast.
“The now clear incongruence of CEO outlook statements with official company guidance may hurt the perception of management commentary, eroding investor confidence and potentially placing pressure on the shares,” said Ryan Brinkman, a J.P. Morgan analyst, in a note to clients.
On top of trying to determine what all of Musk’s tweets mean — or don’t mean — some investors were also concerned that Wednesday’s lower-than-expected delivery numbers may mean that demand for Teslas is flagging.
“The problem is no longer production, it is demand. And demand is clearly waning for all three Tesla models,” said David Kudla, chief investment strategist at Mainstay Capital Management. “We are also not surprised that management would use international expansion as a scapegoat, when it’s clear that slowing U.S. demand and operational flaws are the real culprit.”
Tesla said in a statement Wednesday that due to a massive increase in deliveries to Europe and China, which it said exceeded previous peak levels by about five times, it had many challenges and as a result, a large number of vehicle deliveries were shifted to the second quarter.
For now, Musk’s legal team and the SEC have been given two weeks to work out their differences. Whether or not that will affect Musk’s tweeting habit is hard to say. But investors should continue to read Musk’s activity on Twitter with caution.
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