Elon Musk Has Reached A Settlement, But Tesla’s Troubles Are Far From Over

A federal judge has approved a settlement between the Securities Exchange Commission and Tesla’s Elon Musk after he tweeted in August that he had secured funding to take the company private at $420 a share — a claim that proved not to be true and has cost the company and investors about $12 billion in valuation, according to MarketWatch.

U.S. District Judge Alison Nathan signed orders on Tuesday requiring Musk to step down from his role as Tesla chairman and to have a lawyer oversee and approve all tweets about Tesla to ensure he does not tweet misleading information again. The settlement also requires Musk and Telsa to pay $20 million each to investors who lost money because of Musk’s tweets. Musk still gets to retain his position as Tesla’s CEO, but Tesla’s troubles are far from over.

Regulators Still Investigating Tesla’s Repeated Delays

The SEC is reportedly still investigating the car company to determine whether they misled investors about the reason for and extent of their Model 3 production delays. In 2016, Musk predicted that “as many 200,000 Model 3s would be made in the second half of 2017,” but this was scaled back to 20,000 models. The company fell short of the reduced amount, producing a mere 2,700 cars in 2017.

The Wall Street Journal reported the company’s slowdown was in part due to workers assembling the cars by hand instead of using robots.

One worker who spent time in the Model 3 shop—dubbed by some as Area 51 because of the limited access and secretive nature—described watching young workers in September struggling to move large pieces of steel to weld together instead of using robots as is traditionally the case.

‘In place of the robots…you’ve got two associates lining up with a big, old spot welder hanging from the ceiling by a chain, and you’ve got one associate kind of like balancing it and trying to get the welder in position, and you’ve got another welder with his arm guiding it,’ this worker recalled seeing. ‘Sparks go flying.’

In July, Tesla told investors it had met its goal of assembling 5,000 per week, although the company has been plagued with delivery troubles. Customers who purchased a Model 3 months ago are still waiting. 

Musk claimed many of these cars have already been built, but the company is having difficulties handling the logistics of delivering them. Last month, Tesla asked volunteers to deliver cars to customers for free and walk them through some of the features, which makes one wonder if the company has the cash to deliver cars customers have already paid for.

What’s The Real Reason For These Delays?

Earlier this month, The New York Times reported there were hundreds of Tesla cars parked in garages and lots across the country, raising questions about how the company was handling logistics. Critics told the Times Musk’s explanation for delivery delays doesn’t make sense and is likely due to poor logistical planning or the company being strapped for cash.

‘That’s total nonsense,’ said Mark B. Spiegel, a managing partner at Stanphyl Capital, which has a large position shorting Tesla. He is a vocal critic of the company and Mr. Musk on Twitter. ‘A quick search would reveal plenty of car hauler capacity. Perhaps Tesla doesn’t have the cash to pay for them.’ . . .

Mike Ramsey, an auto analyst at Gartner, said he surmised that Tesla, in some cases, was simply gathering cars together before shipping them to customers, or bringing cars with defects together to repair them before delivery.

If so, that suggests Tesla failed in a critical task: It didn’t set up an efficient way of delivering hundreds of cars a day as it was scrambling to produce 5,000 a week. ‘How can you not have this in place beforehand?’ Mr. Ramsey said. ‘It’s not like this is unexpected demand. They should have had logistics in place in advance.’

In Tesla’s eight-year history, it’s never once turned an annual profit, although it has had two profitable quarters. In August, the company reported its biggest losses ever at a whopping $717 million. During an earnings call in May, Musk insulted investors, saying their questions were “boneheaded” and “dry,” causing Tesla’s stock to fall 5.6 percent the same day.

Musk’s mouth has been causing Tesla a lot of trouble lately. In July, Musk rigged up a bizarre underwater contraption to supposedly help divers rescue a team of boys trapped in underwater cave in Thailand. When the team of divers told Musk his contribution was unhelpful, as it was far too large to fit in cave passages, and said his presence at the site was unwelcome, Musk called the man who ultimately saved the boys a “pedo.” This remark spurred Tesla’s stock to fall 3.5 percent, costing the company $2 billion in market value.

Sticker Price For Tesla Cars Will Soon Go Up

As Tesla’s sales tick upward, the company will lose its taxpayer-funded subsidy which keeps the sticker price down. Customers who were promised a Model 3 car for $35,000 and paid the $1,000 refundable deposit likely will not benefit much or at all from the subsidies that knock off as much as $7,500 the sticker price of each vehicle.

The Los Angeles Times reports,

Makers of all-electric cars and their buyers qualify for the $7,500 subsidy until the company sells a cumulative 200,000 vehicles in the United States. At that point, the full credit continues for a calendar quarter. For six months after that, the subsidy is reduced to $3,750. The next six months, $1,875. Then it disappears.

Tesla currently holds refundable Model 3 deposits from 420,000 potential customers, but Model 3 cars are not yet available at the $35,000 sticker price. And the company website says Model 3s at that price won’t be available for at least six more months, according to the Times. 

In other words, the price customers are expecting to pay for the Model 3 likely will not be a reality for many and the sticker price for all Tesla models will eventually go up when the subsidy runs out. Musk may be somewhat muzzled due to the settlement terms, but the car company’s woes run much deeper than an erratic CEO.