FT COMMENT: Can Tesla survive without Elon Musk? The SEC will let us know
Silicon Valley likes to talk up the benefits of disruption, just not in their own boardrooms
The speed with which US financial regulators have filed a case against Tesla is a match for the electric vehicle (EV) maker’s own “ludicrous mode” acceleration. Weeks after serving the company with a subpoena, the US Securities and Exchange Commission (SEC) is suing boss Elon Musk for misleading investors.
This is seriously fast work. SEC inquiries often take years. Musk’s infamous tweet claiming that he had secured funding to go private was sent in August. But the SEC already had its eye on the company following claims it was obfuscating production problems.
Investors can therefore expect a rapid outcome. The SEC alleges that Musk committed securities fraud by making a series of false and misleading statements. He had not lined up the financing required to buy out Tesla shares at $420 each and so may be forced to relinquish his roles as both chair and CEO. Musk calls the SEC’s action “unjustified”.
Fervid supporters will argue that the company cannot survive without Musk’s boisterous leadership. Silicon Valley likes to talk up the benefits of disruption, just not in their own boardrooms. Operations are still unprofitable and Tesla lacks an obvious candidate who can step in and take his place.
Musk’s own brand is baked into the company’s value — although it is hard to know how much. Even after taking into account the 14% fall in Tesla shares in after-hours trading, its market capitalisation remains larger than Ford’s. It still trades at almost 170 times expected earnings. If that multiple fell to Ford-like levels then Tesla’s shares would lose 95% of their value. But this ignores widespread belief that EVs are set to claim a substantial share of the car market.
It may not come to that. Regulatory oustings are rare. Elizabeth Holmes was banned from serving as an officer or director of a public company for a decade after her medical start-up Theranos was discovered to have fabricated results. But most cases are settled.
If Musk does go, however, investors can console themselves by looking at what has happened to Uber following CEO Travis Kalanick’s forced departure. Without his antagonistic stance towards regulators, the company’s route to public markets has been smoothed. If a more conservative boss can be found, Tesla shareholders may find that a CEO who does not pick buyout prices because his girlfriend will find them funny, as SEC’s filing suggests Musk did, or complain that queries about margins kill them, will do the stock good in the long run.
© The Financial Times Limited 2018