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Musk risks trouble with US authorities over tweet

SEC claims Tesla chief breached last year's settlement of fraud charges by tweeting information about the company without approval from its board

Elon Musk's tweet on Tesla's 2019 production levels allegedly violates SEC deal. AFP
Elon Musk's tweet on Tesla's 2019 production levels allegedly violates SEC deal. AFP

Shares in Tesla could fall by a fifth in value if the US Securities and Exchange Commission's latest attack on chief executive Elon Musk leads to the regulator again pushing for his removal, JP Morgan analysts say.

Tesla's share price fell 5 per cent in after-hours trading on Wall Street, the BBC reported, after the commission claimed Mr Musk breached last year's settlement by tweeting information about the company without approval from its board.

In a court filing on Monday, Reuters said, the regulator pointed to a tweet by Mr Musk on February 19: "Tesla made 0 cars in 2011, but will make around 500k in 2019."

It noted that Mr Musk did not seek or receive approval before publishing this tweet, which was inaccurate and disseminated to more than 24 million people.

Under the deal that averted the regulator's lawsuit for Mr Musk's removal last year, the two sides agreed that statements made by him on social media would be vetted in advance by the company.

JP Morgan Securities analyst Ryan Brinkman said that in a worst-case scenario, the SEC could again seek Mr Musk's removal as chief executive.

Mr Brinkman said that could push Tesla shares back to near a one-year low.

Tesla shares reached $244.59 last April, their lowest since early 2017 and more than $50 below Monday's close of $298.77.

"It is difficult to judge the likelihood of the reappearance of this worst case scenario but on the other hand the current allegations seem much less serious than last year's," Mr Brinkman said in a note.

"If the SEC were to seek Mr Musk's removal, we believe the shares may approach the mid-$200 levels."

Thirteen of 32 Wall Street brokerages now rate the electric car company a "buy" or higher. Eight view it as a "hold" and 11 "sell" or lower, with a median price target of $327.50

Tesla's general counsel Dane Butswinkas resigned a day after Mr Musk made the tweet to which the new SEC case refers.

Mr Musk corrected his tweet four hours later to say that the "annualised production rate" at the end of this year would probably be about 500,000, with deliveries expected to be about 400,000.

"While this tweet and the quick correction seem innocuous, the SEC isn't likely to cut Musk any slack," said another analyst, Gene Munster from Loup Ventures.

"Musk's unwillingness to follow the rules is part of what you have to be willing to accept as an investor in Tesla."

Charles Elson, director of the John L Weinberg Centre for Corporate Governance at the University of Delaware, told Bloomberg: "Having your CEO in contempt of an SEC action is a pretty bad thing. They settled with him and within a few months he’s back to doing similar things. It’s unbelievable."

The SEC “has to view the conduct as akin to another violation of securities laws to take this step", said Brad Bennett, a former SEC enforcement lawyer.

“It’s a very novel situation where someone is running an enterprise with this kind of market cap and gives the SEC cause for concern that the person is not capable of following the securities laws.”

In its defence, Tesla lawyers said Mr Musk was trying to “recapitulate” an approved statement from the company’s earnings call stating that the company would get production to 10,000 vehicles a week by the end of the year.

Updated: February 27, 2019 12:52 AM

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