Weekly Brief: Tesla Troubles Off-Set By Profit Margins

For a man who subscribes to the Trumpian notion that any attention is good attention, few will see a positive spin on last week for Elon Musk.

First, news broke that Tesla faked a 2016 video promoting its Autopilot technology as fully self-driving. The video showed a Tesla Model X cruising around Menlo Park, California, from tree-lined streets to busy avenues to a four-lane highway to Tesla’s office, while Paint it Black from the Rolling Stones played on the stereo. “The person in the driver’s seat is only there for legal reasons,” the video declared. “He is not doing anything. The car is driving itself.”

According to a deposition from Tesla’s lead Autopilot engineer, Ashok Elluswamy, that statement was patently false. The Model X was following a pre-planned and pre-mapped route and collided with a roadside barrier along the way. That part was edited out. Furthermore, Bloomberg reported last week that it had viewed internal emails revealing that the staged video came at the explicit direction of Musk, who called it “The Absolute Priority” and then proceeded to dictate the words that I quoted from the video above.

This episode calls to mind a 2017 promotional video that EV start-up Nikola Motors produced showing its first semi-truck, the Nikola One, zooming down a highway. It later came to light that the semi-truck had been towed up a hill and released to roll down, creating the illusion of a fully functioning vehicle that could drive by its own propulsion, when in fact it was smoke and mirrors. That admission was part of what led Nikola’s founder, Trevor Milton, to be convicted of securities fraud.

As if that wasn’t bad enough, a class action lawsuit began in San Francisco last week about Musk’s infamous 2018 tweet that he had “funding secured” to take Tesla private. The class action lawsuit is led by a man named Glen Littleton, who claims that he sold shares as a result of Musk’s tweet and then, when Musk didn’t take the company private because he had made the whole thing up, lost millions of dollars in potential gains. The class includes dozens of people like Littleton and is seeking billions of dollars in damages.

The “funding secured” tweet has already caused Musk problems. The Securities Exchange Commission investigated Musk’s tweet shortly after it went viral in 2018 and slapped both Tesla and Musk with $20M fines, since Musk didn’t have the funding secured and never intended to take the company private. As part of that settlement, Musk promised to stop posting incendiary tweets that could affect Tesla’s market position (insert eye roll). Now the tweet is back to haunt Musk again.

Given the fact that Tesla’s stock has plummeted 69% since its peak in November 2021, wiping out more than half a trillion dollars in value; given Musk’s escapades since taking Twitter private, which appears to be more and more of an insane endeavor by the day; and given the growing scrutiny of Tesla’s business, from federal investigations to class-action lawsuits, one could certainly make the argument that Musk is losing the narrative at Tesla and coming perilously close to being on the hot seat for his job. Indeed, I have made that argument in this column before.

It’s rare to find the founder of a unicorn who’s equally skilled at running that business once it has reached the level of a large bureaucracy. The roles demand two entirely different skill sets and, let’s be honest, we all know Musk would rather be figuring out how to populate Mars or drill holes through the Earth’s crust than crossing t’s and dotting i’s at Tesla HQ.

On the other hand, don’t expect Musk to go anywhere anytime soon. For one, he’s an egomaniac who, like Trump, will never admit defeat or voluntarily step down from a position. Secondly, during the spate of recent negative headlines, Tesla’s stock has quietly mounted a more than 10% rally. While the company may have lost 69% of its value since 2021, that pales in comparison to other EV start-ups like Lucid, which has lost 86% since its record high, and Rivian, which has lost 90% since its record high. Not to mention the group of ill-fated EV start-ups that went public via SPACs during the pandemic, only to collapse into bankruptcy and dysfunction.

The point being is that Tesla is still the safest bet for investors looking to buy into the EV revolution. Legal troubles aside, the company is well positioned to capitalize on government EV incentives in the US in 2023 and beyond and, thanks to the largest profit margins in the industry in some cases four-time that of legacy carmakers, it can easily drop its prices to keep the growing field of EV competition at bay. Yes, the pressure on Musk is mounting but, no, he’s not really feeling the heat.

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