“You’re supposed to be running the company…” Elon Musk draws more criticism

Shares of Tesla Inc (Tesla Stock Quote, Chart NASDAQ:TSLA) were down sharply Friday as investors continue to react to the news that the US Securities and Exchange Commission has filed a lawsuit against CEO Elon Musk, charging him with fraud and effectively leaving the future of the electric car company in doubt.

Elon Musk Twitter Troubles

Stemming from a statement made in early August on Twitter where Musk suggested that he may take Tesla private and that funding for the move was in place, the SEC’s complaint alleges that Musk’s statements were “false and misleading” of investors and that they constituted “reckless” behaviour on the part of the CEO.

In response, Musk has stated that the SEC’s lawsuit is unjustified and leaves him “deeply saddened and disappointed,” saying that he has always acted “in the best interests of truth, transparency and investors.”

How the drama will play out is unclear, with sources saying that Musk has already turned down a settlement offered by the SEC. However it plays out, Tesla and its shareholders will be the losers, says Veronika Hirsch, portfolio manager at Arrow Capital, who argues that while the automaker can’t keep Musk at the helm and a demotion to a lesser position is unlikely, there’s nonetheless no sign of a ready replacement within the company’s ranks.

“Whichever way this is going to go I obviously don’t know but I would be shocked if at the end of all of this [Musk] ends up still being the CEO of the company,” says Hirsch, in conversation with BNN Bloomberg. “You can’t have it both ways … what are you going to make him? Chief innovation officer? I don’t think he’s going to be too thrilled.”

___________________________________________________________________________

Interested in Electric Vehicles?

This article is brought to you by Nano One (TSXV:NNO). Nano One is changing how nanomaterials are made for batteries and other billion dollar markets. Click here to learn more.

____________________________________________________________________________

“To be fair, it’s not like many other companies where there is bench strength,” says Hirsch. “They have no one. There’s no president, there’s no chief operating officer. Even the board, people have questioned the independence of the board. His brother is on there.”

Tesla’s share price initially shot up in response to Musk’s tweet on August 7, reaching as high as $387 per share. But since then the stock has lost about 30 per cent of its value. Hirsch says that the SEC’s case against Musk seems strong, as it’s clear that his statements ended up misleading investors.

“You just have to look at how the stock has traded after he tweeted,” she says. “Obviously, it has affected the price of the stock, which is not what you’re supposed to be doing. You’re supposed to be running the company.”