Tesla just undermined Elon Musk's defense against the SEC, JPMorgan says

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Tesla released its first-quarter delivery numbers early Thursday morning, sending shares of the electric-car maker plummeting and possibly endangering CEO Elon Musk’s defense against the SEC, according to JPMorgan.

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Shares of Tesla plunged during Thursday trading after the company disclosed that first-quarter deliveries of its vehicles fell 31 percent from the previous three-month period, warning that its first-quarter income would be negatively impacted.

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Tesla also reaffirmed its previous guidance of 360,000 to 400,000 vehicle deliveries in 2019. But in a note to clients, JPMorgan analyst Ryan Brinkman wrote that by issuing that year-ahead guidance, Tesla had inadvertently hurt Musk’s case with the Securities and Exchange Commission.

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“Full year delivery guidance was stated in the release to have been ‘reaffirmed’ at the prior level of 360-400K units, in our view undermining a key tenet of CEO Elon Musk’s legal defense against the SEC,” he wrote.

At the end of February, the SEC alleged in a federal filing that Musk had violated a previous settlement with the agency when he tweeted about Tesla’s 2019 production targets. Per the terms of the October settlement Tesla is required to review Musk’s tweets containing information pertinent to investors prior to posting on his personal account.

But Musk came under fire when he tweeted that Tesla would make around 500,000 cars in 2019, a figure he later clarified would be closer to 400,000. The SEC determined that the initial tweet was not approved by Tesla before it was sent, according to the filing.

In response, Musk said the SEC “forgot to read Tesla earnings transcript” -- referring to the company’s fourth-quarter earnings call -- in which he told investors that Model 3 output would reach 500,000 “sometime between Q4 of 2019 and Q2 of 2020.” The SEC, however, argued that there was no “pre-approved written communication” that said Tesla would produce 500,000 vehicles by the end of 2019.

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But the newest guidance, which falls in line with what Tesla has previously said, raises questions about the validity of Musk’s reasoning that “his February 19 tweet that Tesla will make around 500K vehicles in 2019 was not new information needing pre-approval because he had superseded guidance in the 4Q18 shareholder letter for 360-400K full year deliveries with comments just hours later on the firm’s earnings conference call guiding to 350-500K of the Model 3 alone,” the note said.

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