Giving Up The Driver’s Seat

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What's going on?

What an expensive tweet! On Saturday, Tesla’s CEO Elon Musk agreed to pay $20 million to US regulators and step down as chairman of the company after being sued for fraud (tweet this).

What does this mean?

In August, Musk tweeted that he’d secured funding to take Tesla private at $420 a share – cueing regulators to begin looking into the company and its CEO, as they thought investors may have been manipulated and misled. Since Musk hadn’t discussed (let alone confirmed) a deal with potential buyers, his tweet was more fiction than fact (as chairman and CEO, he has to ensure his public statements are indeed factual). On Friday, Musk was hit with a lawsuit – and Tesla’s stock fell by 14%. A day later, he agreed to a settlement. In addition to Musk’s personal fine, Tesla will have to pay a $20 million fine, too.

Why should I care?

The bigger picture: Many more hands on the wheel.

Some investors wanted to split the roles of chairman and CEO into two jobs – sometimes-irreverent Musk held both at Tesla – hoping to improve transparency and governance at the company. But in a June vote, most shareholders backed Grimes’ boyfriend continuing in his dual role. Now, as part of the agreement with regulators, Musk will be relinquishing his chairman duties post haste (he’ll still be CEO) and Tesla will add two new independent directors to its board. Regulators likely hope that the fresh faces will help the company make better decisions for its shareholders.

For markets: Investors put the brakes on.

It’s been a tough ride for investors buckled into Tesla’s stock – it’s fallen 17% this year, while US tech stocks have risen overall. Earlier in the year, Tesla’s car production was slower than expected (machine automation problems were to blame), and some investors worried the carmaker might go bankrupt altogether – it was reportedly asking its suppliers for partial refunds to help it achieve its profit goals.

Originally posted as part of the Finimize daily email.

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