Legal Issues Continue to Plague Tesla Stock

March 19, 2019
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Long-term Tesla investors are undoubtedly some of the most patient in the world. The company has incredible potential and is a technology leader in electric vehicles. It is quickly becoming a market leader in terms of units sold, and the demand for the brand is steadily increasing.

At the same time, the company has a highly controversial CEO and thought leader. Elon Musk’s apparent disregard for the status quo has often left him on the wrong side of criticism, and more recently on the wrong side of the Securities and Exchange Commission.

Tesla Stock lost -2.16% on Monday and was down -0.92% in the premarket this Tuesday. Musk is again fighting the SEC.

Is Musk in Contempt of a Previous Court Ruling?

On February 20th, Elon Musk told his Twitter followers that “Tesla made 0 cars in 2011, but will make around 500k in 2019.”

He quickly followed up with clarification saying that “Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for the year still estimated to be about 400k.”

Most investors would agree that the information released was material. Some would have even based their financial decisions around this news from the CEO. For the SEC, the tweets breached a previous court ruling that Musk would not post company information without clearance from the Tesla board.

Musk admitted that he did not receive clearance in this case. He claims that his tweets were not material. The SEC says that this claim “borders on the ridiculous.”

This latest case follows a 2018 tweet where Musk falsely claimed that he would be taking the company private and that funding had already been secured. Investigation revealed that funding was never agreed with private parties.

Tesla Stock Down Year to Date

This year, Tesla will be the first foreign auto maker to have a wholly owned factory in China. The company recently released a more affordable Model 3, as well as a much-awaited Model Y SUV. Tesla’s production numbers are climbing, and the books are starting to balance. Without the legal problems, all these signals could have resulted in a stock rally. Instead, Tesla is down -19.02% year to date.

There’s no doubt that in a business sense, Tesla has strong momentum and a ridiculous amount of potential. What investors will need to ask now is whether the leadership is right for the company.

On the flip side, because Tesla is currently trading far below its 52-week peak, it could be a bargain for those who aren’t afraid of some risk in today’s market.

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