Musk Settles and Tesla Rallies, What & # 39; s Next? – 1 October 2018

Last Thursday the SEC announced that I would charge Tesla (TSLA Free report) CEO Elon Musk with fraud in connection with his tweet of August about private taking of the company and having "secured" financing & # 39 ;. The SEC suit called that communication "false and misleading & # 39 ;.

It was subsequently reported that Musk and the SEC had been close to a deal that would have enabled him to pay a fine, recognize or deny guilt and be excluded from acting as chairman of the board of directors in Tesla for a period of two years. Musk apparently decided not to take the deal at 11th hours, which implies the filing of the lawsuit by the SEC.

The shares plummeted 13% on Thursday during the night trading and throughout the day on Friday and closed at $ 264.77.

Although the specific nature of the negotiations was not made public, Musk reached a weekend deal with the SEC in which he would personally pay a fine of $ 20 million, resign his role as chairman of the board within 45 days and not seek re-election for 3 years. The company also pays a $ 20M fine – for not controlling Musk's communications with the investing public – and Musk remains CEO.

On Monday, the shares increased 16%, effectively killing the Thursday / Friday sale. Tesla bonds also performed well on Monday, reducing the yield on the company's convertible bonds by more than 50 basis points by 2025.

Despite the temporary diversion of the suit and the settlement, the result gives investors more confidence in the future direction of the company. With Musk leaving the board but the remaining CEO, Tesla will still benefit from his creative vision, but he will also be somewhat limited by having to respond to a board that requires accountability.

Production and deliveries

With the SEC suit apparently behind Tesla, all eyes are again focused on the company's ability to produce and deliver mass market model 3 vehicles in the third quarter of 2018 and beyond. Tesla has set itself the goal of producing 50,000 – 55,000 Model 3s in the third quarter, which would be an important step towards sustainable profitability.

Tesla does not report production volumes per month and the financial results in the third quarter are still more than a month away, but the company reported quarterly production figures for the quarter over the last few days, so hopefully we can expect an estimate of the number of cars they have been able to produce and deliver on Monday or Tuesday.

The electric autoblog Electrek, citing sources without a name, now predicts that Tesla will have produced approximately 53,000 Model 3's in Q3 and 80,000 vehicles in total. Supplies can even exceed those numbers, as Tesla had thousands of completed cars in the inventory at the end of the second quarter.

Although it would be unwise for the company to officially announce that it had "gamed" federal regulations, it is speculated that Tesla has avoided delivering its 200, vehicle until after 30 Juneth, a move that will keep the full federal tax credit of $ 7,500 / vehicle until the end of 2018 and save its customers somewhere in the $ 300 million area – assuming 80,000 cars per month. (The credit will be reduced to $ 3,750 two-quarters after 200,000 cars have been delivered.)

Musk told employees in an internal communication during the weekend that the company was close to achieving profitability and begged them to "perform excellently" in production and deliveries in the last days of the quarter. "If we do everything tomorrow (Sunday)," wrote Musk, "we will achieve an epic victory that exceeds all expectations."

Although investors still have to wait until the start of November for controlled financial figures that break down the very important gross margin and net profit figures, the production numbers at the beginning of this week will provide an important insight into Tesla's ability to finally realize its risky targets.

Stay tuned…

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