by Dave Kranzler, Investment Research Dynamics:
At 5:15 p.m. on February 19th, Elon Musk tweeted that Tesla would produce 500,000 cars on 2019. The headline hit news terminals globally. The stock jumped over $1 in after hours trading. Four hours later Musk tweeted that he meant Tesla would be producing cars at an annualized rate of 500,000 by the end of 2019. After-hours trading was closed when that “correction” hit Twitter.
The next morning the Wall Journal reports that Tesla’s General Counsel, Dane Butswinkas, is quitting Tesla to return to his law practice in DC – two months after he took the job. Butswinkas’ role at was widely regarded to be Musk’s highly compensated Twitter babysitter per the terms of Musk’s SEC settlement related to Musk’s securities fraud “420 secured” tweet.
Tesla will rival Enron as the biggest stock fraud in this century, if not U.S. financial history. To be sure it sells cars that generate revenues. But the alleged profitability shown in Q3 and Q4 financials is likely nothing more that the product of GAAP accounting manipulation. Elon Musk has been making promises and performance projections which fall miserably short of reality for several years. He overtly violated securities laws with the $420 secured” tweet, which cost investors $10’s of millions of dollars – longs and shorts.
Tesla stock jumped on Monday, February 11th after analysts from Canaccord and Wedbush issued strong buys based on “strong demand for the Model 3,” putting absurd price targets on the stock. While both analysts’ analysis and opinions can be summarily dismissed based on gross negligence in presenting facts, you should be aware that the Canaccord analyst had a buy recommendation on Solar City stock from $53 in February 2015 all the way down to down $19.60 in May 2016. Tesla acquired Solar City in the summer of 2016 in a highly controversial deal, likely fraudulent, that has turned out to be an unmitigated disaster.
I suspect the motive for both analysts’ arguably fraudulent stock reports is to generate demand for Telsa shares that can be used to unload shares on behalf of a large seller through both brokerage firms’ retail stock distribution network (brokers and investment advisors). T Rowe Price, formerly the largest shareholder outside of Musk, cut its position in half during Q4, unloading 8.4 million shares. Insiders have been unloading shares non-stop, with not one insider purchase in the last 3 months. Two of the most respected investors on Wall Street – Stanley Drukenmiller and Jim Chanos – are short Tesla.
With the tax credit cut in half January 1st and a growing reputation for poor quality control and even worse service, Tesla’s deliveries of all three models have literally plunged off a cliff since Q4. Officially Model 3 sales have dropped 60% for Q4. But sources that keep track of the numbers separately from the Company show a steeper drop-off in sales. As an example, the Marina Del Rey service center previously had been Tesla’s premier delivery center. But deliveries have dropped from average of 16 deliveries per day in Q4 to less than 1 per day in February through February 11th (2.1 deliveries per day in January). Sales in China and Europe have also fallen off a cliff, as superior competing EVs are becoming available.
The latest “500,000 production in 2019” tweet is the just latest in a long list of stunts pulled by Musk in an attempt to pump up the stock price. The departure of the General Counsel is one of many high level executive departures to leave in the last two years after spending just a brief tenure at the Company. Remarkably, the main stream financial media has little to no interest in investigating the nature of the circumstances of the executive departures or the unwillingness of regulators to keep Musk in check.