Elon Musk Will Never Change
The Tesla CEO’s brush with the SEC won’t cause him to reevaluate his actions
It’s been a crazy year for Elon Musk. The billionaire founder of Tesla, SpaceX, and the Boring Company has been picking fights, calling people names, and lying about almost every aspect of Tesla’s business on Twitter. It often seems as though he doesn’t have the self-awareness to realize he’s caused most of his own trouble.
For example, to explain the bad coverage he’s received from mainstream media, Musk floated the idea that journalists were in the pockets of short-sellers and fossil-fuel interests. He then mused about creating a website where journalists would be ranked on their “credibility.” Many believed he’d crossed a line. But he kept digging.
After getting involved in the Thai cave rescue and having his solutions ridiculed when he posted a video of a metal tube in a pool, Musk accused a diver of being a pedophile and then apologized when he was called out. He later rescinded the apology.
There are many, many more examples of Musk’s erratic tweets, which seemed to worsen alongside Tesla’s prospects. Production timelines were pushed back and stories emerged about dysfunction at Tesla’s factory. Even when the production goal was met in July 2018, analysts believed it was only done by holding back models that had already been completed. Production dropped off again in the following weeks and still, deliveries of Tesla Model 3s are delayed. The number of customer complaints about defects in their brand-new vehicles is growing.
The pressure on Musk has been mounting, and it’s largely of his own making. He’s failed to learn from the experience of other car companies and is unable to set realistic expectations for customers and shareholders. In an effort to reduce that pressure, Musk tweeted on August 7, 2018 that he was taking the company private at $420 per share.
Funding was not secured.
Consequences of a Pot Joke Gone Wrong
The fallout from that August 7, 2018 tweet was swift. Tesla’s stock went on another rollercoaster ride. The ride ended when it was revealed that the Securities and Exchange Commission (SEC) was investigating not merely the tweet, but also the false claims Musk had made about Tesla’s Model 3 production output.
That investigation came to a head when the SEC sued Musk for fraud over “false and misleading statements,” seeking to bar him from being an officer of a public company. Musk negotiated a settlement but walked away from it at the last minute. The original deal would have required him to pay a $10 million fine, step down as chairman for two years, and appoint two independent directors. But the terms weren’t acceptable for Musk. The deal would have bruised his ego and barred him from proclaiming his innocence on Twitter.
The New York Times got the scoop on what happened behind the scenes: Musk threatened to resign if board members didn’t back his decision to reject the settlement and publicly support him, which is exactly what they did. But when stock plummeted after the lawsuit was announced, Musk’s lawyers returned to the table “all but groveling for a second chance” — this time with Musk’s approval.
Musk has made it abundantly clear that he has a tenuous grasp on reality.
On Saturday, September 29, 2018, Musk accepted a renegotiated settlement with the SEC, but on worse terms than what were originally offered: Musk will have to resign as chairman for three years; pay a $20 million fine, in addition to a $20 million fine to be paid by Tesla; appoint two independent directors; and Tesla will have to hire a lawyer to review all of Musk’s communications that relate to Tesla, including his tweets.
It’s that last requirement that could bring Musk’s self-destructive streak to an end. But even that seems unlikely. It all depends on the degree to which the company requires his Twitter account to be monitored; however, keeping Musk from making unrealistic promises and claims about Tesla’s operations and timelines would be very difficult. (And I’m not even including stopping him from lashing out at those who criticize him.)
The settlement with the SEC also doesn’t bring an end to Musk and Tesla’s exposure to potential lawsuits. The SEC pursued Musk on civil charges, but the US Department of Justice is investigating Tesla over potential criminal acts stemming from the same tweet. And even though Musk did not admit or deny committing fraud in his settlement with the SEC, it could bolster the cases of investors who want to take Tesla to court over the fluctuation in the share price that followed his false claim about taking the company private.
Musk’s Ego Crashes Back to Earth
For the better part of a decade, Musk has been lauded by the tech press, the business rags, and the mainstream outlets. He took the mantle of Steve Jobs as the leading visionary emanating from Silicon Valley with bold ideas to transform our society. He helped make electric vehicles cool and reinvigorate the excitement around space exploration. However, that doesn’t mean we should put him on a pedestal and ignore his many flaws.
Musk has made it abundantly clear that he has a tenuous grasp on reality: From his inability to give accurate timelines and focus on the problems in front of him instead of dreaming up new fantasies that usually go nowhere, to his increasing likelihood to lash out at anyone who dares to criticize him, he allows his narcissism to distract him from the work that really needs to be done to sort out Tesla’s long list of challenges.
The company’s manufacturing troubles have still not been sorted out, as Bloomberg’s production tracker indicates. Tesla has trouble getting the vehicles it does manufacture to customers and repairing issues of Teslas that are on the road. Musk’s proposed solution to bring all repairs in-house doesn’t work either; he blames third-party shops for taking too long for repairs; shops report their delays are due to the inability to get parts from Musk and Tesla.
It’s the same with delivering: Musk blames car trailer shortages for delivery issues, but people in the trucking industry says there’s no shortage of available delivery capacity.
Musk Is His Own Worst Enemy
After accepting the settlement with the SEC and the restrictions that come with it, one might think Elon Musk would finally change his ways, whether on his own initiative or after being forced to by his board. But there’s absolutely no evidence that will happen.
The brush with the SEC shows just how closely linked Tesla has become with Musk. It also shows us how Musk’s presence and the myth of his unique brilliance insulates Tesla from the true repercussions of its inability to hit deadlines, deliver features on time, or turn a profit.
Tesla’s board is inept. Maybe this is because they’re also bought into the myth of Musk or just because they understand how necessary Musk is to avoiding the company’s collapse. This isn’t because he’s running it well, but because the cult of personality he’s developed allows the company’s failures to be overlooked. If board members would agree to publicly praise Musk and fight the SEC in court, instead of accepting a very reasonable settlement, they’ve shown they clearly have no power to rein in their CEO-king.
He hasn’t blamed the one person who has consistently caused all of his issues and could also fix them: himself.
Even the SEC’s chairman recognized this dynamic in allowing Musk to settle under quite favorable terms, saying “the interests of ordinary investors are at the front of our minds and, in matters involving misconduct, we seek to serve those interests to the extent practicable while also ensuring that we remediate and deter misconduct.” In short, they let Musk off easy because protecting investors takes precedence over punishing lying executives.
Musk’s tweeting habit might be somewhat constrained in future. But he hasn’t been forced to learn a lesson. Everyone around him, from his board to the SEC, treats him with kid gloves. He wields power through an image and cult of personality that the media helped him construct and uphold. He demonizes journalists who criticize him, and short sellers, as the cause of his problems. Yet, he hasn’t blamed the one person who has consistently caused all of his issues and could also fix them: himself.
His behavior post-SEC ruling proves there’s no reason to believe Musk will stop blaming others for Tesla’s manufacturing issues or rein his crazy tweets.
Case in point, Musk’s first tweet after the SEC settlement:
