This twitter thread has some additional information from Wochos vs Tesla in which twelve different former employees told either Musk or Ahuja (CFO) that their production plans were impossible.
https://twitter.com/orthereaboot/status/1046754488353271808?...
I’ve been in plenty of meetings where engineering says something isn’t possible. We (I’m one of the engineers) aren’t always right. It’s a defense mechanism so we don’t agree to something we think will _probably_ fail and thus sacrifice credibility.
What should Musk argue in his defense then? "My engineers are too modest about their abilities, so I took their estimations and multiplied them by 1,000, because I truly believed they could do it?"
Yeah, 1000x seems a little out there. What if it was 2x? What about 5x? How accurate are the projections required to be? If Musk truly believed they could do it and the multiplier was 2x, who is at fault? I'm not sure it would be a crime if Musk believed there was possibility (lacking intent to deceive, also I'm definitely not a lawyer...).
And is it production estimate, or a production goal? If someone gives you a goal of 1000x the current production, assuming you can request/specify whatever you need to get there, that's very different than if they say, given the exact production line we have now, what is the estimate of what we can produce. Tesla was somewhere in between given they were at the stage of thinking about setting up the production lines and going to setup them up simultaneously.
86% of Tesla's shares are held by insiders or institutions. I don't know any retail investors that have the WSJ's ear, or think that a news article is all it takes to tank the stock.
Stock prices don't move only when a large percentage of stock is traded. When a few % are sold based on negative news, the stock price can already take significant hits.
It may not be the retail investors causing the swings but the algorithms trained to gauge sentiment from news sources and trade based on that sentiment. Wild guess.
It's this. They scrape news articles and make trading decisions based off of them. There would be a similar drop from naive systems if someone posted "Tesla Bad :(" on Bloomberg.
There could be someone with intent, feeding news stories to the media in order to shape broader trends. Maybe not even feeding them directly, just seeding a range of topics hoping some of them catch fire, or just slow down Tesla by splitting their attention.
To be clear about my statement: I think it's totally possible given the sensationalism around Tesla. Whether it is happening or not is a whole different matter. Hence my interest in watching their stock price when this sort news hits the press.
I don’t recall seeing this level of skepticism levied in the recent positive article about Tesla’s recent quarter finances. Maybe it’s just that people who are rabidly pro-Tesla have decided to dress up their conspiracy theories and victim complexes in the guise of skepticism.
I think the title of the article slightly overstates what is being reported. "Misstated Production Figures" makes it sound as if Tesla lied about what it had produced, as opposed to just giving unrealistically rosy projections.
I can definitely see how Musk's "funding secured" tweet crossed the line into potentially criminal behavior, but honestly, I have a hard time seeing how overly optimistic projections can be criminal if there is even an iota of a possibility that they could be met, no matter how unlikely.
> I have a hard time seeing how overly optimistic projections can be criminal if there is even an iota of a possibility that they could be met, no matter how unlikely.
This is a public company, not an Avengers movie trailer.
They can't just conjure arbitrarily positive numbers out of thin air.
Their statements to investors and potential-investors must be fact based and made in good faith.
Otherwise, what's wrong with Musk's tweet?
I'm sure there was "an iota of a possibility" that someone crazy enough would buy Tesla at $420.
There's "an iota of a possibility" for a lot of far-fetched scenarios, but public companies must be truthful and reasonable in their statements made to the investing public - especially when they err on the side of optimism.
I know, and I totally agree with you. Just my point being the things that were potentially criminal were the false statements of fact (e.g. "investor support is confirmed"), not his opinion-based forward-looking statements.
Musk was offered a settlement, he refused at the 11th hour, the SEC threatened to sue for everything, then he settled for a higher amount than the initial offer.
What remains is convincing a judge that the settlement is just.
It depends on whether Musk stays within the terms of the settlement, and whether the SEC has the courage to pursue any breaches.
The SEC is not exactly at the forefront of enforcement though, despite its title. The Madoff Ponzi scheme was discovered by Harry Markopolos, who reported it to the SEC, and the SEC sat on it for many years before any action was taken.
“Funding secured” made it much worse, but it wasn’t fine without it. Tesla told the SEC that Musk’s tweets are company communication (http://ir.tesla.com/static-files/6496fc94-630f-41c7-96c6-94d...: ”For additional information, please follow Elon Musk’s and Tesla’s Twitter accounts: twitter.com/elonmusk and twitter.com/TeslaMotors”). That puts them in a different league.
It's not clear to me that they'd be irrelevant if not explicitly specified as company communication in a shareholder letter. In any case, the past-tense "funding secured" is precisely what makes the statement lose the protection of speculative forward-looking statements.
It may be a regional thing but it's pretty normal in my experience to see a solution to a problem be put out there with the following statement be a statement of confidence in the past tense. For example: "We have to increase our bandwidth. Problem solved."
This completely misses the mark that "I'm planning to take Tesla private" is in fact a factual statement as there is possibility inherently built into the statement. Of course it is ok to say facts. On the other hand, if he would have said "I'm taking Tesla private", we once again get into murky waters.
I'm sure there was "an iota of a possibility" that someone crazy enough would buy Tesla at $420.
Yes, but that is far cry from funding secured. Which company doesn't try to convey the image that they are the best thing the world has ever had the fortune of experiencing?
Right, the claim was that he should be allowed to make any statement as long as there's "an iota of possibility" that it is or will be true. That's obviously not the case.
Elon's using optimistic projections all the time to motivate the company and all other companies working with Tesla as well. The problem is that - as with any project - if the stated goals would be less, the real outcome would decrease as well. Of course weather it's legal to be optimistic or not is an orthogonal question, but it makes sense in leading a business.
Now, I know what you are saying and I’m all for Musk and SpaceX but... it’s a bit funny to think of rocket launches as a buisness where over promising and under delivering makes sense!
Well, misleading statements to your shareholders can still result in lawsuits. Lawsuits over this stuff regularly happen even within closely-help family companies. If you really want freedom to make up numbers the only thing to do is not have shareholders. Keep the company all within a single individual. But at that point why even bother making official projections.
That is true, but you know what else is true? This is a public company, not an Avengers movie trailer.
Their critics can't just make up criticisms that make no sense. They stated clearly that the number and rate of improvement could shift to the right and the long-term material impact to their business would be negligible.
As an IT person, my observation is public companies make similar claims when it comes to IT projects. Claims like we are going to use IBM Watson to improve our call resolution speed by 80%. Only for the project to fail after millions spent with no consequences. Many ERP projects are late and cost twice the budgeted amount. The point I am trying to make is executives always exaggerate.
IT and Finance are completely different fields with very different rules. One can't simply apply one's understanding of one field to the other (which, sadly, seems to be the rule on HN).
The first reason why rules are different is because in one case (IT) you're dealing with a seller-customer relationship, and in the second (Finance) you're dealing with a investor-company relationship.
Second, public equity markets are a heavily regulated environment, for many reasons, and require strict rules to function to avoid widespread fraud, market manipulation, insider trading, etc.
This is similar to Healthcare as well. You can't just go selling a random untested drug claiming that it cures cancer.
And they should be different because of different configurations of power and impact. Investing isn't just buying a product or a service, it is allowing someone to use your money freely within certain conditions.
I agree when IT is viewed as seller-customer. However, in many corporations whose primary business is not IT, IT is the enabler. In the same way, a mining company will invest in big earth moving machines, knowledge companies such as insurance companies and even retail companies build or buy IT solutions to gain efficiencies in their business. The IT system does, in fact, have an impact on the profitability of the company.
It would be an issue if the cost of the project had a material impact on the company's finances. Usually the auditors work with the CFO to determine materiality.
It goes without saying that stating a production capacity of 20k/month and barely making 10% of that, is more likely to be a material misstatement.
> The point I am trying to make is executives always exaggerate
This statement is ridiculous and has zero basis in fact.
If the majority of executives around the world were lying on a constant basis businesses would never be able to function. Companies would be constantly under threat of law suit or government investigation and they would never stand up to independent audits. The board would be untenable and internally it would be pure chaos.
Also marketing claims that companies make are often very much real they just don't apply broadly and you should ignore them accordingly.
That's how I interpret Musk's statements. They've got the same "aspirational" feature as software projects. Completely unrealistic goals outside of some everything-is-easy-and-works-the-first-time utopia that doesn't exist.
I don't know if he's keeping this tendency to keep people interested, or just never adjusted to something closer to reality.
“Overly optimistic”, by definition, is asking for trouble.
I’m not a lawyer, but I think even just optimistic projections should be avoided at all costs in earnings forecasts. They may be fine, if accompanied with a zillion “if all stars align” phrases, but it’s a minefield best avoided.
Tesla has a lawyer, probably several, that know exactly how far company officers can go regarding making public projections. They can't do much if the CEO loves headlines and says whatever it takes to stay in them.
Tesla's General Counsel is Elon Musk's divorce attorney. The SEC settlement contained some not-very-subtle digs at his qualifications to keep Tesla/Musk within the bounds of securities regulations.
What would happen if Bill Gates says "Windows 10 is the best windows ever", is he misleading the stock market? What if he doesn't actually believe its the best Windows? Seems like trying to see a line between optimism and projections an that's idiotic. Seems to me that legally an accusation of misleading the stock market should happen only when putting fake data on official marketing reports or sales reports not about CEO's tweets.
"Windows 10 is the best Windows ever" isn't a projection, though. People wouldn't rush out to buy MS stock based on a statement like this. I hope not, anyway.
"We're going to sell 800 million Windows 10 licenses this quarter" would be a projection. People might buy MS stock based on something like this. Publicly traded companies routinely provide earnings guidance based on production/sales forecasts. And earnings guidance absolutely has an impact on share price. So if a company is knowingly providing unlikely guidance figures, they're also knowingly misleading the market.
I'm just speaking generally here. I don't know enough about the Tesla case to comment one way or another.
"Best ever" is a subjective statement, and most people would not take it as a neutral statement of carefully researched fact. Official corporate financial projections, on the other hand, are taken very seriously. People expect they might be wrong, but not that they might be fraudulent or negligent with regards to the truth.
Consider: yesterday Amazon announced quarterly results and projections. It wasn't very rosey: next quarter will see growth, but less than usual. The stock took an immediate 10% hit.
Now, what if they had been 'optimistic'? Well, they might have said "yeah we're going to keep hitting growth targets!" And the stock would have done very well today. All those employees holding stock would have seen a nice boost to their bottom line.
But it is the responsibility of a publicly traded company to provide such accurate forecasts to the best level they can so that the stockholders- members of the public like you and me- can make decisions based on facts, not hopeful opinions. Amazon had to tell the truth even when it personally cost everyone in the company some net worth.
This is just one cost/responsibility that comes with being publicly traded.
"Windows 10 is the best windows ever" is not a statement of fact that has a direct impact on a stock's earnings and price. "We are going to sell and ship ten billion Xbox Ones" does.
You're almost certainly right that the part about this being a "criminal probe" seems wrong, but there are possible legal issues from a civil perspective.
While it's not enforced that tightly by the SEC, it's common knowledge in banking that, for instance in the process of an IPO (or in the offering of any security to the public, i.e. quarterly reports), you should always show pessimism in your outlook. Take Snap's S-1 [1], for an example-- I linked to the Risk Factors section, and you can see a huge amount of bullet points of everything that could possibly go wrong for Snap, even going into how Google could raise prices on cloud storage and screw them over.
While, again, I totally agree with you it isn't criminal, Tesla could be in trouble if they gave very idealistic estimates.
You call it pessimism, I call it outlining risks that could materially change the financial outlook of the business. People routinely underestimate risk and overestimate rewards.
I didn't downvote you. It remains the case that citing problems exclusive to its Opinion page, as you did in your first post, is a poor way of critiquing the news reporting section.
there are degrees of security, everything from "This bank account is secured by FDIC insurance" to "This touchdown secured his Heisman bid" to "You are secured to this lava helicopter by a piece of yarn"
There's no interpretation of the phrase "funding secured" in the SEC-regulated world which includes "I've had conversations with an investor who didn't immediately say no to the idea".
We don't change links like that because it's important for users to see what site an article is from. But it's ok to post workarounds in the threads, as you and others did.
UPDATE: Tesla says it has not received subpoena on Model 3 production.
Seems like very sloppy reporting at the WSJ especially when information like this can move markets.
> (Reuters) - Tesla Inc (TSLA.O) said on Friday it had not received a subpoena from the U.S. Department of Justice regarding production guidance for its Model 3 sedans, in response to a Wall Street Journal story that said the electric carmaker was facing a deeper criminal probe.[4]
>The FBI is reportedly looking into whether Musk or the company made projections which they knew they couldn’t meet. [2]
This is wild! This makes 0 sense because Musk admitted a few months ago that he was wrong about automation at the factories. If that is the case, Musk really did believe he could produce those numbers.
How is it possible to try someone of misstating something that was "impossible", when they constantly do the "impossible."
This is what he said a few months ago on CBS This Morning on April 12, 2018:
"“Excessive automation at Tesla was a mistake,” Musk wrote, responding to a Wall Street Journal reporter’s tweet. “Humans are underrated.” He also talked about this with CBS News’ Gayle King, adding “we had this crazy, complex network of conveyor belts….And it was not working, so we got rid of that whole thing.”"[3]
For those that cannot read the WSJ article, this is what I think are the important statements that the WSJ stated:
> A few months later in July, Mr. Musk sounded confident that Tesla would be producing 20,000 Model 3s a month in December 2017, in line with his previous pledge of having 5,000 vehicles a week by year’s end. “Looks like we can reach 20,000 Model 3 cars per month in Dec,” he tweeted on July 2, 2017, days before the first Model 3 rolled off the production line.[1]
> In the early weeks of production, the company’s body shop, where the skeleton of the cars would take shape, wasn’t fully functional, according to an October 2017 article in The Wall Street Journal. Tesla was still hand-building parts of the Model 3s, and the body shop wasn’t fully installed until September, according to people quoted in the article that were familiar with the situation. [1]
> Now the FBI is comparing the company’s statements with its production capability during 2017. [1]
>But it hasn’t been previously reported that the Justice Department is focusing on Tesla’s Model 3 production issues dating to early last year and that the criminal securities-fraud probe is intensifying.
Does that not imply that the "Justice Department is focusing on Tesla’s Model 3 production issues."
The production line is what you always see on TV when cars are being talked about. Yet this is 'final assembly' and just the integration of the other bits and bobs. Clearly 'final assembly' is important but it is not everything. Components and sub-assemblies matter too.
By analogy:
Things at Tesla happen in 'Elon time' and most fans of the brand are happy with that. For them it is like having a baby, with hopes that the baby will grow up to be a child reading '5000 words a month' before their first year of school, in a school that isn't fully built yet. They know that there can be problems 'building the school', 'sourcing books' and what-not and are okay with that. So long as they can see progress they are happy. After all the school has done an excellent job of 'educating older kids' albeit a smaller number of them.
Yet others who sent their kids to schools that follow a more orthodox curriculum come along wanting to do-down this rival school. They find what hasn't been done and latch on to 'the lack of progress on the main hall'. They ignore the 'well stocked library' and 'completed classrooms' and go running off to the authorities. How can the kids sit their exams with no assembly hall, they ask? And no, a 'hastily elected tent' won't do.
The authorities who aren't directly in the teaching game have to take on board the nay-sayers complaints. The opinions of the parents don't matter to them, they are listening to these outsiders wanting to do everything down. They don't know if these are technicalities or whether the parents were tricked into something that was never going to happen. So it all gets serious.
Apples to oranges. Theranos was never public, which is why they managed to escape scrutiny for years and "achieve" a multi-billion dollar valuation for a product that didn't even work.
Tesla on the other hand has been public for a while and actually makes working cars. They are however strapped for cash and the CEO may have made material misstatements about production capability in order to borrow more money.
Theranos' fraud seemed to be driven by simple greed. I don't think Musk is a fraudster, but his ego and immaturity is starting to overshadow what he's trying to accomplish.
Maybe? The recent numbers looked really good, so they might be out of the woods. Assuming they can keep the numbers up, and assuming the numbers weren’t the result of accounting tricks, I’d say it’s looking good for Tesla paying off their debts next year. If the numbers were massaged though, or if they aren’t maintained, they could be in trouble. Well have a better idea when independent analysis of the quarter comes out, and a much better idea when they start paying off their debts in 2019. I’d be cautiously optimistic personally, but not shocked if it turns out badly either.
TLDR : "Tesla didn’t immediately respond to a request for comment. The Justice Department and SEC declined to comment."
Edit : I'm not sure about why I'm downvoted. This article behind a paywall doesn't provide much more information than a freely accessible new agency. You would expect more information than just "X didn't respond to a request for comment". I'm denouncing the paywall here.
No one takes a company public for fun. They do it for funds. Especially for something like a car company that requires a lot of initial investment to get going. They can't start making money right away like a SaaS company might.
I think you're implying that, #1: There is a trend where public companies face unreasonable or unfair accountability laws, and #2: This case is an example of that. Am I off base? If not, #1 sounds like a reasonable argument could be made, though it would be better made explicitly rather than implicitly. #2, on the other hand, definitely needs elaboration.
If you are a CEO who's partial to headline-grabbing stunts over listening to what your corporate counsel is telling you about what you can legally announce, then yeah, you shouldn't go public.
Tesla and Musk are doing a lot of shady, semi-legal stuff. Public companies have a harder time getting away with that. So in this regard, yes, staying private is better.
It seems a bit silly to bash shorts for "spreading fake news" in defense of a CEO that settled with the SEC for demonstrably spreading fake news to combat shorts he perceives as persecuting his company.
Where's the -evidence-, as opposed to theories, that short sellers are actively and illegally manipulating the stock price with demonstrably false statements?
False statements like "I've secured funding to take Tesla private", for example...
It is hard to pay market rates in cash when you're a startup, and nobody wants to own shares they cannot sell; allowing sales without being public gets messy quickly; and there is also a limit to the number of shareholders before you are required to go public.
> and there is also a limit to the number of shareholders before you are required to go public.
You're never forced to go public, but you will be required to disclose financial data to the public if you have more than 1,999 individual shareholders and assets with a value that is greater than or equal to 10 million dollars.
Just don't accuse upstanding citizens of being pedos, or try to manipulate your company's stock price with false promises of buying it back at a premium and you'll be fine.
This time the shorts have them. This is very different that no demand, out of money in q3, can't make them, Wells notice, break, no batteries available, no lithium, all the execs keep leaving, autopilot broke, there's not really a big waiting list. This time it's different.
Personal view here but this is insane. Sure many people ( even his own employees ) told him it was impossible. That does not mean Elon thought it was impossible. People have been telling him that for forever now. Why are people so hellbent on attacking this wonderful innovative company?
As I've pointed out before, there's "Elon's crazy stuff that helps Tesla be innovative and trailblazing" and there's "Elon's crazy stuff that is has no upside for Tesla." Tesla fans -- to say nothing of Musk himself -- perhaps should be a little less defensive when people attack the crazy stuff with no upside, and I'd argue that he's been engaging in way too much of the "no upside" crazy stuff recently.
This most recent hullabaloo may prove to be nothing -- companies overestimate projections all the time -- but if they wildly overestimated projections in a way they knew was misleading, that's an issue. "People have been telling Elon his dreams are crazy forever" is true, but it's not necessarily a solid defense.
I think this is extreme, but let me try to answer it anyhow:
> Why are people so hellbent on attacking this wonderful innovative company?
To me, the simple answer is that there's basically a Newton's Third Law for PR. Imagine Musk had done PR in the style of GM or Ford. That any public pronouncements were quiet and modest. That results mainly spoke for themselves. Had he done that, I don't think he'd have picked up nearly as many critics.
But Musk has hyped Tesla to the heavens, creating an army of dedicated believers. This has given him great access to cheap capital, and an incredible amount of free media attention. But it also means that there are plenty of reasonable people who think that Tesla is not all that, and are tired of hearing about it.
That also explains the shorts. GM's short position is 1/10th of Tesla's. For every dollar Musk's PR efforts push up Tesla's stock price, that's a dollar that could be made by somebody who thinks Musk is overoptimistic.
> That does not mean Elon thought it was impossible.
If the people who are doing it tell him it's impossible and he reports that it is support to his shareholders that could very well be a crime because it may not be realistic. Misleading shareholders is a big deal.
> Why are people so hellbent on attacking this wonderful innovative company?
Possibly breaking the law has consequences and it needs to be investigated? I don't understand why so many in tech simply give Musk a pass just because he's done some really cool stuff.
Let's not make a mockery out of our selves to come to someone's defense who may or may not deserve it. Wait and see what happens.
> Why are people so hellbent on attacking this wonderful innovative company?
Why are people so hellbent on defending this company no matter how many idiotic things they (Musk mostly) do? Almost 100% of these problems are caused by Musk himself.
Even if we give Musk the benefit of the doubt about what he believes at minimum he is inept. CEOs should never be making public statements around sensitive issues like production numbers, funding etc without discussing it at length with PR and Legal first.
And nobody is attacking Tesla for the sake of it. They are doing it because his behaviour is sometimes abhorrent, childish, unethical and it often encourages others to do the same. And just like with Theranos entrepreneurs should be doubly critical of others who drag us all down.
I don't think Elon Musk is dragging us down. I think he's bringing us the future. Happy to be forgiving of his quirks since he's literally sacrificing his life to bring the world awesome stuff.
> Happy to be forgiving of his quirks since he's literally sacrificing his life to bring the world awesome stuff...
and make insane amounts of money. Which is perfectly fine in my book, but lets get off this hero worship. Giving people a pass on acting poorly because of who they are is never okay.
Musk is not the lynchpin to getting to the future. His antics are actively hurting his ability to deliver EVs, including wasting company resources on avoidable legal troubles because he’s mad at short sellers.
Killing yourself for your company is not admirable.
> I don't think Elon Musk is dragging us down. I think he's bringing us the future. Happy to be forgiving of his quirks since he's literally sacrificing his life to bring the world awesome stuff.
So, Elon Musk is the tech-Jesus? He died on the SEC to take us to Mars?
Personal view again. I aM convinced that the shorts are behind these media smear campaigns. Scumbags are guaranteed to lose their bets and they are doing their best to minimise damage. They don’t care abou innovation or climate change. All thy care is about their fucking money. Sorry about the rant and yes I am long TSLA. I have had enough illogical Twitter spats with some noted shorts to come to this conclusion.
This is fanciful. No short seller held a gun to Musk's head and told him to call people pedophiles, tweet about funding he never had, smoke weed on some idiot's podcast or have the personal life of a hip hop artist.
Also just because they're innovative and are solving climate change doesn't mean we all just have to look away all the time.
True and I don’t claim that musk is right always. He is human, makes mistakes, that doesn’t mean he is a criminal, which is what the shorts are implying with these smear campaigns.
It's not just shorts - We know that the Koch Brothers (as much as a boogyman as they normally are) are behind several PR campaigns, we know that Boeing has funded a set of campaigns that attacked Tesla. I remember when Falcon 9H launched, there a coordinate effort to bad-mouth SpaceX, because launching a Rocket with a car was "wasteful"....
You kick over a hornets nest, you better have a lot of raid on hand.
That said, the NYT has been consistently brutal to Tesla and SpaceX. Part of it is that they leave themselves open. They are being candidly honest and aggressive, and don't always make their goals..
But they shoot for the moon. If they miss, at least they make orbit, as opposed to plummeting back down to the ground.
> Federal Bureau of Investigation agents are examining whether Tesla misstated information...
FBI agents look into a LOT of stuff. That's literally their job. Frankly, I'm not going to think one-way or the other unless the FBI comes up with an official statement.
I think investors might need to be worried: you know, buy the rumor sell the news sorta thing. Investors / speculators are super interested in trying to predict the future, even with unreliable information like this one.
But for the typical person, we shouldn't make an opinion of the matter until the FBI at least brings forth a case.
