Elon Musk Is Having a Very Bad Week. So Are Tesla Investors

Elon Musk Is Having a Very Bad Week. So Are Tesla Investors

On Friday morning, Tesla's share price was down another 12% as investors anxious the auto company's leading light was finally out.

Musk clearly thinks Tesla can not run without him.

The Securities and Exchange commission is suing Tesla CEO Elon Musk, saying he harmed investors by tweeting in August that he would be taking the publicly traded company private. He had not secured the funding, the SEC alleges.

In its complaint, the SEC is seeking a court-mandated bar prohibiting Musk from serving as an officer or director of a public company. Musk said in a statement that the SEC's suit is "unjustified".

"Without him constantly putting out comments on Twitter to give investors the hope that one day they're going to get to where revenue and earnings to justify this valuation, the stock will come under tremendous pressure because people will be forced to focus on the fundamentals".

Short interest in Tesla shares totals almost $10.2 billion, with more than 33.1 million shares sold short, roughly 26 percent of its float, he said.

Wall Street analysts are nervous about the prospect of Tesla without its founder in the driver's seat. However, according to the WSJ, Musk's lawyers backed out of a settlement with the SEC prior to the filing the complaint.

Some analysts are concerned about what Musk departure could do to Tesla's stock.

'According to the private equity fund partner, the transaction structure that Musk was contemplating was "unprecedented" in his experience'.

'Despite this, we think the company will survive, ' he said. Product updates are frequently dispatched from his Twitter account, which has 22.7 million followers.

There could be some room for negotiation for Musk with the SEC that would leave him at Tesla's helm.

Employees in the California offices of Tesla and SpaceX said the SEC case had further weakened morale and distracted from their already gargantuan tasks: meeting Musk's hyper-ambitious expectations for revolutionizing driving and space travel.

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Apple survived without Steve Jobs, Brauer noted.

Hanging in the balance is Tesla, the $45 billion emblem of America's future in battery-powered cars. But a former SEC lawyer told Business Insider he disagrees with the agency's assessment.

This is only the latest, albeit the most severe, in a series of controversies Musk has drawn in recent months. I've included a transcription of the Tweets in the event they are taken down.

The Justice Department is also pursuing a fraud investigation against Musk that could bloom into a criminal case - a potential nightmare for his rocket firm SpaceX, which depends on government contracts.

But Musk's ouster isn't certain.

But the board's support will not end Tesla or Musk's bad run. On Friday, he tapped Chris Clark, a US attorney who successfully defended Mark Cuban from insider-trading charges, to head up his defense.

She also spoke on the record about the day that Musk sent out that tweet, having been with Musk as she and Grimes was recording together in the studio.

That, in turn, could make it more hard to raise more money to stay alive, particularly in the coming months, with $1.3 billion in debt payments coming due by early next year.

Whoever runs Tesla will oversee some serious problems.

Musk has driven the company to the verge of profitability with a costly ramp-up of production of its Model 3 sedan over the past year.

The SEC has the power to levy fines on directors and companies if they are proven to have misled investors. Lenders could be reluctant to throw money at Tesla when the chief executive is facing a potentially lengthy court battle. Established automakers including Audi, BMW and Mercedes are making big plays for the market.

The commission's suit may go down as a famous reminder to investors that wildly bullish statements from CEOs should be treated with skepticism.