Opinion: Elon Musk has jokes, but Tesla suffers the consequences

Elon Musk is seen as the face of Tesla Inc., but as the electric-car company deals with yet another storm of bad news, the constant smirk he wears is growing even more worrisome.

Musk gave the impression of having a blithe disregard for Tesla’s TSLA, -5.13%  financial situation with a series of tweets on April Fools’ Day that joked about Tesla going bankrupt. Most of Musk’s loyal fan base were amused, citing his unusual iconoclastic behavior as one of the reasons they love him. But a small minority tweeted back to Musk that his comments were inappropriate as the CEO of a publicly traded company.

Investors voiced their displeasure Monday, with Tesla’s shares falling 5.1% to close at their lowest level in more than a year. Monday’s decline added to a drop of almost 25% in the past month amid a torrent of bad news that has cost Tesla about $14.5 billion in market cap, as the S&P 500 index SPX, -2.23%  has declined 4.1%. Tesla’s current woes include concerns about whether or not it can make its production goals for the Model 3, a Moody’s downgrade that talked about a potential liquidity shortfall amid rough trading for Tesla debt, a recall of 123,000 Model S vehicles and a fatal crash of a Model X using Autopilot in Mountain View, Calif., just to name a few.

The myriad concerns about the company seem to be of little concern to Musk, who spent Monday going after journalists on Twitter for their choices of article topics while claiming he did not have time to actually grant an interview. Tesla did not respond to questions about the tweets nor their impact.

MarketWatch previously stated that Musk’s cavalier attitude toward forecasts and accurate public statements is worrisome and needs to change. Instead, Musk has seemed to move the other way, turning his critics’ legitimate concerns into jokes for his true believers.

Musk’s statements and actions could have real consequences for Tesla, however, and are no laughing matter. For an example, look at a little-noticed legal decision that arrived last week amid the maelstrom of other news Tesla and Musk confronted, the result of a move Musk made without seeming to grasp the potential ramifications.

A Delaware judge on Wednesday denied a motion to dismiss a shareholder lawsuit stemming from the SolarCity acquisition. That lawsuit makes a credible case that Musk — a major investor in SolarCity, which was founded and run by his cousins — forced an acquisition as the solar firm faced serious questions about its finances and future.

Tesla had sought to have the case dismissed, as the lawsuit claimed that Musk — who currently owns about 20% of Tesla, according to FactSet, after having his SolarCity shares converted in the merger — was a “controlling shareholder” of the company. The judge ruled that Musk was in fact a controlling shareholder, as he stacked the Tesla board with friendly faces, some of whom were also invested in SolarCity, and used Musk’s own carefree statements as evidence.

“At the very least, the complaint pleads sufficient facts to support a reasonable inference that Musk exercised his influence as a controlling shareholder with respect to the acquisition,” Delaware Vice Chancellor Joseph Slights wrote in his opinion.

The SolarCity case still has a long way to go after this preliminary decision based on a rather loose standard that does not give an indication on the merits of the case, said Francis Pileggi, an attorney with Eckert Seamans, who focuses on commercial and corporate litigation and maintains a blog on corporate litigation in Delaware.

“It would be too early to celebrate if you were one of the plaintiffs,” Pileggi said. “You just got your foot in the door, it doesn’t mean you are going to enter the room. You didn’t have the door slam in your face.”

However, through that open door could be plenty of important information about Tesla, as the ruling gives discovery rights to the suing shareholders. The ability to receive more information about what occurred behind closed doors could lead Tesla to decide to seek a settlement, which would send more of Tesla's dwindling cash out the door.

With the surety of the case moving forward, and discovery now looming, “settlement is always a possibility,” Pileggi said.

The SolarCity acquisition put more than $3 billion in additional debt into Tesla’s already-clogged accounts, saddled Tesla with a business that is far from a sure thing and has little to do with its core automotive business, and added yet another complicated manufacturing launch to Tesla’s to-do list with the so-called “Gigafactory 2” near Buffalo, New York. For the pleasure of adding all of that, Tesla paid out about $2.6 billion in stock (at the time), diluting Tesla shareholders, and now may be forced to pay more to its own investors.

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Tesla faces potential consequences if Musk continues to act impetuously and cavalierly, with little to no regard to laws, customs and regulators. Yet he continues to do so, seemingly with even greater frequency and abandon: On Sunday, the National Transportation Safety Board said in a rare public rebuke that it was unhappy that Tesla revealed detailed information from the Model X Autopilot crash that the federal agency is investigating, including the suggestion that the driver had time to put his hands on the wheel and react.

Musk’s iconoclastic attitude helped turn Tesla from a failing startup to a worldwide phenomenon and won him a legion of devoted fans. That same off-the-cuff, know-it-all attitude could be incredibly damaging for a large public company with billions of dollars invested in it that is currently facing intense scrutiny. Just as Tesla needs to change from that scrappy startup to a manufacturing powerhouse to live up to its potential, Musk must leave behind the jokes, confrontations and unreasonable projections to avoid ruining his company’s chances.