What Elon Musk’s SEC Settlement Means for Tesla

Piggybank discusses Elon Musk share price

Since Elon Musk’s erratic behavior in the past few weeks has caused significant changes in Tesla company worth, the general public and especially stockholders want to know what effect the settlement will have on Tesla’s value.

The good news is that in the short term, Tesla appears to be thriving and their settlement means good news for investors. The news that Elon Musk was settling with financial regulators sent the stock soaring on Monday morning. In the United States, shares were up more than 15%. However, the news is somewhat mixed, given recent events.

The downward spiral seems to have started with the company’s recent production struggles. Unsure of their demands to meet their production goals for the Model 3 sedan, Musk appeared to be focusing on criticism and was vocal on social media. In a recent tweet, Musk reported that the company would be privatized. Additionally, a highly publicized interview where Musk was smoking marijuana came under fire when he said that shares might sell for $420, a number popular in marijuana culture.

Although known as the creative engine behind Tesla, the Elon Musk 420 tweet and erratic behavior caused the SEC to investigate. After his tweet on August 7, there was an immediate surge in Tesla shares. The SEC began investigating and then sued Musk. This lawsuit had a devastating effect on Tesla and their stock dropped almost 14% in response.

Seeking to settle with the SEC, the initial settlement was believed to include barring Musk for serving as chairman for two years in addition to paying a $10 million penalty. However, Musk rejected these initial terms.

Just two days after initially suing Musk in federal court for misleading investors, Musk and the SEC have come to a settlement. Tougher than the initial terms, Musk has agreed to step aside as chairman for three years and will pay a $20 million fine. This deal will allow him to remain as chief executive and it’s likely that he will stay active in the company. Tesla is also settling with the SEC and although they were not charged with any fraud, will pay a $20 million penalty.

Although investors have been concerned with the variations in Tesla share price, the actions taken by the SEC may actually be beneficial for both Musk and Tesla. Musk has been noted to be a workaholic and struggles to take time off of work. By limiting his executive power in the company, it may be possible for him to focus more on the creative side of Tesla, which has historically been his stronger area.

Investors also hope to see fewer variations in Tesla’s stocks. With more measured leadership at Tesla, it’s anticipated that the company will fluctuate less on the market. However, one of the predictors of the company’s future is their ability to deliver on new production models. Although executives believe that Tesla is close to becoming profitable, the company has yet to deliver on that claim. Elon Musk’s settlement caused mixed effects but may ultimately help Tesla to refocus on their initial goals.