Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Mars ☰mperor]

3% price increase has not happened yet?

So Tesla will wait until it's Tuesday everywhere on planet earth?

 

[SPadival]

@ZachShahan Brilliant writing especially the first paragraph - up there with Matt Taibbi’s “vampire squid” lede

Let's Be Honest — There's A Campaign To Push Elon Out ... In Order To Harm Tesla | CleanTechnica

 

[Tslynk67]

Could it be possible that the judge decides that the original agreement is clearly too open to interpretation, so a way forward would be to tighten the terms, tell Elon to comply and instruct the SEC on what they can, or can not, go after?

 

[Fact Checking]

That is not that surprising considering total weekly production rate is probably somewhere over 7,500 cars (S/X/3), and considering how many thousands produced but not delivered are sitting on ships in transit.

Actually, total S/X/3 production in the final two weeks could easily be beyond 8,000 units per week, and possibly as high as 9,000 units per week: Gigafactory has been making more than 6,000/week Model 3 LR battery packs per week since late November according to the (so far very reliable) Carsonight, while "flirting with 7,000/week" production speed, and Fremont has a demonstrated capability to make 2,000 S+X units per week.

 

[lklundin]

The SEC come across as extremely emotional and unprofessional both in their language and in their actions over this whole case. Whether or not Elon was stupid to taunt the SEC and not to take a cautious approach and get Tesla sign off on all of his Tesla tweets (I think he was stupid but its all trivial nonsense and he did nothing to deliberately harm or mislead shareholders), it is clear the SEC is not motivated by shareholders interests here. It reads far more like a personal dislike of Elon, together with using a high profile case to expand the SEC's authority and to build the CV of the SEC lawyers.

Jina Choi who pushed the original SEC case against Elon has now been made a partner at Morrison & Foerster's (working on SEC compliance cases) by the way. Given the SEC's rules are so opaque and arbitrarily enforced clearly it helps to hire somebody with experience there.

After Elon Musk's "The emperor is not wearing any clothes" the SEC has been exposed as nothing but a paper tiger, so now they want to get back at him.

Seeing this kind of vindictiveness from a government regulator is very troubling.

I hope the judge's sentence will lead to some kind of change.

 

[Fact Checking]

I'm reading through the SEC's response, and their First Amendment arguments seem particularly weak:

B.
The Pre-Approval Requirement Does Not Implicate the First Amendment.

Musk’s First Amendment argument also fails because it rests on the false premise that the pre-approval requirement imposes a prior restraint on his speech. Dkt. No. 27, at 20-22. Submitting his written statements for pre-approval does not, as Musk baldly asserts, mean that he is prohibited from speaking. Dkt. No. 27, at 23. As long as a statement submitted for pre-approval is not false or misleading, Tesla would presumably approve its publication without any restraint on Musk. And if the proposed statement is false or misleading, then any restraint on Musk’s speech would be constitutional even if it involved state action. See Romeo & Juliette Laser Hair Removal, Inc. v. Assara I LLC, 679 F. App’x 33, 36-37 (2d Cir. 2017) (prohibition of speech that is false, deceptive, or misleading does not violate First Amendment) (citing Safelite Grp., Inc. v. Jepsen, 764 F.3d 258, 261 (2d Cir. 2014); Democratic Nat’l Comm., 673 F.3d at 204-05).​

The SEC's own original contempt motion cites how that reading of the settlement with the SEC is interpreted by journalists:

"Lesley Stahl: Have you had any of your tweets censored since the settlement?

Elon Musk: No.

Lesley Stahl: None? Does someone have to read them before they go out?

Elon Musk: No.

Lesley Stahl: So your tweets are not supervised?"​

The SEC effectively invites Elon's reply to quote those questions verbatim, and invites him to testify again that he is effectively applying self-censorship to preemptively avoid conflict with the SEC.

Does the SEC really think that their additional demand to get ALL tweets about Tesla, even those which do not or could not contain material information, "supervised" and possibly "censored" through a court order imposed mechanism does not constitute "prior content-based restraint" on Elon's speech??

The SEC's filing is also entirely silent and keeps unchallenged much of the legal arguments Elon's team raised. Elon's team raised the legal argument that the SEC's interpretation is not just "prior restraint", but has "chilling effects" on Elon's speech as well. They cited relevant precedents that if there's a way to construe a court order to not have such restraint and chilling effects then a court must do so.

Here's the legal arguments Elon's team raised:

Prior restraints on speech “are the most serious and the least tolerable infringement on First Amendment rights.” Nebraska Press Ass’n v. Stuart, 427 U.S. 539, 559 (1976). “A prior restraint . . . has an immediate and irreversible sanction.” Id. “[While] a threat of criminal or civil sanctions after publication ‘chills’ speech, prior restraint ‘freezes’ it.” Id. Moreover, “[w]hen a prior restraint takes the form of a court-issued injunction, the risk of infringing on speech protected Notably, the SEC’s interpretation is not limited to Twitter. The SEC could apply its rule to statements made “in any written format,” including press releases, blogs, website postings, and, even more expansively, any written materials, notes, Q&A, and scripts used for preparation for public statements such as earnings calls.

In light of these concerns, “[a]ny imposition of a prior restraint . . . bears ‘a heavy presumption against its constitutional validity.’” Quattrone, 402 F.3d at 310 (quoting Bantam Books, Inc. v. Sullivan, 372 U.S. 58, 70 (1963)). A content-based prior restraint, like the restraint urged by the SEC here, would be subject to review under strict scrutiny, “requiring a showing that the restriction is ‘narrowly tailored to promote a compelling Government interest.’” John Doe, Inc. v. Mukasey, 549 F.3d 861, 871 (2d Cir. 2008) (quoting United States v. Playboy Entm’t Grp., Inc., 529 U.S. 803, 813 (2000)); see also Carroll v. President & Comm’rs of Princess Anne, 393 U.S. 175, 183 (1968) (a prior restraint “must be couched in the narrowest terms that will accomplish the pin-pointed objective permitted by constitutional mandate and the essential needs of the public order”).

As the SEC interprets and seeks to enforce it, the Order’s injunction is a de facto gag on a broad spectrum of statements implicating Tesla. Were the Order interpreted in this fashion, it would plainly fail strict scrutiny review. The government’s legitimate interest (shared by Musk) in protecting shareholders can be and has been served through less-restrictive means. These means include allowing Musk the discretion to make good-faith determinations of materiality (which is what the Order actually says) or by having the SEC go through normal enforcement proceedings under Rule 10b-5 targeting specific communications that the SEC contends are actionable.

Even prior violations of Rule 10b-5 or other statutes or regulations cannot justify an otherwise unconstitutional prior restraint. An injunction against future expression issued because of prior acts is incompatible with the First Amendment. Gayety Theatres, Inc. v. City of Miami, 719 F.2d 1550, 1551-52 (11th Cir. 1983). Reno v. ACLU, 521 U.S. 844, 874 (1997) (finding unconstitutional a statute that threatened to censor speech because such a burden is “unacceptable if less restrictive alternatives would be at least as effective in achieving the legitimate purpose that the statute was enacted to serve”).​

These are powerful arguments and the SEC's reply keeps that line of argument entirely undefended. The phrase "chilling effect" is not mentioned even once in the SEC's 60+ pages of reply...

The only response the SEC's filing seems to be offering is what appears to me is a willfully amateurish mis-reading of the powerful constitutional arguments Elon's lawyers have raised:

C.
Authority to Enforce Its Order Is Vested with the Court, Not the SEC.

Musk’s argument that enforcement of the terms of the Court’s order exceeds the SEC’s authority is equally flawed.

[... full paragraph omitted ...]​

That SEC argument fails in the first sentence already, because the SEC is basically making a straw-man argument: Elon's lawyers did NOT argue that enforcement of the settlement rests with the SEC, and their constitutional arguments and precedents are all about cases where the Constitution puts limits on court orders ...

Again a big swing and miss by the SEC lawyers, effectively summed up and countered by Elon's prior filing already:

The SEC’s desire for such a sweeping prior restraint on speech, effectuated not through some formal statutory authority granted to the SEC by Congress but through a contempt proceeding, must be rejected by the Court.​

Anyone near the District Court, S.D. New York should consider showing up for the eventual hearing - I'd expect there to be some real fireworks, legally speaking ...

Also note that eyewitness description of the demeanor of SEC lawyers within court is not something usually captured in the court records or regular press reports, so if anyone attends and makes notes (audiovisual recordings will probably not be allowed), that could make for an interesting and exclusive reading.

But from what I've read from the SEC's reply motion so far the SEC is bringing a knife to a gunfight...

 

[Dan Detweiler]

@ZachShahan Brilliant writing especially the first paragraph - up there with Matt Taibbi’s “vampire squid” lede

View attachment 387997

Let's Be Honest — There's A Campaign To Push Elon Out ... In Order To Harm Tesla | CleanTechnica

Extremely well done. I shared this one everywhere I could.

Dan

 

[Fact Checking]

Preview of Judge Nathan’s response to SEC:

Hopefully it's not a literal quote of Judge Nathan's response though - that would be highly prejudicial to the SEC and would be grounds for appeal, reversal and selection of another district court judge ... definitely not something we want!

 

[mongo]

They are different stats when confined to a given quarter. You can deliver cars produced in a prior quarter and produce cars that may be delivered in a future quarter.

Tesla’s tactic to deliver to customers nearest at quarter end minimises the discrepancy.

I think @elasalle was refering to the potential delta between the two numbers. The difference between production and deliveries (with deliveries being higher) cannot exceed the previous sum of inventory and overhang, both of which were minimal at the end of Q4 2018:

1,010 Model 3 vehicles and 1,897 Model S and X vehicles were in transit to customers at the end of Q4, and will be delivered in early Q1 2019. Our inventory levels remain the smallest in the automotive industry, and we were able to reduce vehicles in transit to customers by significantly improving our logistics system in North America.

I'd call that within the 'around' margin of error, especially since it is doubtful Tesla will have less of both with increasing production rates.

Ahem, $40m + costs

+losses since Elon bought the 20 million in the $350s, plus payouts from the SEC to those who took a hit due to SEC's intra week filing that tanked the stock price and caused higher margin requirements.

 

[Fact Checking]

Musk’s lawyers told the SEC that not one tweet was reviewed pre publication

As Elon's lawyers explained it already in their previous filing on March 10, Elon applied effective self-censorship when the settlement's disclosure requirements went into effect, he consciously avoided tweeting anything that is or could be construed as material information about Tesla, in a (failed) effort to de-escalate the conflict with the SEC.

But the SEC decided to attack again (for unknown reasons), by accusing Elon of tweeting "potentially material information", and moving the court to sanction Elon for this imaginary violation of the settlement agreement.

There is very little Elon could have done to avoid this conflict, which conflict the SEC actively sought, and it's IMO the right decision to stand up against the SEC with one of the top trial law firms of the country. Their motions have a laser focus and are a pleasure to read, while the SEC motions are often embarrassingly cringeworthy.

 

[Tslynk67]

Never, ever though that once I ah investedin $TSLA that I'd be subjected to all this... It's serious chronic stress, one can understand why many retail investors choose to sell. The only way to weather it, for me, is to stay long.

Now, something else... I'm at Brussels Service Centre, picking up my MX (had a P90D loaner, which was an absolute scream, shame it was raining so much over the weekend). So what gives, according to service rep:

- Belgium is cureently delivering 400 M3 per week, which is astonishing...
- Deliveries from Brussels have ceased, because the facility is too small to cope
- Deliveries are now out of the other Tesla stores: Ghent, Antwerp, Hasselt
- Technicians and other staff are helping with deliveries
- Service is centralised in Brussels, no longer given from the other centres
- ...which goes a bit agaist the idea of expanding service, BUT they ramping up the ranger service, which hasn't really been utilised much until now
- New sales still in the 60 per week range, demand is huge for Belgian standards

 

[Fact Checking]

Just another example of cringeworthy arguments from the SEC's latest filing. In a footnote they are trying to support their argument that the "about 500k" tweet was material information by misleading about Tesla's Model S/X guidance:

Musk also obliquely references a public statement about Tesla’s Q4 2018 production achievement and “long term run rate” for its Model S and Model X vehicles as somehow supportive of his claim that the 7:15 tweet was immaterial. See Dkt. No. 27, at 10. The purported significance of this backward-looking statement is difficult to discern from Musk’s brief. Regardless, it does not change the fact that Tesla had not issued any guidance for total 2019 production as of the 7:15 tweet.​

This is the prior Model S/X disclosure and guidance Tesla made in their Q4 delivery report, which the SEC's lawyers do not deign to quote in full (but Elon's lawyers did):

"25,161 Model S and X vehicles, consistent with our long-term run rate of approximately 100,000 per year."​

That statement is partly backwards looking in terms of quoting Q4 production numbers, but it is also forward-looking in part by reiterating their Model S/X long-term run-rate of 100,000 per year. No communication after this changed that baseline S/X production guidance.

The SEC's filing is purposefully misconstruing that guidance by arguing that this disclosure was only backwards looking and that it included no forward looking elements at all. It's close to a disingenuous argument.

And yes, the significance of this guidance is only "difficult to discern" if the plain understanding of that phrase is fatal to the SEC's materialness argument.

The SEC is also completely wrong about:

Tesla had not issued any guidance for total 2019 production as of the 7:15 tweet​

That's wrong, unless the SEC is arguing that investors are unable to perform primary school arithmetic and add ~100k long-term S+X guidance to the 350-500k Model 3 guidance range.

But Elon's lawyers probably already foresaw that argument and defeated it with this powerful citation in their previous briefing:

see also In re Nokia Oyj (Nokia Corp.) Sec. Litig., 423 F. Supp. 2d 364, 397 (S.D.N.Y. 2006) (“In reviewing forward-looking statements, courts are instructed to consider the total mix of information and are supposed to bear in mind that disclosure requirements are not intended to attribute to investors a child-like simplicity. Rather, investors are presumed to have the ability to be able to digest varying reports and data.”​

Note that the citation is a recent one from the S.D.N.Y., so it's a controlling precedent:

#50 in Greenfeld v. Nokia OYJ (Nokia Corp.) (S.D.N.Y., 1:04-cv-02646-KMK) – CourtListener.com​

Also note that this opinion was written by Judge Kenneth M. Karas United States District Judge, who sitting on the same court Judge Alison Julie Nathan is sitting.

I.e. the SEC is asking the court to ignore a recent precedent established by another judge at the same court. They don't even mention and address the precedent in their reply motion...

Good luck with that.

 

[Navin]

Looks like u can no longer order model y SR on website anymore. Is that new?

 

[Fact Checking]

Looks like u can no longer order model y SR on website anymore. Is that new?

Model Y Standard Range was never available in the configurator - the first configurations Tesla is going to ship are Performance, Long-Range AWD and Long-Range RWD.

 

[Tslynk67]

Another data point, someone arrived in a Panamera to test-drive a Model 3

 

[Fact Checking]

Another bad argument from SEC lawyers, from their latest filing:

"While deliveries and production could differ somewhat, in recent periods, Tesla’s annual deliveries have closely tracked annual production. In 2018, for example, according to the company’s public statements, Tesla produced 254,530 vehicles and delivered 245,506 vehicles."​

Here the SEC is ignoring two factors:

• Firstly, they are ignoring the rapid expansion of Model 3 production and the related lengthening of the logistics delivery routes, which will in 2019 span five continents, while in 2018 it was in North America only. At such such a rapidly expanding production rate a significant gap between deliveries and production is entirely expected, especially as the China Gigafactory might be ramping up at the end of the year and might have more inventory than desired: for example cars that did not pass QA and have to be reworked in January.
• Secondly, there's nothing wrong with Tesla guiding more conservative delivery numbers (360k-400k) that does not cover the upper range of production guidance: Elon's tweet only talked about 'make around 500k cars in 2019', which is about approximate production.

Why is the SEC ignoring those factors? Because acknowledging them would be fatal to their materialness argument, on which their whole case depends.

 

[cricketman]

Another data point, someone arrived in a Panamera to test-drive a Model 3

Ah man, I love my PM3 so much. Better than any Porsche in my book. I had to drive my wife's Honda CRV the other day and I couldn't stop laughing, the thing was pathetic, like going back to using a typewriter after using a smartphone for a month. We will be ordering a Model Y in a couple of months after our house purchase goes through.

I often find myself getting nervous about the share price. I have over 1,000 shares now. The whole narrative around Tesla beggars belief and unfortunately the majority of people I talk to believe it. The only way to disprove any of this is just tell them how great your car is, and maybe even give them a test drive. The rest is just noise.

The share price will sort itself out eventually, but there are only 3 triggers that will make it take off; sustainable quarterly profits that keep getting higher, proper Full Self Driving that's streets ahead of the competition, or evidence that demand is way above production. Any of these should double the share price within a few months, if all three of these triggers line up then we will go stratospheric

 

[Chartered321]

Internet is against Tesla. Every day there's a bad news and the media industry found in Musk & co. something real effective to feed the masses and monetize on that. People want to read about failure, less about success and Tesla is easier to understand compared to AI, cyber seecurity or biotech. Institutionals have short term time horizon, so Elon's guidance is negative and sentiment follows. It's not rocket science how bankers think. Don't be fooled by people who don't need to earn money anymore but just to show little smart thoughts at clients' meetings and dinners with friends . The risk averse ones wait for profitability to avoid any debt concern. High risk aversion is human nature, so keep tight another 4 months. Then negative cash flows are gonna be only a memory of the past.
So you don't wanna be out of the game when fear switches into greed: deliveries, production and execution of plans will eventually tell the truth.

 

[SPadival]

So Boeing, kills 2 plane loads of people. Stock drops about 10%. Elon tweets and stock drops 15%.

But but.. Boeing advertises heavily on Chuck Todd's Meet The Press Press The Meat MSNBC show - lots of potential buyers amongst the viewers /sarc

 

[AlexS]

Never, ever though that once I ah investedin $TSLA that I'd be subjected to all this... It's serious chronic stress, one can understand why many retail investors choose to sell. The only way to weather it, for me, is to stay long.

Well there will be a lot of new and old investors coming in at 260 levels. Price is too attractive. Risk-reward at current levels is pretty good