FBI news stalls Tesla's Model 3 momentum — briefly

Benjamin Spillman Reno Gazette Journal

Published 6:07 PM EDT Oct 26, 2018

That was fast.

Within about 48 hours of a heady earnings report that sent Tesla Inc. stock shooting upward, another round of bad news halted momentum.

A report by the Wall Street Journal on Friday said the FBI is looking into whether company officials misled investors about production of the Model 3 sedan.

The report was based on unidentified sources, but it was enough to disrupt investor confidence. But within hours the stock recovered much of the losses.

Tesla’s stock dipped about 6 percent, from above $339 per share around 1:05 p.m. EDT to less than $319 at about 2:05 p.m. The Wall Street Journal article had a 1:57 p.m. time stamp. It has since been updated.

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Tesla shares recovered a portion of the dip and still closed the day at $330.90, good for a 5 percent increase above the opening price of $308.25 but below its peak on the day.

The report stated federal investigators are examining whether Tesla misstated information about Model 3 production and company business dating back to 2017.

It also stated FBI agents have contacted former Tesla employees seeking testimony in a criminal case.

The paper reported that the Justice Department and Securities and Exchange Commission declined to comment.

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In a statement in response to the Wall Street Journal article, a Tesla spokesperson wrote: “Earlier this year, Tesla received a voluntary request for documents from the Department of Justice about its public guidance for the Model 3 ramp and we were cooperative in responding to it. We have not received a subpoena, a request for testimony, or any other formal process, and there have been no additional document requests about this from the Department of Justice for months.”

In addition to its car factory in Fremont, Calif., Tesla, along with Panasonic North America, operates the Gigafactory battery factory east of Sparks in Storey County.

The factory produces batteries and drive trains used in Tesla cars. It also employs thousands of Nevada workers. The employment along with billions of dollars in capital expenditures are the reason Nevada Gov. Brian Sandoval and the legislature in 2014 approved an incentive package worth $1.3 billion over 20 years to convince Tesla to build in the state.

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The Wall Street Journal story dropped just as Tesla appeared to be emerging from a series of self-inflicted controversies attributed largely to the behavior of Elon Musk, the company’s mercurial CEO.

Since August 7, when Tesla shares peaked above $379, Musk has been embroiled in controversy.

That was the day Musk tweeted, “Am considering taking Tesla private at $420. Funding secured.”

The tweet was significant because it suggested investors were lined up to take over the publicly traded company at $420 per share, which would have represented a major premium.

However, funding for such a transaction didn’t materialize and the SEC alleged the $420 value was a reference to marijuana subculture.

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The SEC didn’t find the alleged joke to be funny and earlier this month Musk settled with the agency by paying a $20 million fine and stepping down as chairman of the board without admitting or denying wrongdoing. Tesla also agreed to pay a separate $20 million fine.

Tesla shares dipped as low as $250 while the controversy played out. Prior to the controversy, shares traded as high as $383.45 in June of 2017, around the time Model 3 production was beginning.

Earlier this week the company appeared to be putting the controversy behind itself when it reported its most profitable quarter ever.

Tesla’s third quarter earnings showed a $312 million profit while producing 80,142 vehicles, including 53,279 Model 3 sedans, from July through September.

The earnings report sent Tesla shares out of the doldrums and prompted renewed optimism in the direction of the company.

Tesla’s entire statement in response to Wall Street Journal story:

“Earlier this year, Tesla received a voluntary request for documents from the Department of Justice about its public guidance for the Model 3 ramp and we were cooperative in responding to it. We have not received a subpoena, a request for testimony, or any other formal process, and there have been no additional document requests about this from the Department of Justice for months.

When we started the Model 3 production ramp, we were transparent about how difficult it would be, openly explaining that we would only be able to go as fast as our least lucky or least successful supplier, and that we were entering ‘production hell.’ Ultimately, given difficulties that we did not foresee in this first-of-its-kind production ramp, it took us six months longer than we expected to meet our 5,000 unit per week guidance. Tesla’s philosophy has always been to set truthful targets – not sandbagged targets that we would definitely exceed and not unrealistic targets that we could never meet. While Tesla gets criticized when it is delayed in reaching a goal, it should not be forgotten that Tesla has achieved many goals that were doubted by most. We are enormously proud of the efforts of the whole company in making it through this difficult ramp and getting us to volume production.”

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