Elon Musk to step down as Chairman

Elon Musk has agreed to step down as chairman of Tesla’s board for three years as part of an agreement with the SEC to resolve a securities fraud case. 

He will also pay a $20 million fine. 

Background 

Tesla is an American automaker founded in 2003 by Elon Musk. It specializes in electric cars, lithium-ion battery energy storage and more. It is predominantly known for manufacturing luxury electric cars. In 2008, it released the world’s first electric sports car called the Tesla Roadster. One of its models, Model S has been the world's best-selling plug-in electric car in 2015 and 2016. 

In countries like the US, the sale of electric cars has significantly increased. In 2016, the sale of electric vehicles in the US rose by 37%. California, in particular, was the biggest market for electric cars. Globally, the sales of electric vehicles have more than doubled since 2014. This was due to concerns over growing oil prices and the environment. 

Elon Musk is a South African-born Canadian American business magnate, investor and inventor. He is listed by Forbes as the 53rd richest person in the world. As of January 2018, his net worth was $20.9 billion. Best known as the Founder, CEO and CTO of SpaceX, a private aerospace manufacturing and space transport services company, Musk is known for his aspiration to enable the colonization of Mars and reduce costs of space travel within the next two decades. 

Read more of our extensive analysis on Tesla and Elon Musk here 

Analysis 

Elon Musk is under pressure from his lawyers and investors of Tesla as they have reached a deal with the Securities and Exchange Commission on Saturday to resolve securities fraud charges. The settlement will force Mr. Musk to step aside as chairman for three years and pay a $20 million fine. 

The settlement requires that Tesla appoint two new independent directors and establish a committee of independent board members. Tesla had come under criticism for years prior to Musk’s take-private episode - for lax governance, though shareholders sided with the board in June by voting against an independent chairman proposal and approving the re-election of three directors. 

The news of the SEC’s fraud charges on Thursday sent the value of Tesla’s shares falling by 14% on Friday, knocking billions off the company’s value, as investors grappled with the prospect of Musk leaving the carmaker. Both he and Tesla will also have to pay a $20m (£15m) fine. 

The SEC's chairman Jay Clayton said that he supported the deal, and felt that it was in the best interests of US markets and investors, including the shareholders of Tesla. "This matter reaffirms an important principle embodied in our disclosure-based federal securities laws," he said. 

"Specifically, when companies and corporate insiders make statements, they must act responsibly, including endeavouring to ensure the statements are not false or misleading and do not omit information a reasonable investor would consider important in making an investment decision." 

The fraud allegation relates to his August tweet in which Mr. Musk said he was considering taking electronic car maker Tesla off the stock market and into private ownership. He wrote he had "funding secured" for the proposal, which would value Tesla at $420 per share. Shares in the company briefly rose after his announcement, but later fell again. The SEC said those claims were "false and misleading". 

In addition to the other terms, Musk had to agree to a condition where he is not allowed to either “admit nor deny” whether he was guilty of committing securities fraud, meaning that he cannot publicly state that he did nothing wrong — something that was reportedly a sticking point that caused Musk to walk away from the original deal. 

He now has 45 days to leave his role as chairman of Tesla. The SEC had initially sought to ban Mr. Musk from working on the board of any publicly traded company, but under this deal, he will now be able to stay on as Tesla's chief executive officer. A new "independent chairman" for the company will be appointed, who will preside over the company's board. Forcing Tesla to separate the roles of CEO and chairman should limit Mr. Musk's power within the company. 

Counterpoint 

The settlement ends one potential nightmare for the company. Some investors worried about how the electric car company would fare without Musk’s vision and tenacity. But other stumbling blocks remain. Tesla faces several shareholder lawsuits tied to the Aug. 7th tweet, and the Justice Department is also investigating the issue. 

Tesla also remains under financial pressure. It has endured months of production problems and an exodus of top executives as it faces down more than $10 billion in lingering debts. 

Assessment 

Our assessment is that Mr. Musk had a good reason to reopen the settlement talks. The SEC., by suing him, had sought to bar him permanently from serving as a top executive or officer of Tesla or any other public company. We feel that under the present deal, he will not only remain as chief executive but will also stay on as a board member, just not as chairman.