Making Sense of Tesla's Deepening Crisis

twenty dollars a share. This week, we're bringing you a special breaking news episode about everything that's gone on at Tesla since that tweet was sent. Hi, I'm brad Stone, And this week on Decrypted, we're taking a look at Tesla's current predicament. Elon Musk is a singular CEO, unfiltered and unscripted. Now that strategy could have big implications for the future of the company. Tesla is facing not one, but two government investigations from the SEC and the Department

of Justice. We'll see how Tesla got here and what it needs to do to get out. This is part of a special season of Decrypted, where we explore the unintended consequences of technology. Stay with us, so Dana let's go back to the innocent days of early August, precisely August seven. You had just gotten back from vacation, if I remember, and that is the day, that fateful day that Elon tweets quote a considering taking Tesla private at

four funding secured. You have a quick reaction that at first people thought that it was a joke, and so there was all these internal conversations here at Bloomberg about was he hacked? This is this a marijuana reference, like right, because as some significance in marijuana culture, and um, you know Tesla's PR team, they don't control his tweets. He

doesn't have a tweet ghostwriter. Um. And my understanding now is that he was actually on a plane at the time, so no one at Tesla PR could actually get a hold of him. So we just assumed that it was true.

But the crazy thing was that the stock started to explode higher than trading stopped, and no one could figure out what was going on, And there was kind of confidence that maybe Tesla and Ellen had put the kind of volatility of Tesla stock behind it, like as a private company wouldn't be as susceptible to the hated shorts right, which he has campaigned against for so long. Yeah, and Musk has talked quite openly for for years now about wishing that Tesla was private, SpaceX is private. Um. The

volatility of the short sellers drives him bananas. He's always talking about burning the shorts. So it definitely seemed legitimate. And remember that was the day also that the Financial Times reported that the Saudis had taken some kind of stake in the company. So the go private tweet was

sort of seen as a reaction to that. And but you know, it struck me immediately as odd because you know, there's no more of a material announcement than the fact that you know, a public company might be going private. And yet he had tweeted it right, not you know, not a filing with the SEC, not a press release from your reporting, Like how unusual was that? And who else that Tesla knew about this? It was pretty unusual. Um, And I don't think anyone that Tesla knew about it.

I mean that was sort of one of my brain questions, like, so who on the executive team, you know, what did they know and when did they know it? Now it kind of appears that no one really knew. I think everybody was blindsided by it, even the board, his executives, the board, large institutional investors, and now in the ensuing days, there's kind of a scramble, uh to to document like who is advisors? Right? And we report that both Goldman and Morgan Stanley are like involved in this deal, so

it seems legitimate at this point, right. Yeah. I think for first, the sort of narrative arc went from this, this is crazy, he must have gotten hacked, or he's joking too, Wow, Elon is going private? Okay, who's involved? And there was this appearance of forward momentum. We were hearing from bankers that they were meeting with Elon, that they were flying to l A to meet with him. People kind of felt like, well, if anyone can pull

this off, it's him. I mean, this is a man who's been able to raise billions of dollars from the capital markets, has a lot of long term, long horizon investors on his side. SpaceX has had a great year. You know, Tesla has had challenges with the Model three, but it's still this wildly popular brand. I mean, there was kind of a sense that Ellen could potentially do this right and ironically, we had just written a cover story which you co authored, about the scramble to meet

the Model three production goals. Uh. Great headline Hell for Elon Musk is a mid sized sedan and documented you know, his sleeping at the at the factory and and rushing to meet these goals. And he had hit the numbers right.

I mean, there was there was a quarter where they met met the Wall Street shade finally kind of got into this state where they had, you know, even though they had to build a tent and like manufacture production line at the last minute, they were kind of at there was a feeling that they had finally exited production hell and that the cars were coming out, and you started to see more cars on the road here in

California for sure. A little more than two weeks after the initial funding is secured tweet, Elon admits that in fact, funding was not really secured. This was a Friday night news dump, but late at night is when the company posted a blog post from Elon Musk essentially saying we're going to be staying a publicly traded company and here's the reasons why we're not going to go into all

of them. Take us through what happened then. So that was really late on a Friday night, like so late that I don't know if East Coast Newspaper has made

their deadlines. The thing that was remarkable about the blog post is that he basically admitted that all of the investors were not on board with the idea and that the prevailing sentiment was pleased, don't do this, which was completely contradictory to what he had said previously, because not only did he say that funding was secured, but he was like, shareholders are on board and there's consensus and

it just needs to go before a vote. So he was really contradicting himself in a way that was pretty remarkable. Very quickly, it was like, all right, so when is the first shareholder lawsuit? And you know, he pulled the plug on a Friday. Within a week we had the first of now several shareholder lawsuits filed that are that are attempting to get class action status, right, and then the sec comes in, right, and they served Tesla with a subpoena, and the SECS interest is they're looking at

you know, when did he send the tweet? Who knew it? Did? Was anyone involved? Did his board or his executives or large investors have any heads up that this was coming. Well, if nobody traded on the information is that, you know it has a crime been committed? I think that's really that's a really good question. I mean, the short sellers would certainly argue that they were hurt, But how the

SEC views that. I'm not entirely sure. Then we we come into early September, September six and Ellen, after this plan has been scrapped and and Tesla sort of still wobbly from all of these lawsuits and the investigation. All this sort of negative attention is placed on the company. Ellen goes on a podcast called The Joe Rogan Experience. Boom, thank you, thanks for doing this, man, I really appreciate it. Hey, welcome, It's very good to meet you. Nice to meet you too,

and thanks for not lighting this place on fire. You're welcome. How does one um just in the middle of doing all the things you do create cars? Rockets has a very profound conversation about very weighty issues. Is life of simulation things things like that, the future of electric cars, But all the attention is captured by the fact that he smokes marijuana on this video podcast says that a joint. Okay, it's um marijuana inside of tobacco. Okay, so it's like

pot tobacco. Never had that. I think I tried one once. Come on, man, you probably can't because stockholders, right. I mean, it's legal, right, totally legal. Okay? How does that work? Do people get upset at you if you do certain things? Just tobacco and marijuana in there, that's all it is.

Musk has you know, talked openly in the past about mixing red wine and ambient In this very cheerful New York Times interview that came in the middle of the Go Private drama, you know, the Times reported that he was not sleeping well, that there was concerns about recreational drug use, and so this whole narrative around his mental health and his potential substance use and abuse was sort of out there. So you think, okay, he's pulled the plug. You know, you would think that he would know better

than to smoke pot at this particular juncture. Well, see, I just wonder if he's trolling us with this, right he just because to go back to, you know, the point we made earlier. He's unscripted, he's unfiltered, you know, in a way he depends on the media. But maybe he doesn't really care about how he's portrayed. Of course he cares too much, right, because he's so obsessed with it. But it is in a way, is he poking a finger in the eye of everyone who is so absorbed

by his behavior and his communication during this period? Well, right, And then the conspiracy theories, theorists will have you believe so that so he smokes pot late on a Thursday night. The next morning, it's like, oh my god, musk smoke pot, Like, this is so crazy. But then that same day they filed an a K in which they revealed that their chief accounting officer had resigned. So the stock started to tank, and it's like, well, it's the stock tanking because the

CEO smoke potter? Is it tanking because a finance executive quit? So the theorists, the conspiracy there is believe that musts smoked pot specifically knowing that the media would then talk about the pot and ignore the fact. Very trump Like, isn't it a little twitter or orchestrated misdirection? Yeah? And and you know, and I mean there's been a lot of parallels to Trump, just in terms of his use

of Twitter and and the passion of his base. About a week after he smokes pot on the Joe Rogan podcast, our colleagues report that the Department Justice has opened a criminal investigation. Here is the latest in terms of the d o J probe of Tesla. You saw Kate Kelly on about fifteen twenty minutes ago talking about the fact

that Goldmen and silver Lake have also been subpoeneded. Here the focus is on Elon musk Sweet in early August when he said, so, this is on top of the SEC subpoenas, on top of these, um, you know, these these more formal shareholder lawsuits, um a criminal investigation because what does that mean? And does somebody go to jail if if, if you know, the Department of Justice finds evidence of criminality. Well, I think I think it's still very early stages and we shouldn't, you know, shouldn't should

let the investigation play out. But it certainly is like another It's like another friend. Right. My understanding is that you know, the SEC kind of plods along and if they see anything that seems criminal, they flag it to their colleagues at the DOJ, and then the d o J opens its own inquiry. You know, we're not under the impression that like FBI agents and like Blue Windbreakers were like pounding on Elon's door and like hauling away computers.

But it does seem like the investigation is considering is continuing now there. You know, there's multiple investigations on multiple fronts. And what was striking about our colleagues report is that, you know, TESLA basically then put out a statement saying that we heard from the Department of Justice last month and we're cooperating. So they didn't deny that the Department of Justice is involved. There's some you know, splitting of

hairs about whether it's definitely criminal or civil. When the Department of Justice gets involved, it means that there's concerned about possible criminal behavior. It doesn't mean that they will file charges, doesn't mean that someone's going to jail, but it means that there is enough there that they're they're involved. And again, what they're investigating is the tweet and and the proclamation that funding was secured and then you know,

which moved the stock price. And then we find out two weeks later that you know that that no, no such deal ever existed exactly. So, Dana, we've talked about these dramatic last few months in the lives of Tesla and Elon Musk, and we've talked about the consequences, the unintended consequences of this ill conceived tweet from Elon Musk that he was had a plan to take Tesla private

and had funding secured. So let's talk about a little bit about what what it all means for Tesla and the future of electric vehicles and for Elon Musk's career. I mean, do you do you think some of these probes, the criminal probe and the shareholder lawsuit are any any kind of a turning point for a company that seems to have had so many of these kinds of episodes. I mean, I guess my question is what how does

this impact their ability to raise additional capital. Musk has a laundry list of projects that he wants to complete, a giga factory in China, a Model y cross over, the solar roof semi truck. I mean, all of his ambitions need more money. And this is a guy who's been able to raise money from the capital markets. Hand over fist for like over a decade now. But I mean, do you really think he'll have a problem if, you know,

the next time he needs to raise money. I think a lot of it rides on how this quarter looks in terms of the fundamentals of Tesla's business, which is making and selling cars. And so for all the drama about Zelia Banks and smoking pot and grimes and this tweet and the sec and the do o J like, fundamentally, the question, the existential question for Tesla is can they become a mass market carmaker? Can they make cars in

high volume with high quality. And we're gonna find out very soon in early October, they're going to release their delivery and production figures, and they're they're kind of sounding good. You know. I was thinking a little bit about whether there had any have been any similar episodes in Silicon Valley history. Uh. The one, the one that kind of sprang to mind was Steve Jobs at Apple back in

the early two thousands. He had just come back to the company, he had turned it around, and him and his his some members of his management team received you know, some probably well deserved stock options which they then back dated to uh to minimize some of the tax impact. You know, Jobs like Ellen maybe uniquely right is it was a CEO who you know, was a visionary ahead of his time and really didn't care what you know the world thought, right, wanted to bend everyone to his

will and sometimes skirted the rules. Right, So it's different than Twitter obviously didn't exist back then. It would be interesting, Uh, you know, if we had ever seen what Steve Jobs would have been like on on on Twitter, um, he probably would have stewed it. But but you know, somewhat, I guess what I'm saying is there's a little bit of a pattern here among these larger than life Silicon Valley figures. The other Jobs comparison is that Jobs was also running Pixar at the time, or at one point

he was simultaneously running both. Definitely he was for years. And you know, even though everyone thinks about Musk and Tesla, his real passion has always been SpaceX, And like SpaceX has had a phenomenally successful year um and has been sort of largely drama free. Just on Monday, you know, Musk announced he's got this Japanese billionaire ready to pay billions of dollars to go to the moon with him, right,

Yusako Mazawa. And and that's interesting because, uh, you know, despite all the turmoil around Elon Musk, it doesn't seem like, uh, you know, this particular business man has lost any faith in him. I mean, I wonder has Ellen lost any supporters? Do you think through these months of turmoil. We'll find out when the next thirteen fs are filed whether Lard's institutional shareholders have sold off their holdings. Um, you know, it's hard to say. I mean, you're not really seeing

like a lot of public people break with him. I mean, analysts like Gene Munster are like, Elon, you should apologize to the you know, to the cave rescue team. And I mean people are sort of calling on him to tone it down. But you're not seeing like a big break. Um. I think that people want him to modulate his behavior, but I think they fundamentally recognize that Ellen is going

to be Elon. So before we sat down to record this podcast, I put out a request on Twitter, uh to to listeners to ask them if they have any questions for you, Dana, And we got a bunch of good questions. Uh. We got one from a user at temper worker um asking about the recent executive departures. Yeah, this is sort of an area that I really have delved into this year because Tesla is not super transparent about what their executive leadership is, you know, unlike an

Apple or even an Uber. If you go to their website, there's no organ charts, so I created one on my own. And what's kind of striking is that like fourteen vice presidents have left this year and they have not been replaced by outside hires. In general, there this sort of um. The positions are kind of shuffled around, and more and more people are reporting directly to Ellen, so Ellen has a lot of direct reports for a CEO who's not a full time CEO. And then the people who have

departed have been really high profile people. John McNeil, who was you know, the president of like sales service and Deliveries, he left, he's now the CEO at left, Doug Field, who was the engineering chief left, he's now back at Apple. And there's been this kind of drip drip of pretty significant departures at a time when like Tesla should be

doing pretty well. You know, a company like Tesla at this age and its maturity should have like a deep bench of talent, and they just don't have that right now. A dana. Another Twitter question from a user calling himself as one does at Twain's mustache. The Bloomberg story yesterday about the d o J looking into, you know, connecting a criminal investigation of Tesla. UH said that they were looking into claims that Ellen had misled the market about

the health of Tesla. Right, So that's markedly different, right than UH an investigation into the timing of the tweet or whether funding was secured. This is like, do you have an indication that this is a source of concern here that maybe Tesla isn't as healthy as it is professed to be. So our understanding is that the SEC is looking into two things, the tweet and sort of public statements that Musk and the company have made about

delivery targets and production figures. I'm not under under the impression that the DOJ is looking into that, but certainly it's like, once the door is open, it's kind of a Pandora's box. Another question from a user calling him or herself plans for Elon. I don't know if that's a big group or not. Are there SEC whistleblowers out there or is there a d o J whistleblower? So I guess that's like, are there people inside Pesla that

might be the source? Yes, there is a former Tesla employee who worked at the Giga factory named Martin Tripp, who filed a whistleblower complaint with the SEC. Has hired an attorney, and he alleges that, you know, Tesla was not being forefront, not being forthright about battery production figures, and there's a whole crazy story about him and the police in Nevada got involved, and now he's been he's on Twitter, he's trying, he's got to go fund me

to raise money for his legal fees. His attorneys has been very has been very outspoken. The attorney is in turn asking other whistleblowers to come forward. I think a second person has also come forward, But yeah, that's there.

There are definitely whistleblowers. Whether any action results comes out of that, I'm not entirely sure, but okay, Well, maybe more importantly, a user at j MT is asking us about impending competition and how realistic are some of these other companies like Audie that have talked about electric cars now I I an analysis from Tony Sakanagi and an analyst at Bernstein said that there was no credible competition, at least on the near horizon. So what is the

environment out there for? So my sense is that, you know, any time a legacy automaker like Audie comes out with an electric car, the headline is always, you know, is this is this the Tesla killer? But I went to the Audie event on Monday night, and you know, it's a compelling electric car. If you like an if you'd like Audie, if you were a brand loyal to Audie,

you'll probably look at it. But the goal of Tesla was always to accelerate the advent of electric transportation, and electric cars are still such a small part of the market that there's plenty of room for other automakers to come in. I mean, the goal is to get people to switch from the internal combustion engine to electric. It's not to get people to s which from a Tesla to an Audie. So, Dana, let's wrap up this discussion

going back to to your life covering Tesla. You in the in the last few months have gone through the model three production hell months, You've gone through the funding, secured tweets. You've gone through Elon's marijuana smoking podcast, uh, and now the SEC and perhaps d J investigations. What is what are the next few months look like? Are things going to calm down on the Tesla beat? Yeah, that would be nice. Um. I think the next few months are really about their ability to retain talent and

higher additional talent. It's about the next it's about the current quarter and are they able to kind of hit these numbers and then you're gonna just start seeing more cars on the road frankly, and so what is the

consumer attitude about the car? Okay, Dana Hall. So we will stay tuned to your reporting for Bloomberg News, will be looking for the production and delivery numbers that Tesla will be making available in early October, and of course, as always, we will be paying attention to Elon Musk's Twitter account. And that's it for this week's episode of Decrypted. Thanks for listening. If you have a story about Tesla, send us an email at Decrypted at Bloomberg dot net,

or you can reach out to us on Twitter. I'm at Dana Hall and I'm at brad Stone if you haven't already Please subscribe to our show wherever you get your podcasts, and while you're there, I hope you take a minute to leave us a rating or a review. This does so much to get us in front of more listeners. This episode was produced by Pia Goodcary, Liz Smith, and Magnus Hendrickson. Special thanks to Akado and Vandermay and Emily Abusso. Francesco Levi is a head of Bloomberg Podcasts.

We'll see you next week.