Vertical Group: "TESLA May Have Admitted To Actionably False Statements In Prior Filings"

[TaiShang]

Vertical Group: "TSLA May Have Admitted To Actionably False Statements In Prior Filings"

by Tyler Durden
Tue, 07/24/2018 - 11:22

From Gordon Johnson of The Vertical Group

TSLA may have Admitted to Actionably False Statements in Prior 10-Q Filings

One of the key concerns surrounding TSLA, in our opinion, is the idea that the company could currently be in receipt of a Wells Notice (as we’ve published multiple times before), rendering its ability to raise capital difficult (we are not aware of such an action, but continue to question why TSLA has not tapped the capital markets given our expectation that its cash balance will fall below the critical $1bn threshold in 2Q18, w/ ~$500mn in overseas cash [based on our analysis/opinion] that it does not have ready access to, and its decision, days after 1Q18 closed, to drain its money market account to pay out suppliers $700mn-$800mn [based on our analysis/opinion] suggesting the company, assuming our analysis is accurate, is in desperate need of cash [and its end-of-quarter cash balance could be inflated (again, based on our analysis/opinion)]; our analysis is based on: [a] our analysis/opinion of post quarter financial SEC filings, and our understanding of accounting).

Thus, based on the comments below from a new July 11th, 2018 plaintiff filing (we found just today, and we do not believe is widely known by Consensus), it seems our concerns around TSLA’s inability to raise capital, at present, via an equity raise and/or 144A debt filing, could be justified. Below, without comment, we provide a few excerpts from the new July 11th, 2018 filing we just obtained (we remind our readers that TSLA is the defendant).

Exhibit 1: Page 5 of July 11th, 2018 Filing

... as the new TSLA CDS now implies 30% odds of default in 3 years:

Some more details from the lawsuit via Paul Huettner:

Shareholder lawsuit against $TSLA w/ some very troubling allegations/facts:

1. Material falsity of M3 production capability & timeline
2. Scienter confirmed by former employees
3. Loss causation following 10/6/17 @WSJ article
4. Eliminate limits on personal liability

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018

Key passages:

"Defendants concede the material falsity of Defendant Musk’s August 2, 2017 statement, conveying then current facts, about “a gigantic machine producing – that’s meant for 5,000 vehicles a week and it’s producing a few hundred vehicles a week.”

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018

"Defendants tacitly concede both that Musk lied, and that the lie was material and actionable. Rather, they assert that Musk lied while responding to a question about gross margins."

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018

"The Complaint adequately alleges that Musk’s statement of present fact during the May 3 earnings call that “there are no issues” with the “supply chain,” was materially false."

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018

"The Complaint alleges false and misleading omissions with respect to three separate risk warnings."
1. Delays in timelines & targets for M3
2. Omission of hand-built M3 status
3. Battery production

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018

"Musk attended a meeting with CFO Jason Wheeler, in late April or early May of 2016...where he was directly informed by FE1, Director of Manufacturing at Tesla’s Fremont plant, that “there was zero chance that the plant would be able to produce 5,000 M3/week by the end of 2017.”"

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018

" FE1 further stated that Josh Ensign, the VP of Manufacturing, also told Musk directly that the Company would never be able to meet Musk’s unrealistic timeline for production of 5,000 M3s per week by the end of 2017, and that Ensign was forced out of the Company for doing so."

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018
Full filing below

ShowDoc.pl by Zerohedge on Scribd

***

There comes one of the biggest scams/frauds in corporate history @Götterdämmerung

 

[GHALIB]

whatever ?
there car is very nice .

 

[TaiShang]

whatever ?
there car is very nice .

Ugly, in my opinion. Especially interior. I do not like a tablet-sized car monitor that control everything and no button.

Unfortunately, BYD's Tang SUV (real e-vehicle, full-size SUV by the way, with more than 350 mile/per charge) also comes with a large car monitor that control everything, AI-enabled etc etc.

https://mall.bydauto.com.cn/activity/landingPageCN/D013QG18DPEG99.htm

 

[Skull and Bones]

Jaguar I Pace looks real nice.

 

[Hamartia Antidote]

Ugly, in my opinion. Especially interior. I do not like a tablet-sized car monitor that control everything and no button.

Unfortunately, BYD's Tang SUV (real e-vehicle, full-size SUV by the way, with more than 350 mile/per charge) also comes with a large car monitor that control everything, AI-enabled etc etc.



https://mall.bydauto.com.cn/activity/landingPageCN/D013QG18DPEG99.htm

Don’t get all excited. It’s a hybrid SUV not a “real e-vehicle”. It's just a poser.

Look what's under the hood of your Tang.

https://insideevs.com/here-is-how-byd-advertises-second-generation-tang-video/

• 0 to 100 km/h (62 mph) in 4.5 seconds (4.3 seconds in top version)
• up to 80 km (50 miles) of all-electric range with 20 kWh battery or 100 km (62 miles) in top version with 24 kWh battery
• 2.0 gasoline engine (150 kW/205 hp and 320 Nm) and two permanent magnet synchronous motors – 110 kW and 250 Nm in the front and 180 kW and 380 Nm in the rear axle
• permanent all-wheel drive

 

[Feng Leng]

... and the Ponzi scheme comes to an end...

 

[Nan Yang]

... and the Ponzi scheme comes to an end...

There still the MARS trip that thousands have already paid up.

 

[Mysticbuddy]

Don’t get all excited. It’s a hybrid SUV not a “real e-vehicle”.

https://insideevs.com/here-is-how-byd-advertises-second-generation-tang-video/

• 0 to 100 km/h (62 mph) in 4.5 seconds (4.3 seconds in top version)
• up to 80 km (50 miles) of all-electric range with 20 kWh battery or 100 km (62 miles) in top version with 24 kWh battery
• 2.0 gasoline engine (150 kW/205 hp and 320 Nm) and two permanent magnet synchronous motors – 110 kW and 250 Nm in the front and 180 kW and 380 Nm in the rear axle
• permanent all-wheel drive

Don't break their balloon man. Let them be high on the khalifa kush.

Tariffs on another $200 billion goods and they will be up for bankruptcy.

 

[Jlaw]

Vertical Group: "TSLA May Have Admitted To Actionably False Statements In Prior Filings"

by Tyler Durden
Tue, 07/24/2018 - 11:22

From Gordon Johnson of The Vertical Group

TSLA may have Admitted to Actionably False Statements in Prior 10-Q Filings

One of the key concerns surrounding TSLA, in our opinion, is the idea that the company could currently be in receipt of a Wells Notice (as we’ve published multiple times before), rendering its ability to raise capital difficult (we are not aware of such an action, but continue to question why TSLA has not tapped the capital markets given our expectation that its cash balance will fall below the critical $1bn threshold in 2Q18, w/ ~$500mn in overseas cash [based on our analysis/opinion] that it does not have ready access to, and its decision, days after 1Q18 closed, to drain its money market account to pay out suppliers $700mn-$800mn [based on our analysis/opinion] suggesting the company, assuming our analysis is accurate, is in desperate need of cash [and its end-of-quarter cash balance could be inflated (again, based on our analysis/opinion)]; our analysis is based on: [a] our analysis/opinion of post quarter financial SEC filings, and our understanding of accounting).

Thus, based on the comments below from a new July 11th, 2018 plaintiff filing (we found just today, and we do not believe is widely known by Consensus), it seems our concerns around TSLA’s inability to raise capital, at present, via an equity raise and/or 144A debt filing, could be justified. Below, without comment, we provide a few excerpts from the new July 11th, 2018 filing we just obtained (we remind our readers that TSLA is the defendant).

Exhibit 1: Page 5 of July 11th, 2018 Filing

... as the new TSLA CDS now implies 30% odds of default in 3 years:

Some more details from the lawsuit via Paul Huettner:

Shareholder lawsuit against $TSLA w/ some very troubling allegations/facts:

1. Material falsity of M3 production capability & timeline
2. Scienter confirmed by former employees
3. Loss causation following 10/6/17 @WSJ article
4. Eliminate limits on personal liability

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018

Key passages:

"Defendants concede the material falsity of Defendant Musk’s August 2, 2017 statement, conveying then current facts, about “a gigantic machine producing – that’s meant for 5,000 vehicles a week and it’s producing a few hundred vehicles a week.”

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018

"Defendants tacitly concede both that Musk lied, and that the lie was material and actionable. Rather, they assert that Musk lied while responding to a question about gross margins."

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018

"The Complaint adequately alleges that Musk’s statement of present fact during the May 3 earnings call that “there are no issues” with the “supply chain,” was materially false."

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018

"The Complaint alleges false and misleading omissions with respect to three separate risk warnings."
1. Delays in timelines & targets for M3
2. Omission of hand-built M3 status
3. Battery production

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018

"Musk attended a meeting with CFO Jason Wheeler, in late April or early May of 2016...where he was directly informed by FE1, Director of Manufacturing at Tesla’s Fremont plant, that “there was zero chance that the plant would be able to produce 5,000 M3/week by the end of 2017.”"

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018

" FE1 further stated that Josh Ensign, the VP of Manufacturing, also told Musk directly that the Company would never be able to meet Musk’s unrealistic timeline for production of 5,000 M3s per week by the end of 2017, and that Ensign was forced out of the Company for doing so."

— Paul Huettner, CFA (@Paul_M_Huettner) July 24, 2018
Full filing below

ShowDoc.pl by Zerohedge on Scribd

***

There comes one of the biggest scams/frauds in corporate history @Götterdämmerung

Wall Street is keeping this dud up . But once the love affair is over, Tesla will be slaughtered

 

[Hamartia Antidote]

Don't break their balloon man

Tesla has been running pure electric for YEARS with over 250 miles and this supposed “real e-vehicle” can't even get to 70. Plus using 20 or 24kW batteries..that's cutting edge Chinese tech...even a GM Bolt can do 230 with 160kW.

 

[TaiShang]

Wall Street is keeping this dud up . But once the love affair is over, Tesla will be slaughtered

I guess it is coming of age now to be slaughtered. The ponzi scheme was supposed to come to an end after all.

There still the MARS trip that thousands have already paid up.

Add to that boy-rescue submarine and 500 billion China plant.

***

Elon Musk Responds With Lewd Photo To Question Over Threatening Prominent Tesla Critic

by Tyler Durden
Thu, 07/26/2018 - 17:39

Once again, Elon Musk can't keep himself off Twitter at 3:30am.

As the most recent bizarre (and potentially unhinged) behavior from Musk has unfolded – reportedly calling the boss of a Tesla critic blogging negatively about the company, with threats to have him silenced and sued – Tesla had remained relatively quiet about the incident, despite it getting picked up by numerous mainstream media news organizations like Fortune and MarketWatch, after we were first to break the story.

After the incident occurred earlier this week, most major news media organizations reported a "no comment" from the company and it looked as though Musk himself was going to stay quiet about the incident and let it blow over.

That was, until Wednesday night and about 3:30am PST Thursday morning.

On Wednesday night, Jalopnik, in their aptly titled story "Get a Load of This Ridiculous Story About How Elon Musk Called a Tesla Critic’s Boss to Complain About Him" reported that Tesla had given them a statement - using blogger Montana Skeptic's real name - that "seemingly confirmed some of the situation" that Elon Musk did in fact call his boss to threaten legal action and to try to silence him.

Tesla spokesperson Dave Arnold sent along a statement, seemingly confirming some of the situation and, using Skeptic’s real name, said Skeptic’s employer “is a longtime Tesla supporter and was one of the first to purchase a Model S.”

Even more bizarre were the tweets that came through from Musk himself at about 3:30am local time on early on Thursday morning.

In response to a Tweet where Musk lopped praise on a Wall Street Journal reporter that gave the Model 3 a favorable review, somebody asked Musk directly whether or not he had reached out to Montana Skeptic‘s boss. Musk responded "Never heard of this girl. Was probably her mom."

Then, in response to a follow up question, Musk - the man who recently accused of international Thai rescue hero Vern Unsworth of being a “pedo“ – responded with a sarcastic remark, writing "They grow up so quickly..." under a famously lewd photograph of Miley Cyrus.

The tweets, which were previously found here and here, were since deleted by Musk.

As we noted earlier this week, Elon Musk has joined the ranks of infamous CEOs who have pursued, or at least threatened, legal action against prominent critics (in addition to threatening shorts in his stock with "untold carnage"). That was the revelation in a statement by well-known Tesla bear Montana Skeptic.

Montana Skeptic took to Seeking Alpha earlier this week to release what he said would be his final statement. He confirmed our report earlier this week - claiming that Elon Musk did in fact call his boss – without making an attempt to first contact him directly – and that he told a colleague of his he would "engage counsel and sue" if he did not stop writing about Tesla.

The text of the letter, as posted on Seeking Alpha, states the following:

Yesterday, July 23, I decided to cease writing about Tesla (TSLA) here at Seeking Alpha web site. I also deactivated my Twitter account, where I was @MontanaSkeptic1. Here is what prompted those decisions.

Yesterday afternoon, the principal of the family office in which I am employed received a communication from someone purporting to be Elon Musk. Doubtful that Elon Musk could actually be attempting to contact him, my employer asked one of my colleagues to investigate and respond.

My colleague then spoke by phone with Elon Musk (it was indeed him). Mr. Musk complained to my colleague about my writing at Seeking Alpha and on Twitter. Mr. Musk said if I continued to write, he would engage counsel and sue me.

My colleague then spoke with me about the phone call. We both agreed that Mr. Musk’s phone call and threatened lawsuit were actions that would tend to involve our employer in matters in which he has had no part. To avoid such a consequence, I offered to immediately cease writing at Seeking Alpha and to deactivate my Twitter account.

How did Mr. Musk learn my identity, and that of my employer? It appears to me his information came thanks to the doxing efforts of some of his followers on Twitter.

Neither Mr. Musk nor Tesla has ever attempted, at any time, to contact me. Instead, Mr. Musk determined to go directly to my employer.

I do not know what Mr. Musk’s precise complaints are about me. I do not believe he has any valid legal claim, and I would have no trepidation in defending myself vigorously were he to bring such a claim. My response to his threats were simply to protect my employer and preserve my employment.

And so, you might say, Elon Musk has won this round. He has silenced a critic. But he has many, many critics, and he cannot silence them all, and the truth will out.

I am proud of everything I wrote at Seeking Alpha, and have immensely appreciated the extraordinary support of so many SA members and contributors.

Montana Skeptic has been one of the most vocal critics of Tesla and Elon Musk for the better part of the last couple of years. The "skeptic" recently appeared on the Quoth the Raven Podcast to voice his skepticism of the company in a debate with HyperChange TV's Galileo Russell, a well known Tesla bull and investor in the company:

Tesla's Board of Directors continues to be asleep at the wheel. Musk's online conduct on Twitter gives us the impression that there are no real adults pulling the strings the company. Watching the whole thing unfold, our only thought is that we are thankful we are not the company's D&O insurance carrier.

https://www.zerohedge.com/news/2018...ntroversial-threat-sue-prominent-tesla-critic

 

[Hamartia Antidote]

I that Tesla had given them a statement - using blogger Montana Skeptic's real name - that "seemingly confirmed some of the situation" that Elon Musk did in fact call his boss to threaten legal action and to try to silence him.

A blow to big oil...

https://www.inverse.com/article/473...uits-after-claims-elon-musk-threatened-to-sue

Anonymous Tesla Critic Quits After Claims That Elon Musk Threatened to Sue


An anonymous Tesla critic has announced his intention to stop writing about the company after reportedly having his identity exposed. “Montana Skeptic” claims that CEO Elon Musk contacted their place of work and threatened to sue should he continue to write. The writer, who did disclose his short position on Tesla stock, came under fire after it was revealed he served as a managing director of a firm with potential investments in the oil industry.

In a post entitled “Farewell for Now” on Seeking Alpha, Montana Skeptic claims Musk contacted the principal of the office at which he works. That individual, who had doubts that Musk “could actually be attempting to contact him,” then instructed a colleague to follow-up. After the colleague reached Musk by phone, the Tesla CEO reportedly complained about Montana Skeptic’s writing and Twitter account and threatened to seek counsel and sue. In response, Montana Skeptic closed his Twitter account and declared his intention to stop writing about the company. The critic states he is “proud of everything I wrote at Seeking Alpha, and have immensely appreciated the extraordinary support of so many SA members and contributors,” which “more than makes up for the endless mendacity and vicious personal attacks I have endured from many Tesla cultists and from publications such as Electrek and Teslarati.”

Guys - I'm beside myself & before you ask, this is NOT a joke - I just got off the phone with Montana Skeptic. He told me that he voluntarily deleted his Twitter account after Elon Musk personally called his boss to complain. I asked for Montana's permission to Tweet this. $TSLA

— Quoth the Raven (@QTRResearch) July 23, 2018


Montana Skeptic is a short seller, an investor who stands to make money if the price of Tesla stock declines. Musk has strongly criticized such positions, cutting off one analyst he claimed was a short seller in a May earnings call by calling his question “boneheaded.” In a June email, Musk listed short sellers among the number of people that “want Tesla to die.”

Exposing the writer has caused controversy in the community. Electrek editor Fred Lambert wrote that “I don’t even know how Seeking Alpha let this guy post his blogs anonymously,” and went on to describe Montana Skeptic as “an internet troll attacking and insulting people online, which is one of the most cowardly things you can do anonymously.” Lambert also wrote that Montana Skeptic “is working for a company heavily invested in the oil industry,” which gives “a better idea of his background and biases.” A highly-upvoted comment from Tesla subreddit user “canikony,” on the other hand, wrote that supporting exposing his identity is “absolutely disgusting” and “if you think this is okay you should be ashamed of yourself.”

Seeking Alpha still hosts Montana Skeptic’s previous works, four of which are not behind a paywall. In a February story, the writer described shorting Tesla stock as “a gamble,” as Musk will “pull more rabbits out of his hat” and the share price “almost surely will have more upward spikes.”

A Tesla spokesperson, who confirmed the writer’s name, tells Inverse that “Montana Skeptic”‘s boss “is a longtime Tesla supporter and was one of the first to purchase a Model S,” noting that when the firm asked “Montana Skeptic” to stop writing, he did.

https://www.institutionalinvestor.c...e-money-in-2017-these-hedge-funds-found-a-way
Who Could Lose Money in 2017? These Hedge Funds Found a Way

In the realm of stubborn short bets, Mark Spiegel’s big Tesla short pushed his Stanphyl Capital Management fund down 12.4 percent for the year, according to an investor letter. Shares in Elon Musk’s electric-car company rose 46 percent last year

 

[TaiShang]

Tesla Whistleblower Attorney Says "I Would Short Tesla Based On What I Know"

- 13:31

Fri, 07/13/2018

On Wednesday we reported that Martin Tripp - the former Tesla engineer who on

June 20 was sued by Tesla for allegedly trying to "sabotage" the company - accused Tesla of several egregious violations that, if proven, could crush the credibility of the automaker, and its CEO, Elon Musk.

As a reminder, in an email sent by Meissner Associates, the law firm which has represented whistleblowers to the SEC and which was retained by the Tripp, the whistleblower alleged that Tesla had

• Placed batteries containing dangerous puncture holes in vehicles which proceeded to the end of the assembly line in a process known internally at Tesla as “Containment AR622” and which input into vehicles was tracked until the end of the assembly line process;
• Overstated to investors the number of Model 3 vehicles being produced each week by as much as 44%. The whistelblower alleges that the famed factory board which reflects a daily Model 3 production count and often referred to by Tesla is inflated;
• Lowered vehicle specifications impacting upon safety such as placing battery cells too close to one another and which were not properly affixed, risking future combustion; and
• Systematically reused parts already deemed scrap/waste in vehicles without regard to safety.

He also accused Tesla of placing battery cells too close together and not properly securing them, raising the risk of future combustion, as well as "systematically" reusing parts that had been deemed to be scrap or waste.

Then on Friday morning, in a surprising public address on Twitter, Stuart Meissner, who was retained as Tripp's counsel to defend Tesla's federal law suit against him and to countersue if he wants, tweeted in response to a Forbes article "Will Tesla Be 'Tripp'ed' Up By A Whistleblower", that it was "time for the @SEC_Enforcement to act. Not an accident @elonmusk has been silent on the allegations. Let sunshine be the cleanser for $TSLA"

Time for the @SEC_Enforcement to act. Not an accident @elonmusk has been silent on the allegations. Let sunshine be the cleanser for $TSLA
Will Tesla Be 'Tripp'ed' Up By A Whistleblower? via @forbes https://t.co/PSYAE3InUl

— Stuart D. Meissner (@StuartMeissner) July 13, 2018
But more interesting is that in response to a question whether he was short any Tesla stock, Meissner said "I have ZERO position on $TSLA short or long and never have. Although frankly I should, based on what I, and everyone, now knows."

That is correct - I have ZERO position on $TSLA short or long and never have. Although frankly I should, based on what I, and everyone, now knows.

— Stuart D. Meissner (@StuartMeissner) July 13, 2018
Explaining why Tripp did not go directly to the SEC, the attorney said that "he & many did/dont know of the program. If it were up to me he would have gone directly there via us- likely would not have been sued. FYI-no such thing as "applying for whistleblower status."

He then provided another tantalizing tidbit: saying that when compared to the 6-year-old Monsanto litigation, which led to a $80 million fine and a whistleblower award, he said "the allegations here are much more serious"

I have NO plans to short Tesla or any other stock.Have not done so in years. In 6 years of the Monsanto SEC investigation which led to the 80 mil $ fine & whistleblower award I never shorted it. In fact, I was long at times. I do think the allegations here are much more serious

— Stuart D. Meissner (@StuartMeissner) July 13, 2018
Finally, asked if he believes the whistleblower's allegations, Meissner said that "I obviously believe them to be true based on my experience and with what we have to work with, or I would not have accepted the case. Only the regulators who have power of subpoena can confirm for sure."

I obviously believe them to be true based on my experience and with what we have to work with, or I would not have accepted the case. Only the regulators who have power of subpoena can confirm for sure.

— Stuart D. Meissner (@StuartMeissner) July 13, 2018
Finally, when discussing the especially public nature of this confrontation, Meissner explained that "most cases dont receive much publicity before there is an award or SEC action because most (all of mine) whistleblower client's are not known to the public. This case is different as Tesla rushed to tar and feather him before hehad a chance to go to the regulators or see a lawyer."

Earlier in the week, Meissner told CNBC that "it’s dramatic and serious as far as the materiality of the omissions and misstatements, and how they effect investors, and the general public regarding potential safety hazards of Tesla vehicles." He also said that he had never seen a company handle an employee who has raised issues internally in such an aggressive manner.

"To me, this indicates that they are trying to send a message not just to Martin Tripp, but to all employees that they should not speak up if they see something wrong."

Whether or not Tripp has a case, or whether Musk can continue to sleep soundly (on the factory floor), will depend on whether the SEC takes the whistleblower complaints seriously and launches a formal probe. For now, the regulators - in typical fashion - have yet to acknowledge that it may soon be stormy weather in Muskville.

https://www.zerohedge.com/news/2018...ey-says-i-would-short-tesla-based-what-i-know