Stock analysts like to talk about fundamentals when evaluating equities. However, many times it is a dynamic CEO who moves a company’s ticker price. We saw that last week when Tesla CEO Elon Musk took the wheel on an earnings call.
Tesla’s Pivot
Musk turned the attention of investors away from the company’s mounting technical problems and declining sales and toward an optimistic – if hazy – future.
Responding to investor concerns over the direction of the company, Musk announced that Tesla will be turning out more affordable electric vehicles (EVs). Further details are to come in August when Tesla is set to roll out its robotaxi. In addition, Musk skewed the branding of the company. He declared that Tesla is not so much a vehicle manufacturer as an autonomy company.
“The way to think of Tesla is almost entirely in terms of solving autonomy,” said Musk, “and being able to turn on that autonomy for a gigantic fleet.”
Perhaps bolstering that idea, Musk showed up in China Sunday on an unannounced visit to pitch governmental officials on Tesla’s self-driving technology.
Musk’s performance was brilliant and the market told him so. Shares of Tesla ended the day up 13 percent. Further, the stock’s ascent continued through to this week.
Tesla’s Problems
Musk’s showmanship helped him dodge a bullet – or rather a barrage of bullets – regarding Tesla’s malfunctioning technology and declining sales.
The most recent Tesla technical problem came earlier this month when all 3,878 of its Cybertrucks were recalled by the company. The action followed a National Highway Transportation Safety Administration (NHTSA) report on the vehicle’s sticking accelerators..
Just about four months before the Cybertruck problem Tesla had to fix an autopilot issue in over two million of its cars. This was done through an over-the-air software update. The NHTSA had opened an investigation two years before concerning 11 crashes in which Tesla vehicles on auto-pilot hit stationary vehicles.
The NHTSA autopilot investigation ended Friday. However, in a “when one door closes another door opens” moment, the agency launched a new investigation Friday. This probe centers on whether the over-the-air software update has fixed the autopilot problem.
By Tesla’s own tally, there have been 500 deaths in Tesla vehicles – 42 involving autopilot use.
Outside of technical issues, Tesla is facing other problems.
Sales declined nine percent in the first quarter year-over-year. That is the first drop in four years. In addition, profits fell over 50 percent from the same time last year.
All of that and the stock has taken a bounce. However, it is not the first time a CEO’s event performance turned a potential setback into a win.
Steve Jobs’ Phone Deception
Any time a CEO faces the media and shareholders in a public meeting as Musk did Tuesday there is always risk to the company. A slip of the tongue or a technical glitch can turn a smooth-running presentation into a burning dung heap.
Some company leaders make public announcements and investor meetings into theater. Sometimes there is even an element of illusion.
That was especially true in 2007 when Apple unveiled the first iPhone. The device was revolutionary in concept, but not ready for prime time. In short, it could not do all the things Apple said it could.
That did not stop Apple’s CEO at the time Steve Jobs. He insisted the company present the iPhone launch on time..
The major problem was that the prototype iPhone had a limited memory capacity of 128 megabytes. That was enough to perform one routine task, but not enough to handle unfinished, large resource applications.
The solution? Fake it
When Jobs took the stage for the 90-minute product launch, he announced that his company was going to preview three new products. The first was a wide-screen iPod with touch controls. The second was a “revolutionary” mobile phone. The third was a landmark internet communications device. Okay, fine.
But, wait for it, Jobs had more. All three new products would be incorporated into the iPhone. You could almost hear heads exploding.
The head explosions became more pronounced when Jobs deftly demonstrated how all three products operated on the new iPhone. The only problem was that they did not work on one phone.
Jobs was speaking from a lectern on a stage. That allowed him to conceal multiple phones from his audience. Each phone was dedicated to one of the three products Jobs said could be operated on one phone.
Throughout the presentation, Jobs moved back to the lectern when he needed to switch phones and no one in the audience saw the sleight of hand.
Of course, Apple engineers were subsequently able to get all three products incorporated in the iPhone and the revolution continued without a hitch. The same could ultimately be true for Tesla.
CEOs Who Crossed the Line
Jobs’ sleight of hand may not have been illegal, but its ethics are at least questionable. While dynamic leadership can push a company to new heights, the opposite can also be true. In several notable cases, the excesses of CEOs have led to jail.
Headspin
Just this month (April 19th), Manish Lachwani, founder and former CEO of Headspin was sentenced to 18 months in prison. According to the justice department, Lachwani used false financial records and customer data to raise over $ 1 billion from investors.
“Today’s sentencing should send a message to other entrepreneurs who may be tempted to cross the line into fraud and to fake it until they make it,” said U. S. Attorney Ismail J. Ramsey. “This Office is committed to protecting investors—including those whose capital powers the engines of innovation in Silicon Valley—from start-ups that misrepresent their finances and try to cut corners.”
Theranos
Elizabeth Holmes, founder and CEO of Theranos, was known as the youngest female billionaire by 2014. By 2022 she was convicted of 11 counts of fraud and in November of that year sentenced to 11 years in prison.
Theranos was a healthcare technology company that purported to gather physical information from patients with minimal invasion. The technology involved was revolutionary and promised to improve diagnostics and reduce patient costs.
The only problem was that the technology did not exist.
Enron
No review of CEO misconduct would be complete without mentioning Enron.
Enron was an energy company. The business got into trouble when it began trading in energy derivatives markets. Consequently, Enron attempted to cover up massive losses with lies and accounting manipulation.
As almost always happens in such cases, Enron’s fraud was exposed. The SEC began an investigation in 2001. By the end of that year, Enron was in bankruptcy. Founder Kenneth Lay and former CEO Jeffrey Skilling among other high-ranking officials were charged in the case.
Lay and Skilling were tried together. They faced 46 counts, including money laundering, bank fraud, insider trading, and conspiracy.
Skilling was released from prison in 2019 after serving 14 years.
Lay died in 2006 three months before sentencing. He had been convicted on six counts of fraud and could have served up 45 years in prison.
The Enron scandal resulted in financial loss, ruined careers, and at least one suicide. However, some good did result from the tragedy. Congress took action by enacting the Sarbanes-Oxley Act. That law is designed to improve corporate accountability and protect investors..
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