Tesla Did Not Disclose Autopilot Death Before $2 Billion Stock Sale
Joshua Brown fatally crashed into a tractor trailer turning in front of his Tesla Model S on autopilot almost exactly two months ago, but we only found out about it on Thursday evening. That’s when Tesla first told the public about the crash, nearly two months after they sold $2 billion in stock.
What’s surprising, for people who aren’t well-versed in financial matters, is this is probably not illegal. Mostly because Securities and Exchange Commission regulations are so fraught with loopholes, the definitions of what is “material information” and when it needs to be distributed to all investors at which times is incredibly vague.
What we’re discovering now is that how the information about the crash spread is more than a little questionable.
In its official statement from last week, Tesla stated that it informed the National Highway Safety Administration “immediately” after the crash, which means that NHTSA sat on the information until trickling it out to the press the Thursday before July 4th weekend. Coming from NHTSA, one of America’s most bumbling government divisions, that’s not exactly shocking.
But it is a shock that Tesla sold $2 billion in stock without breathing a word about their fatal crash to the press, the public, or their investors, as Fortune points out in a contentious story today.
On May 18th, Tesla and Elon Musk himself sold $2 billion worth of Tesla at $215 a share without mentioning anything about the fatal autopilot crash, which Fortune notes sure seems like a “very material fact,” something that any company would be legally required to disclose in relation to such a sale.
But Tesla, in an act of extreme boldness, argued that this is incorrect and told Fortune to shut up, in so many words.
While you or I might think that, obviously, a fatal crash in a Model S cruising on Autopilot, Tesla’s vaunted semi-autonomous system considered a major selling point of the company’s flagship vehicle, would be relevant information to any potential investor, Tesla argued that the market backs up their opinion that it isn’t. Tesla’s stock actually went up by the end of the trading day on Friday, though it had dipped in the morning as Thursday night’s news break hit the market.
And that’s what a Tesla spokesperson pointed out to Fortune yesterday, arguing that the stock price backs up their position that the crash was not legally-required material information. But then Elon Musk himself chimed in to call Fortune misleading, as Fortune reports, emphasis mine:
Then Elon Musk himself suddenly entered the email conversation. He first thought, mistakenly, that Fortune was criticizing the price at which Tesla and he had sold stock. This writer replied that was not the case and that the issue was the non-disclosure of a material fact. That, Musk replied in a second e-mail, “is not material to the value of Tesla.”
He continued, “Indeed, if anyone bothered to do the math (obviously, you did not) they would realize that of the over 1M auto deaths per year worldwide, approximately half a million people would have been saved if the Tesla autopilot was universally available. Please, take 5 mins and do the bloody math before you write an article that misleads the public.”
Indeed, Tesla’s autopilot system is statistically safer that a human driver. But the crash may show that there could be a deadly blind spot in Tesla’s sensor array. Tesla itself acknowledged that the system could not “see” the truck that killed Joshua Brown, and we may be looking at a specific technical flaw at fault for this crash.
But it’s also possible that Brown was simply recklessly over-relying on Tesla’s autopilot system. Hell, he might have been watching Harry Potter at the time of the crash. This kind of behavior could well be common among Tesla owners, and questions like this would certainly have come up in relation to Tesla’s big stock sale in May had Tesla released all of its information as it had it.
Fortune notes that it may end up a question for the courts if Tesla withholding information about the crash before its stock sale was illegal.
Even if it’s legal, it’s not a good look for Tesla. It’s an infuriating and baffling omission even for those of us without a financial stake in the company.
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Musk’s Snarky Remarks to the Tesla Crash
Concerns about the pace of vehicle production at Tesla Motors hit the automaker’s shares as questions swirled about the ramifications of a Tesla Model S owner who died while using the car’s autopilot.
As investors struggle to assess the implications of the crash for self-driving cars, Fortune magazine published a story in which Tesla CEO Elon Musk defended the company’s decision not to disclose the May 7 crash to shareholders until Thursday, a day after auto-safety regulators told the company they had begun an investigation.
“Seems pretty material to me,” Fortune editor Alan Murray tweeted Tuesday morning, with a link to the magazine’s online article in which Musk is quoted saying in an email that the matter was “not material” to Tesla shareholders.
Mr Musk retorted to Mr Murray on Twitter: “Yes, it was material to you – BS article increased your advertising revenue. Just wasn’t material to TSLA, as shown by market.”
Skittish investors drove down the price of Tesla stock 1.2 per cent Tuesday to close at $US213.98 on the first day of trading after the Silicon Valley automaker said Sunday that it had missed production forecasts for the second quarter. Earlier in the session the stock traded as low as $US208.
The Palo Alto, California-based company delivered 14,370 vehicles during the second quarter, including 9,745 Model S sedans and 4,625 of Model X crossovers. That was about 15 per cent fewer than the 17,000 vehicles it predicted in May.
Tesla is under pressure to demonstrate that it can ramp up production quickly to meet its own goal of making 500,000 vehicles in 2018, approximately 10 times its 2015 full-year output. That’s when the company will be manufacturing the Model 3 sedan, its first mass-market electric vehicle.
Crash fallout
Meanwhile, the automaker is also grappling with the fallout of last week’s revelation that a Model S owner who had activated the vehicle’s automated highway steering system was killed when his vehicle slammed into a truck.
Perhaps of more concern to investors is that Tesla is halting manufacturing. The automaker’s “up time” for production of the all-new Model X crossover – a figure used to gauge how often the assembly line was running – is as low as 50 per cent, Deutsche Bank analyst Rod Lache said in a research note.
“Suppliers continue to suggest Tesla has had difficulty maintaining steady production of Model X,” Mr Lache said. “This is highly unusual for an automaker, considering this model was launched in” the third quarter.
Given Tesla’s mass-market ambitions, that pace will need to quicken. The company is currently aiming to produce 2,400 vehicles per week in the fourth quarter, up from 2,000 per week at the end of the second quarter.
At that rate, Tesla will make 79,000 vehicles in 2016, missing its forecast of 80,000 to 90,000, according to Deutsche Bank. Even that pace will have to increase six-fold to meet its 2018 targets.
S&P Global Market Intelligence analyst Efraim Levy lauded the company for pushing the limits but said the consequence is occasional misses.
“I didn’t and I still don’t expect them to meet all their targets for Model 3 production,” Mr Levy said. “Their track record is too much over-promise and under-deliver in terms of specific targets.”
Tesla Production Killing Flamingos?
Tesla Motors Inc. and General Motors Corp.’s Chevrolet are preparing to bring out mass-market electric cars next year. If you plan to buy one and help save the planet,people who live near the Atacama salt-flat ask that you spare a thought for the flamingos.
The vehicles will be powered by rechargeable batteries containing lithium, a silver-white metal found in brine deposits under the world’s driest desert in northern Chile. The 1,200-square-foot Salar de Atacama is also known for wild flamingos, who feed and breed in its lagoons. Some locals say that miners sucking water out of the earth to get to the lithium are starving the long-legged birds in the process.
“They are pumping up an absurd amount of water,” says Rolando Humire Coca, a biochemist who heads the Naturalist Society of San Pedro de Atacama and is a member of Chile’s National Institute for Human Rights. “If they keep using the same methods to extract water, the consequences will be disastrous. All forms of life will be destroyed.”
Satellite images indicate that some lagoons and meadows in the salt-flat are shrinking or drying up, while the Chilean Forestry Commission has recorded a drop in the flamingo population. A parliamentary commission set up this year to look into the depletion of water resources across the country has yet to draw any tie to the lithium miners, leaving it to the local community to try and drum up interest in the fate of the flamingos.
The activists have asked the congressional commission for more research into the impact on water resources as they see their ancient way of life disappearing, while the companies say their own monitoring systems show little to no impact.
Hard at Work
What’s undisputed is that mining companies are hard at work. One, Soc. Quimica & Minera de Chile SA, is pumping up 1,500 liters of brine a second from the parched landscape; another, Albemarle Corp.-owned Rockwood Holdings, is pumping up 142 liters per second, and getting ready to increase its operations to 442 liters a second.
Whether the two are supplying Tesla or Chevrolet is anyone’s guess. The mining companies have declined to identify their customers, and the car companies have declined to comment. SQM will only say it sells to the “largest producers of batteries” and other products.
Rockwood and SQM say that between them they monitor at least nine lagoons in or around the Atacama salt-flat and that there has been no consistent decline in water levels. Separate figures from the Forestry Commission shows no clear trend in levels at five lakes and a moderate decline in a sixth.
The two companies have more than 300 measuring stations across the area, recording water levels, salt content and the flora and fauna, and both say their early warning systems have not been activated. SQM said that their operations “haven’t affected directly or indirectly any aspect of the flamingo population.”
Rockwood also denies any impact on the flamingo population and highlights its accord to pay a royalty of 3 percent of its sales to the local community, which will also help monitor the local environment. Still, SGA SA, the company that conducted an environmental impact study on Rockwood’s expansion plans on the Salar de Atacama, said it is hard to estimate the impact because there is no public information on where SQM locates its pumps and how much water each one is extracting.
Leaching Down
The lithium deposits are formed from water leaching down from the Andes mountains over thousands of years into dead-end valleys. Miners decant the brine into pools, where it evaporates over 18 months, leaving the minerals to be harvested.
The lithium deposits are formed from water leaching down from the Andes mountains over thousands of years into dead-end valleys. Miners decant the brine into pools, where it evaporates over 18 months, leaving the minerals to be harvested.
“The salt flats are like a complex pipe system; if you take water from one side, it will affect the other,” Humire Coca says. “Fifteen years ago I used to swim surrounded by flamingos in the Cejar lagoon, and today you are lucky if you see one there.”
Flamingos flock to the area in search of food and warm weather starting in June. Yet, on a recent visit, the only birds in the diminished Cejar lagoon were the ones pictured in the pamphlets guards hand out at the entrance. A few kilometers south, in the larger Tebenquiche lagoon, five were spotted. Neither Cejar nor Tebenquiche are monitored by Rockwood or SQM.
The average number of flamingos in the Atacama salt-flat in the five years through 2014 was down 28 percent from 1995 to 1999, according to the Forestry Commission. Of the three types that frequent the area, the Andean is classified as ” vulnerable,” while the Chilean and James are “near threatened.” Less rain and human and mining activity are reducing the amount of water in the salt flats, Forestry Commission spokesman Nelson Amado says. But the agency has no evidence that mining activity is affecting the flamingo population.
Different Landscape
Flamingos may be so scarce these days in the Tebenquiche lagoon because there’s so little salt in the water, Humire Coca says. Flamingos feed off small crustaceans, which require salty water to survive, and as the brine is removed, salination levels decline.
Flamingos may be so scarce these days in the Tebenquiche lagoon because there’s so little salt in the water, Humire Coca says. Flamingos feed off small crustaceans, which require salty water to survive, and as the brine is removed, salination levels decline.
Lagoons and meadows in the area started changing at the end of the 80s, when mining companies set up operations and rains in the mountains declined, says Manuel Salvatierra, who lives in nearby Cucuter. His family’s flock of sheep used to drink water from Cejar and Tebenquiche, and fed from the grass around them.
“Back then, you could see 40 flamingos in one lagoon,” Salvatierra says. Now “we see a different landscape.”
At 79, Vicente Conzue has spent most of his life in the southern part of the salt flats. “There was water everywhere and there were lots of flamingos,” he says from his traditional sun-dried brick house in Peine, a hamlet on the edge of the salt flat.
Once a year, the elders of the local indigenous community used to chose a group of about 25 people that were allowed to harvest vitamin-rich flamingo eggs. “We ate them boiled and in salads, we took as many as 50 eggs each and there were still enough left for the flamingos to keep breeding,” Conzue says. That doesn’t happen any more.
Look South
For an image of what may happen, people should look south to the Punta Negra salt flat that copper mines have drained dry, according to Alonso Barros, a lawyer who works with local communities. It was the events at Punta Negra that prompted Congress to set up the commission that will investigate the state’s failure to monitor mining operations in salt flats.
For an image of what may happen, people should look south to the Punta Negra salt flat that copper mines have drained dry, according to Alonso Barros, a lawyer who works with local communities. It was the events at Punta Negra that prompted Congress to set up the commission that will investigate the state’s failure to monitor mining operations in salt flats.
Lawmakers need to act quickly, says commission president Marcos Espinosa. Prices for battery grade lithium carbonate are expected to soar 40 percent over the next ten years, according to a report from consultancy firm Stormcrow Capital Ltd. Total lithium battery demand is expected to increase 30 percent over the same period.
“It might take years until we see the actual consequences of this phenomenon,” Espinosa says. “But we must act now. From our point of view, the risks of not doing it can be fatal.”
Investigation of Tesla over Fatal Crash
U.S. auto safety regulators said Thursday they have opened a preliminary investigation into 25,000 Tesla Motors Model S cars after a fatal crash in which a driver used its “Autopilot” feature.
The National Highway Traffic Safety Administration said the crash came in a 2015 Model S operating with automated driving engaged, and “calls for an examination of the design and performance of any driving aids in use at the time of the crash.” It is the first step before the agency could seek to order a recall if it believed the vehicles were unsafe.
Tesla said Thursday the death was “the first known fatality in just over 130 million miles where Autopilot was activated,” while a fatality happens once every 60 million miles worldwide. The electric automaker said it “informed NHTSA about the incident immediately after it occurred.”
“It is important to emphasize that the NHTSA action is simply a preliminary evaluation to determine whether the system worked according to expectations,” Tesla said in a blog post.
The May crash occurred when a tractor trailer drove across a divided highway, where a Tesla in autopilot mode was driving. The Model S passed under the tractor trailer, and the bottom of the trailer hit the Tesla vehicle’s windshield.
“Neither Autopilot nor the driver noticed the white side of the tractor trailer against a brightly lit sky, so the brake was not applied,” Tesla wrote.
Tesla noted that customers need to acknowledge that autopilot “is new technology and still in a public beta phase” before they can turn it on. Drivers also acknowledge that “you need to maintain control and responsibility for your vehicle.”
Tesla CEO Elon Musk called the death a “tragic loss” in a tweet.
US regulators investigating Tesla over use of automated system linked to fatal crash
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Tesla shares fell about 3 percent in after-hours trading.
SolarCity Using Inmates as Workers
“And about those green jobs…”
Though they saved the tax credits, state university officials didn’t show the same ambition to save the new jobs promised by Kitzhaber.
After the Redco debacle, the university system quickly hired its third developer in the spring of 2012. SolarCity was no solar rookie. It had been around for five years and billed itself as the largest installer of solar systems in the world.
Under the new contract, SolarCity would do all the engineering, site prep and installation for Oregon. The company would own the project, selling power to the universities to recoup its investment.
Their partner was another seeming solid name in green energy – SolarWorld. The company arrived in Hillsboro in 2007, investing hundreds of millions of dollars in a state-of-the-art solar panel factory. Potential new jobs for the company were part of the lure of the university project.
Kitzhaber, taken with the buy-local strategy, authorized a $60,000 state study to assess the project’s impact on the local economy. The study concluded that buying the solar panels in Oregon would generate $10 million in local wages.
It was common knowledge in the solar industry, though, that SolarCity and SolarWorld were bitter rivals in an international trade war.
SolarWorld was building solar panels in the U.S. and took the lead in defending American manufacturing from perceived illegal trade by the Chinese. SolarWorld complained to U.S. and European Union entities that Chinese companies were dumping solar panels in the U.S. below cost to kill competitors.
SolarCity, meanwhile, depended on those low-cost panels for its own business success. Any effort to stanch their flow into the U.S. was a threat. SolarCity and others in the industry mobilized against SolarWorld.
The U.S. Commerce Department stunned the industry when it sided with SolarWorld and imposed stiff tariffs on solar panels from China. It was the first of 10 such wins for SolarWorld, and came just two months after SolarCity started working on the Oregon project.
Despite such victories, SolarWorld struggled in 2011-2012. The solar panel business had become a bloodbath as Chinese firms dominated the industry. At least 14 American solar companies failed or shuttered manufacturing plants.
The company’s $5 million share of the university project was a rare bright spot.
“We were really excited,” said Mukesh Dulani, CEO of SolarWorld Oregon. “A five-megawatt project like this was crucial to us. We weren’t producing big volumes at the time.”
SolarCity quickly took the shine off the contract, telling state officials that they were troubled by SolarWorld’s shaky financial condition. Shain, the state’s project consultant, echoed that view.
“Deep concerns in the financial community about their liquidity are creating very difficult project finance issues,” he said in a Feb. 26, 2013, email to Maureen Bock, the Energy Department incentives program manager.
Industry analysts at the time predicted SolarWorld was headed for insolvency and questioned its decision to manufacture solar panels in the West.
SolarCity also claimed SolarWorld was backing away from its product warranties and wanted an additional $250,000.
Dulani vigorously denied his company demanded revised terms or that it was stepping away from its warranties.
Faced with the threat of cancellation, SolarWorld beseeched state officials to intervene to keep the contract alive.
“This is a travesty and there truly is no good reasons for this, contrary to what you may have been told by SolarCity,” said SolarWorld salesman Matthew Lind in an April 2013 email to OSU Sustainability Director Brandon Trelstad. “We have the industry-leading premium product coming out of Hillsboro and we can meet the price that SolarCity wants to pay, delivery capacity, volume, timing, etc.”
OSU did nothing.
“There was a lot of tension between the two companies,” Trelstad said in an interview. “I expressed interest in staying out of it. I didn’t think it was OSU’s place.”
Trelstad wasn’t the only state official in the loop. Managers of the Energy Department’s incentive programs, including Anthony Buckley, Bock and Elias, also knew SolarWorld was losing the contract.
There is no record anyone in either agency lifted a finger to help.
Layoffs followed at SolarWorld.
“We had to make some hard decisions,” Dulani said. “You have to do that when you lose five megawatts of production. This affected our people and their families. SolarCity screwed us.”
Firing SolarWorld was just business, said Will Craven, SolarCity spokesman.
But if workers in Hillsboro weren’t going to make the state’s panels, who would?
Shain assured state officials that SolarCity had found “alternative modules of U.S. manufacture, and very possible Oregon manufacture.”
SolarCity’s alternative: Prison labor.
What project consultant Shain doesn’t tell state officials is that the alternative modules would be assembled by convicts at the federal prison in Sheridan making 93 cents an hour.
Under a subcontractor, Norcross, Georgia-based Suniva, the panel work went behind the walls at the Federal Correctional Institute in Sheridan. Inmates paid 93 cents an hour assembled the panels. That was in contrast to SolarWorld factory pay — $11 an hour to start.
Craven acknowledged that using inmate labor “may not have been in the spirit” of the tax credit program. He said state officials knew prisoners were involved.
State officials said they were unaware of the inmate component until questioned recently by The Oregonian/OregonLive.
“They used inmates?” Simonton asked. “That’s unfortunate.”
#TBT: IRS and Treasury Investigate Obama’s SolarCity
News that SolarCity, another recipient of millions in government largess from the Obama Administration, would be issuing an IPO forced the disclosure that the IRS and the Treasury Department were now investigating the company, and others, for potential abuse of taxpayer funds.
The company, which received a subpoena in July from the Office of the Inspector General of the U.S. Department of Treasury to determine whether the company was part of a scam, inaccurately stated the fair-market value of their PV systems when applying for funds under the Treasury’s Section 1603 cash-grant program.
Rumors of “misrepresentation” on 1603 applications have swirled since Solar Energy Industries Association President and CEO Rhone Resch alluded to such behavior — and other ethically questionable practices cropping up in the solar sector — at this year’s Solar Power International conference.
“The Department of Justice could decide to bring a civil action to recover amounts it believes were improperly paid to us,” SolarCity writes in its SEC filing. “If it were successful in asserting this action, we could then be required to pay damages and penalties for any funds received based on such misrepresentations.”
The Obama Administration awarded the company a $275 million loan guarantee. In addition, it has been awarded millions in contracts to supply solar panels to military housing across the country.
Like Solyndra, the owners of SolarCity are donors to the Obama campaign and the Democrat National Committee.
It’s not the first time. Elon Musk, the Chairman of the company, is not new to the Washington pay to play game. Musk has been able to parlay his donations to the Obama Administration into loan guarantees and grants. Musk made $600 million from his Tesla Motor company, which has received funds from the president.
Musk’s Tesla Motors spent $480,000 from 2007 to 2011 to lobby Congress, the White House, EPA and DOE on climate and energy issues, the Advanced Technology Vehicles Manufacturing loan program, the Promoting Electric Vehicles Act, and the Recovery Act. Tesla received a $465 million loan guarantee from DOE’s ATVM program.
Musk is also a generous political donor, mostly to Democrats, although his investments and giving are equally diverse. Also the CEO of a space exploration company, Musk donated $290,000 to political candidates and the major parties from 2008 through 2012, which included $66,200 to the Democratic National Committee, $34,400 to the Democratic Senatorial Campaign Committee, and $63,500 to the National Republican Congressional Committee. His presidential candidate was Barack Obama, giving $2,300 for his 2008 campaign and $5,000 for the 2012 cycle.
It remains to be seen what the Treasury Department and the IRS turn up in their investigation of SolarCity and the green energy industry. What is clear is that the Administration continues to make their cronies rich at the expense of the taxpayers.
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6 Out Of 7 SolarCity Board Members Have Direct Ties To Elon Musk
An investor group wants Tesla Motors to shake up its board of directors after it was discovered six out of seven board members with the solar panel company have direct connections with Elon Musk, the CEO and chairman of both companies.
CtW Investor Group said the market’s “hostile reaction” to the SolarCity deal was induced, in part, by the group’s recognition that Donald Kendall, chief executive of investment management firm Kenmont, is the only person on the SolarCity board without deep-rooted ties to Musk.
“This is particularly questionable when six out of our seven board members have ties to SolarCity,” a CtW letter to Tesla noted. “This raises a serious question about whose interests the board is serving — the stockholders of Tesla or the stockholders of SolarCity.”
The group, which holds 200,000 shares of Tesla, also demanded Tesla add two permanent independent directors to the board, separate the company’s chairman and CEO roles, and called for two independent directors to review the proposed SolarCity merger deal.
Musk owns 19 percent of the electric vehicle company and 22 percent of solar panel producer.
Tesla blanched at the accusation that it’s board is not diversified enough.
“Before approving the proposal to SolarCity, it engaged in a careful review after which Tesla’s disinterested directors unanimously concluded that SolarCity is the most attractive asset in the solar market,” Tesla said in an email. “Nobody has more at stake in the success of Tesla than Elon, and he and our board have overseen the creation of tremendous value for all of Tesla’s stockholders.
The CtW letter also noted that Tesla should alter its corporate governance guidelines to forbid immediate family members of the senior executive team from concurrently serving on the board.
“To be clear, this step would require the resignation from the board of Kimbal Musk,” the letter added. Kimbal Musk is the brother of Elon Musk and CEO of Internet software company Medium.
Musk recused himself from the merger decision process and told reporters last week that fusing the two companies was “something that we have been thinking about and debated for many years.”
The Tesla’s acquisition of SolarCity does appear from an outsider’s perspective to be a family affair.
Lyndon Rive, Musk’s cousin is SolarCity’s chief executive officer. He told reporters that he would be recusing himself from the “decision-making process” as well, and said the offer to buy SolarCity represented a value of between $26.50 and $28.50 a share.
JB Straubel, Tesla’s co-founder and current SolarCity Board of Director, played a big part in designing Tesla’s electric vehicles, focusing on their batteries, motor, power electronics, as well as their software systems. Unlike Rive and Musk, Straubel has not announced a decision to recuse himself from the voting process.
The fusion of the two largest renewable energy companies comes as Tesla attempts to produce more than 400,000 Model 3 pre-ordered vehicles, which are not expected to be profitable until 2020. The company also recently launched a share sale to raise $1.7 billion for capital expenses.
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Stop Elon From Failing Again 