While Elon Musk Faces the SEC in Court, Tesla Still Struggles As a ‘Real Car Company’

Tesla shares tumbled on Thursday after the company missed Q1 delivery estimates.

Elon Musk arrives at federal court in New York City on April 4.
Elon Musk arrives at federal court in New York City on April 4. Drew Angerer/Getty Images

No day is ever boring in the life of Elon Musk. After having a little bit of fun on Twitter with cryptocurrencies this week, on Thursday the Tesla (TSLA) CEO appeared in a federal court in New York City to defend himself in a case brought up by his worst enemy over the past year, the Securities and Exchange Commission (SEC).

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Seven weeks ago, Musk casually tweeted that Tesla would make 500,000 cars in 2019. Because the production target mentioned in the tweet had not been officially shared with investors before, the SEC accused Musk of violating an agreement he had struck with the agency months ago about not tweeting sensitive business information. The regulator then asked a federal judge to hold him in contempt of court.

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Musk’s lawyer and a representative for the SEC argued the case for two hours, mainly debating over whether Musk’s February tweet had violated his previous agreement with the SEC and what kinds of tweets should require pre-approvals in the future, according to Business Insider‘s live blog.

The hearing ended at 4 p.m. with Judge Alison Nathan ordering the SEC and Musk to propose a new resolution within two weeks.

In the meantime, Tesla shares suffered a major stumble, falling over 10 percent Thursday morning after the company said it had delivered only 63,000 cars in the first quarter of 2019, far below analysts’ expectation of 76,000.

Delivery of Model 3 cars, Tesla’s cheapest offering and a closely watched indicator for performance, totaled 50,900 during the quarter, also below the estimate of 52,450.

Total quarterly production, however, outpaced delivery by 14,100 units. Tesla said the delivery shortage wasn’t as major as it seemed because about 10,600 cars were on their way to customers by the end of the quarter. Still, with the “in-transit batch” counted, total delivery would still fall behind forecasts.

“Tesla continues to struggle as a ‘real car company,’ with demand collapsing for the tired Model S/X platforms and higher priced versions of the Model 3,” Cowen analyst Jeff Osborn said in a note Thursday.

As a result of lower than expected delivery volumes, Tesla warned investors that first-quarter income would “be negatively impacted.”

On the bright side, though, Tesla said the last batch of cars shipped out in the first quarter was driven by strong demand in China and Europe toward the end of the quarter. The company also assured investors that it was on track to meet the full-year forecast of 360,000 to 400,000 car deliveries.

Strong demand in foreign markets is a good sign, especially now that demand for electric cars in the U.S. is hitting a bottle neck as federal subsidies phase out. Currently, all cars ordered from Asia and Europe are manufactured in Tesla’s California factory, which Tesla cited as a main reason for production outpacing delivery.

The electric carmaker is in the process of optimizing international logistics by building factories near key markets. Its “gigafactory” in Shanghai, China, for example, is expected be completed in May to supply Chinese buyers.

While Elon Musk Faces the SEC in Court, Tesla Still Struggles As a ‘Real Car Company’