Tesla CEO Elon Musk.
Ludovic Marin/POOL/AFP via Getty Images
Tesla,
the most valuable car company on the planet, is led by the richest person. That makes Tesla a magnet for media attention, which can be a problem for investors who have to sift through a lot to figure out what will affect the stock.
Take Wednesday. The Wall Street Journal reported that the Justice Department has opened an investigation into the use of company money on a secret plan to build a glass structure, described internally as a house for Tesla (ticker: TSLA) CEO Elon Musk.
Yes, the idea is a glass house for the owner of the social-media platform X formerly known as Twitter, who is known for tossing metaphorical stones with his tweets. Go figure. Tesla didn’t respond to a request for comment about the house.
It is ironic, but is it a big deal in terms of investing? The first way to find out is to look at the stock because the market always helps investors see what matters. Tesla stock was up 0.5% in early trading Thursday, while the
S&P 500
and
Nasdaq Composite
were up about 0.2%. That doesn’t reflect a lot of concern.
Still, even the market can get things wrong, so it makes sense to double-check. Investors can ask what any news item means for cash flow, earnings, or the direction of the company.
Companies need to disclose information about large transactions with related parties or company insiders. Failing to do so could lead to fines or a tarnished reputation, both of which matter.
Yet the magnitude of the fine, if there were to be one, wouldn’t likely be significant enough to move the stock. Tesla paid a $20 million penalty in 2018 over a Musk tweet saying he had “funding secured” to take the company private. The tweet was a big issue for the company, Musk, and investors for quite a while, but $20 million just isn’t a material amount to an automaker.
Managers using companies as an ATM is also a big no-no. Former Tyco CEO Dennis Kozlowski was convicted of crimes in 2005 that were essentially all related to improper compensation and use of company funds.
Anything that affects Musk’s ability to lead Tesla certainly matters to investors. The action in the stock seems to indicate that the odds of a Kozlowski-like outcome are low.
To be sure, poor governance matters to any company. But the fact that the glass house hasn’t been built might actually be a sign of good governance. There are too few details to tell.
In general, executives should build their own houses out of glass, or whatever other material they prefer.
Write to Al Root at [email protected]
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