Musk Wins! The SEC Blinks! Tesla Loses

(Bloomberg Opinion) -- Elon Musk just dodged a bullet. It's Tesla that bears the scars.

Just a couple of days after the Securities and Exchange Commission sued Tesla Inc.'s chairman and CEO – an action he described as “unjustified” – Musk has settled. Without admitting wrongdoing in connection with his bizarre claims of having teed up a buyout of the company in August, Musk will pay a fine of $20 million and relinquish the position of chairman for at least three years.

Given the apparent strength of the SEC's complaint, with so much evidence typed and broadcast by Musk's own hand, this surely counts as a win for him. The fine is immaterial compared to the $8.9 billion value of his stake in Tesla. Crucially, he has avoided the ban on being an officer of a public company, as the SEC was seeking.

Losing the chairmanship may rankle Musk. In practical terms, though, it's too early to say how big a difference it will really make. As I wrote here, splitting the roles and getting someone in who can remake the board as a true check on the CEO, co-founder and largest shareholder is the bare minimum Tesla needs in terms of governance.

But it remains to be seen who will actually fill the empty seat. The addition of two more independent directors, as also stipulated in the settlement, may give any candidate some hope of exercising real power. But the three-year time limit on Musk's exclusion and the reality that, for many fans, he personifies the company may also deter true heavy hitters from taking on what could end up amounting to a lame-duck job.

Friday's precipitous drop in Tesla's valuation – down almost 14 percent, or $7.3 billion – no doubt played some part in inspiring this Saturday night resolution. It seems just as likely that, with the cloud over Musk now seemingly removed, this most untethered of stocks will bounce on Monday.

Should it? Regular readers will know I've been skeptical of Tesla's valuation for a while. Even after Friday's drubbing, the stock still traded at 94 times forecast non-GAAP earnings in 2019. I'd raise the point here that such a valuation seemed inconsistent with real concern about the CEO facing a potential ban from running a company after misleading shareholders, but I think we all know by now Tesla's stock doesn't really work that way.

Those buying on the back of this latest twist in Tesla's ever-more convoluted plot should untangle it and recognize it for what is is, though. There's no vindication here. The CEO exposed his company to legal risk via a ridiculous claim of having a deal in hand for reasons that remain baffling. He has now merely settled some portion of that (investor lawsuits remain and this deal doesn't appear to preclude further investigation by the Department of Justice) and kept his main job at the company.

The governance reforms – including the apparent check being placed on Musk's Twitter habit – are a welcome side-effect. But they're just a side effect, remember. And they aren't what will fuel any rally Monday morning, anyway; rather, it will be relief on the part of Musk's fans that he remains in the driving seat.

Such relief will, as ever, ignore Tesla's seriously weak balance sheet and litany of oddities (for example, Musk's recent claim the company was building its own delivery trucks to alleviate “logistics hell”). Most of all, it will ignore the fact that he sparked an entirely self-inflicted crisis that should never have happened in the first place.

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.