Why Are Tesla and Bloom Energy Flouting SEC Rules?

Tesla CEO Elon Musk and Bloom Energy CEO K.R. Sridhar don’t
seem to be disclosing important material information that is
required by law and the Securities Exchange Commission. 

I recall a time when material events that were relevant to
stockholders were lawfully disclosed with the filing of an 8-K
form, often submitted within four business days of the event.

What makes a corporate event material and worthy of reporting on
an 8-K?

The SEC
requires disclosure
of, say, the close of an acquisition,
changes in a company’s financial state, making a material
agreement or declaring a bankruptcy. A public firm must disclose
material impairments, changes in accounting firms or corporate
governance, and a whole slew of other material circumstances. 

So, if Tesla acquires a company — that needs to be
disclosed. 

Tesla acquires a com​pany

Last quarter, CEO Elon Musk suggested that Tesla’s “delivery
hell” stemmed from lack of carriers to transport its
vehicles.

On November 15, Musk tweeted a
remedy: “We bought some trucking companies & secured
contracts with major haulers to avoid trucking shortage mistake of
last quarter.” 

Musk wants to reduce the time it takes to get a car
from the factory to the customer and says that Model 3 orders
placed by November 30 can be delivered in the U.S. by
December 31.

Musk added that skipping rail “saves over a month for East
Coast deliveries,” explaining, “All things considered, it’s
better to use trucks. Single load/unload & direct to owner
location.”

Josh
Wolfe
, fund director of Lux Capital, tweeted a response:
“All things considered, makes no sense. First principles? Using
lots of trucks instead of trains — is NOT
environmentally friendly. Accelerates CO2 emissions and dirty
diesel and decelerates world’s transition to sustainable
energy.” 

Putting aside for now the wisdom of acquiring an auto carrier
company, where
is the 8-K
filing noting the acquisition? What company or
companies were bought and how much was paid? Wouldn’t a
reasonable investor want to know this?

This is certainly not Tesla’s first non-documented material
event. That entire $420 “funding
secured
” fiasco was unencumbered by securities compliance.
Would investment in the Chinese factory or an agreement to build
the factory warrant disclosure?

Bloom’s $100 million expense not material?

Which brings us to Bloom Energy, builder of fossil fuel-powered
solid oxide fuel cells. Dan Primack of Axios uncovered Bloom’s
filing of a
construction permit request
to replace its fuel cell fleet in
Delaware, its largest deployment — replacing about 150 of the
200-kilowatt power-generating units.  

Primack points out that
Bloom’s IPO
filing in July didn’t mention the fuel cells
would need to be replaced at a cost of between $100 million
and $150 million, a figure revealed by Axios. Bloom’s
earnings call
and its 10-Q filing did not mention the imminent
expense either. 

That’s a substantial sum given Bloom’s
$79 million loss on $190 million in revenue
in its most
recent quarter.

“It is hard to argue that this isn’t material information
that Bloom should have shared with investors, particularly
given how it could impact shareholder liquidity and the company’s
path to profitability,” according to Primack.

Primack contacted three experts who “believe Bloom’s upcoming
expenses are material” and cited a “soft” test for public
disclosure: is it something a “reasonable investor would want to
know.”

Bloom disagreed with Primack in a statement: “There will be
incremental cost for replacing these systems. However, there will
also be a savings in future service cost for these newer
generation systems [that] will cover the incremental cost. We’re
very confident that there will be no material adverse cost to the
company from the upgrade. It’s part of the normal process of our
business.” 

The current units will be replaced with more fuel-efficient
systems.

The project is routine according David McCulloch, VP of
communications at Bloom, quoted in
Delaware Business Now
.

“Replacing systems is very much business-as-usual for Bloom. Our
business model assumes that we will replace systems as part of
maintenance upgrades. There’s nothing new here.”

Bloom’s financial declarations would be more credible if CEO
Sridhar’s first post-IPO announcement had not been that the
company would be “cash-flow positive and GAAP-profitable this
year,” an assertion the company quickly walked back. 

Bloom’s stock is currently trading at $14.61 per share and has
erased all of its 2018 gains.

Reining-in Musk

Companies have been skirting regulations and externalizing their
liabilities since the invention
of the company through time to Enron and, in the news this week,
Nissan’s CEO
Carlos Ghosn
.

But it’s hard not to connect the current crisis in
governmental corruption and compliance with these high-profile
lapses in corporate ethics. 

In any case, it’s the SEC’s role to enforce
federal securities laws and regulate the nation’s securities
industry and stock exchanges.

And the SEC has stepped in to rein in Elon Musk. Musk’s
settlement with the SEC has him stepping down as chairman for three
years, replaced by
Robyn Denholm
, saddled with a $20 million fine and subject to
new governance rules and the addition of two independent
directors. 

Additionally, the SEC wants to protect investors with
disclosure
controls
or procedures in place to determine whether Musk’s
tweets contained information required to be disclosed in Tesla’s
SEC filings” and additional controls and procedures to oversee
Musk’s communications.

There’s still room for improvement in Tesla’s (and
Bloom’s) compliance — and in the SEC’s enforcement of its
mandates.

Source: FS – GreenTech Media
Why Are Tesla and Bloom Energy Flouting SEC Rules?