Last night, the SEC charged Elon Musk, CEO and Chairman of Tesla (TSLA), with making a “series of false and/or misleading statements” regarding his August 7, 2018 tweet on taking Tesla private. The SEC claims that Musk’s actions have caused significant market confusion and disruption, which materially impacted the share price and trading volume of the company’s stock. As a result, investor fears set in, leading to massive selloffs in the stock today. As of this writing, TSLA is trading at $273.36, down $34.16 or -11.11%.
Adding fuel to the fire, Merrill Lynch analyst John Murphy reiterates an Underperform rating on Tesla shares, with a price target of $200, which represents a potential downside of 26% from where the stock is currently trading. (To watch Murphy’s track record, click here)
Murphy commented, “The most notable element of the SEC’s filed charges against Mr Musk, and severity of relief sought by the regulators, is the effort to bar him from serving as an officer or director of a public company (Tesla included), as a result of his alleged violation of securities laws. It should be noted that Mr Musk will be able to remain pending the investigation and court decision, unless he or the Board/company determine otherwise in the interim. We believe this potential outcome, and an exit by Mr Musk from the company (as he could neither operate within management or on the Board if the court determined) could be a major negative for the stock. This is because, in our view, TSLA’s stock has often been disconnected from its fundamentals (evidenced by a climbing stock price despite ongoing production challenges, elevated cash burn, missed deliveries, earnings, and other financial targets), instead following Mr Musk’s ambitious vision. In the event the court determines he be removed from the company, we think investors would be unlikely to take on the vision of another CEO, and rather focus on fundamentals, which we think would be a major risk to the stock.”
Wall Street certainly did not need more reason to be cautious on the electric car titan, as TipRanks analytics exhibit TSLA as a Hold. Out of 27 analysts polled in the last 3 months, 7 are bullish on Tesla stock, 10 remain sidelined, and 10 are bearish on the stock. However, with a potential upside of nearly 14%, the stock’s consensus target price stands at $312.81. (See TSLA’s price targets and analyst ratings on TipRanks)