- Wall Street analysts reacted to the Securities and Exchange Commission’s motion filed Monday evening that directed a federal judge to hold TeslaCEO Elon Musk in contempt of court over a tweet.
- “Another boxing match with the SEC is the last thing investors wanted to see,” one analyst said.
- Tesla shares fell in pre-market trading Tuesday.
- Watch Tesla trade live.
The agency directed a federal judge to hold Musk in contempt of court over a tweet Musk posted last week, saying it violated the terms of his settlement in the wake of his infamous “funding secured” tweet last year.
Last week, Musk tweeted Tesla would produce 500,000 cars this year before walking back his claim in a follow-up tweet.
“Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week,” he wrote. “Deliveries for year still estimated to be about 400k.”
Under Tesla’s settlement with the SEC, Tesla was supposed to preaprrove all of Musk’s shareholder communication that included “material” information about the company – like production numbers.
Several analysts said that while it would difficult to determine the outcome right now, the motion was the last thing investors needed amid management departures and a renewed focus on ramping up Model 3 production for China and Europe. With the motion acting as a wild card and a distraction, analysts said shares could come under pressure, though many didn’t adjust their price targets or investment recommendations on the news.
Here’s a summary of what analysts told their clients:
Wedbush: ‘SEC Asks Court to Hold Musk in Contempt; Uncertainty Will Weigh on Shares’
Price target: $US390
“In our opinion another boxing match with the SEC is the last thing investors wanted to see last night as Tesla is already in such a pivotal period with Musk & Co. trying to ramp up Model 3 production/demand for China/Europe, and thread the needle to profitability with roughly $US1.5 billion of debt to be paid this year,” analyst Daniel Ives told clients in a note out Tuesday.
He added he’d be watching the courts’ next steps in the coming days, as the development will prove to be a near-term overhang on shares until investors can “better gauge the impact.”
Still, the firm reiterated its “outperform” rating and bullish price target due to its view that the electric-car maker’s demand can improve this year.
JP Morgan: ‘See Negative Reaction to Further SEC Allegations Against Tesla CEO Elon Musk — Reiterate UW’
Price target: $US230
“Should the SEC again seek to remove Mr. Musk, we estimate TSLA shares could approach but perhaps not breach 52-week lows,” analysts led by Ryan Brinkman wrote to clients Tuesday.
“The SEC is requesting the Court find Mr. Musk in contempt, but did not on Monday request any specific remedy. In particular, it has not requested to set aside the earlier settlement which led to the withdrawal of securities fraud charges and its request Mr. Musk be barred from serving as an officer of any public company, including Tesla.”
That’s what the analysts view as a “worst case scenario,” the likelihood of which is difficult to judge at this point.
If the SEC were to seek Musk’s removal, the analysts wrote, shares may approach – though not retest – the mid-$US200 levels seen in the aftermath of the suit over Musk’s infamous “funding secured” tweet.
RBC Capital Markets: ‘SEC asks court to hold Musk in contempt’
Price target: $US245
“It will be up to a federal judge to determine whether Musk is in contempt and what the penalties would be (or the SEC and Musk would have to reach a settlement),” analyst Joseph Spak wrote to clients Tuesday.
“We won’t opine on the ruling potential. But in our opinion, given that the SEC arguably let Musk off lightly for his first settlement, and given that he has taunted the SEC (see the 60 Minutes interview [December 9, 2018] during which he stated, ‘I don’t respect the SEC’), we believe the SEC will seek a harsher penalty/settlement.”
Spak said he is again reminded of the “seemingly inadequate corporate governance at Tesla in this regard.”
Macquarie: ‘What Impact Can The Latest SEC Saga Have?’
Price target: $US430
“Based on our understanding, we do not think there may be material risk of a change to Mr Musk’s role at Tesla,” analysts Maynard Um and Tim Liu wrote to clients Tuesday.
“The bottom line is that the SEC is looking for strict enforcement of the policy, which we believe ultimately will be dictated by Mr Musk rather than the Board.”
Citi: ‘Quick First Thoughts on New SEC Escalation’
Rating: Sell/High Risk
Price target: $US273
“Recall that our Tesla downgrade last year (to Sell/High Risk) came right after the SEC’s original actions against Tesla,” analyst Itay Michaeli wrote in a report on Tuesday. “We view this escalation as a negative and expect Tesla shares to come under pressure at least until some clarity is achieved.”
Michaeli said while the motion’s outcome could plausibly range from nothing of material impact to Musk’s removal, it’s difficult to predict.
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