Musk Shenanigans Shakes Tesla’s Investors.
Plan B Dumps Going Private.
Stock Price Helped By Takeover Rumours.
“Mr Musk’s antics, particularly on social media, are unbecoming of the head of as public company”
Tesla Inc isn’t going private after all but recent upheavals have shaken investor confidence in volatile CEO Elon Musk’s ability to lead the upstart electric car maker to the next level.
One new element to emerge during the crisis was the possibility that Tesla might be taken over by a technology or an oil company.
Three weeks ago Musk tweeted Tesla was going private at $420, funding agreed, but then came another tweet – “I believe the better path is for Tesla to remain public”.
Since the announcements, Tesla’s stock price has reflected investors’ confusion about the company’s destiny, having zoomed initially to just over $380, then slumped to $303, then recovered to $322.
“The charade of the past three weeks, however fascinating for neutral observers, should outrage Tesla shareholders. Mr Musk’s antics, particularly on social media, are unbecoming of the head of a public company, especially one with so many operational challenges,” The Financial Times Lex column said.
An interview with the New York Times showed Musk was under pressure, and increased the clamour that his workload should be cut by appointing a chief operating officer.
Investment researcher Jefferies thinks Tesla has a future, but will need new capital first. The recent turmoil might have spooked investors, but it has reawakened the possibility that it might be taken over, and maybe not by another auto company.
“We have no doubt there is potential value in Tesla and that outside corporate interest, which has been rumoured for some time, has provided some support to shares over time,” Jefferies analyst Philippe Houchois said.
“With its long term mission intact but short term growth shaky, serious gaps in execution skills and a board under pressure for not assuming its duties, now may be the time for third parties to get involved, be it from technology or even oil, that would value its addressable markets and unique features, be it actual battery capacity or recharging network,” he said.
“We see lower probability of interest from established auto (manufacturers) as Tesla joining an EV zero-sum-game would probably deflate the Tesla multiple. Interestingly, many of these potential investors are U.S.-based, avoiding recent political risks,” Houchois said.
Barclays Equity Research said the episode should call investor confidence in Tesla into question.
Barclays’ analyst Brian Johnson said the huge rise in Tesla shares was based more on faith than evidence and calls for the Model 3 to become the iPhone of cars and a big disruptor of other industries including trucking, mobility and energy generation and storage were looking a bit thin.
“We believe this episode should erode at last some of the bullish confidence in the Tesla story – and further shift focus to the 3Q results, which the company has promised to be cash flow positive,” Johnson said.
$2.5 billion needed
According to investment bank Morgan Stanley the key factor in Tesla’s near term future will be its ability to ramp up Model 3 output in the 3rd and 4th quarter to achieve profitability. Morgan Stanley also expects a $2.5 billion equity capital raising move from Tesla.
Jefferies Houchois said Tesla will be stretched meet targets because
- Sales volume of S and X is trending flat to down in key markets.
- Competitors introduce products in the higher priced segments where Tesla generates its highest gross cash contributions and
- Price elasticity of Model 3 demand remains unclear, with or without federal tax credits, casting doubt on upcoming build rates until lower price versions become available, if they ever come.
“Without funding for Model Y, S/X refresh and other products, Tesla is potentially facing a product shortfall starting in 2020, which may be a bigger risk to valuation multiples than near term liquidity issues which Tesla may be able to address through operating free cash flow,” Houchois said.