Tesla Investors Cheered By Swift, Benign SEC Response.
New Chairman Needs To Be Strong, Independent Figure.
Could Tesla Be Ripe For Takeover?
Tesla Inc shareholders were breathing a sigh of relief as the U.S. Securities and Exchange Commission (SEC) took a relatively forgiving view of CEO Elon Musk’s recent antics.
The SEC insisted Musk give up his chairmanship of Tesla for three years, but he retains his seat on the board and his CEO position, and must cough up a fine of $20 million. The company was fined $20 million too. Investors had expected much higher fines, and a long-drawn out saga which might have curbed Tesla’s ability to raise crucial short-term capital.
A new chairman must be appointed, and investors are hoping it is someone with a proven record in the automotive industry, and no links to Musk or his family.
Shareholders had worried that Musk might be banned from any involvement with Tesla. A chastened Musk will now have to get his tweets approved by the company. It was a tweet that Tesla was “going private at $420, funding agreed” that prompted the SEC involvement.
“That is clearly a big win for shareholders in the short term, considering Mr. Musk’s outsize role at the company,” The Wall Street Journal’s Heard on the Street column said, in an article headlined “Tesla Gets A Second Chance.
Meanwhile an idea is gaining momentum that Tesla might be ripe for a takeover.
Investment bank Morgan Stanley said although Tesla is having great difficulty ramping up production of the Model 3 and faces some high financial hurdles, it has some compelling qualities that a traditional manufacturer might covet.
“Tesla faces challenges in areas where Detroit (manufacturers) have capacity and experience like manufacturing, logistics and delivery, while Tesla can offer software, connected car, and EV (electric vehicle) domain knowledge to a (manufacturer) in exchange for previous capital. Is there a fit it might believe is worth exploring,” asked Morgan Stanley analyst Adam Jonas.
Other analysts agree this might be a possibility, but only if the Tesla share price dives to a level which valued it perhaps 50 per cent higher than BMW. That implies the Tesla share price sheds about three quarters of its recent value.
At that price, Tesla could even be an attractive takeover target, although it first must confront a liquidity crunch. The company is burning cash and has $1.2 billion of debt that due by March.
Investors will be asking who will be the next chairman.
“The next step for Tesla is to fill the Chairman and independent director positions. We strongly advocate, and believe investors would welcome, an outside Chairperson who is an independent thinker, strong in character and has extensive operational experience. Someone who Musk will share respect and who will want to use him as a sounding board. We will see,” investment researcher Evercore ISI said in a report.
Reuters Breaking Views columnist Antony Currie suggests Alan Mulally or his equivalent.
“Bringing in a savvy elder statesman of the car industry would be a far better choice: Alan Mulally, for example. The former Ford boss and Boeing executive has the engineering nous and organisational acumen Tesla needs. His experience dealing with the Ford family, which controls 40 per cent of the voting stock in the automaker, could help with Musk, who owns a fifth of Tesla and is personally associated with the company’s brand,” Currie said.
As the Model 3 production ramps up, Tesla faces existential threats.
According to Fitch Solutions, new products from Tesla’s premium rivals are a growing threat to its dominance of the electric vehicle (EV) market.
“Other brands, mostly in the premium segment, are launching or preparing to launch models that will directly compete with Tesla in the electric vehicle (EV) market. The premium electric SUV segment, for example, where the Tesla Model X has the edge, will be particularly hotly contested following the launch of Jaguar’s I-Pace (in Geneva last March) and Audi’s E-tron SUV and the Mercedes EQC (at this month’s Paris Auto Show) to join the fray in 2019,” Fitch analyst Anna-Marie Baisden said.
“Negativity surrounding Tesla at a time when more options are joining the market, giving consumers a chance to stay with brands they may already be loyal to, heightens the risk to the brand,” Baisden said.