Media playback is unsupported on your device Tesla shares have sunk after US regulators took legal action against founder Elon Musk for alleged securities fraud. On Thursday the Securities and Exchange Commission filed a lawsuit over a claim made last month by Mr Musk that he had funding to take the company private. The billionaire… Continue reading Tesla shares sink on fraud investigation
Tag: Electric vehicles
Tesla shares plunge as Wall Street throws in towel, saying Musk departure could cost stock $130
Bobby Yip | Reuters
Elon Musk
Wall Street is buzzing over SEC's civil action against Tesla CEO Elon Musk, predicting significant negative ramifications for the electric car market due to the action.
Shares of the automaker were down 12 percent in Friday's premarket session.
The Securities and Exchange Commission sued Musk on Thursday, alleging for fraud. The complaint says Musk issued “false and misleading” statements and failed to properly notify regulators of material company events. Musk called the SEC's allegations “unjustified” and said he “never compromised” his integrity.
Barclays believes if Musk is forced to leave because of the SEC action, it will be weigh on Tesla's stock.
“The SEC civil action may lead to Musk's exit from Tesla (either permanently or temporarily) and the Musk premium in the shares dissipating,” analyst Brian Johnson said in a note to clients Friday. “Tesla shares have ~$130 of Musk premium for future success that might dissipate.”
Tesla's stock closed at $307.52 Thursday.
Johnson reiterated his underweight rating and $210 price target for Tesla shares.
One Wall Street firm is concerned the controversy about the lawsuit will hurt demand for Tesla's cars.
“We see the potential for negative sentiment to impact demand and employee morale,” Morgan Stanley analyst Adam Jonas said in an investor note. “In our view, this is particularly a risk if the situation is not resolved relatively quickly.”
Jonas reiterated his equal-weight rating and $291 price target for Tesla shares.
J.P. Morgan also thinks the news will affect the company's ability to raise financing.
“We are concerned that decreased confidence in Tesla on the part of investors may impact the company's ability to raise capital on amenable terms,” analyst Ryan Brinkman said in a note to clients Friday.
Brinkman reaffirmed his underweight rating and $195 Dec. 2018 price target for the company's shares.
Citigroup also downgraded the stock to a sell rating from neutral.
“There's little question that Mr. Musk's departure would likely cause harm to Tesla's brand, stakeholder confidence and fundraising,” the note said. “If Mr. Musk ends up staying on, the reputational harm from this might still prevent the stock from immediately returning to 'normal.'”
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Tesla shares drop as much as 13% after SEC charges CEO Elon Musk with fraud
Musk could still be an important piece of Tesla, he just couldn't run the thing: Stewart
6 Hours Ago | 11:59
Shares of Tesla dropped sharply in after-hours trading Thursday after court documents showed the Securities and Exchange Commission is suing Elon Musk for fraud.
Sources close to the company told CNBC the company was also expecting to be sued, though Tesla was not named as a defendant in the complaint.
Tesla's stock dropped as much as 13 percent, to around $268, down from $307.52 as of the close.
Musk, the company's CEO, tweeted last month he was thinking about taking Tesla private, noting: “Funding secured.”
The Aug. 7 tweet sent Tesla shares flying, and they closed 11 percent higher on the day.
After sending the tweet, Musk claimed he had been in talks with the Saudi Arabian sovereign wealth fund and was confident he'd have the funding to take the company private at $420 a share. Tesla abandoned its plans to go private later in August.
“The SEC is looking at it very seriously. The stock is going to be under pressure while this gets resolved, and obviously these things take time. The SEC obviously has fired the first shot,” said Art Hogan, chief market strategist at B. Riley FBR. “It sounds like the company's first communication was to defend.”
Tesla since Aug. 7
Source: FactSet
In its complaint, the SEC said Musk knew he “had not agreed upon any terms for a going-private transaction with the Fund or any other funding source,” adding Musk had “had no further substantive communications with representatives of the Fund beyond their 30 to 45 minute meeting on July 31.”
Regardless, the stock has been a roller-coaster ride for investors ever since the infamous Aug. 7 tweet. Since popping that day, the stock has dropped 19 percent through Thursday's close.
Colin Rusch, an analyst at Oppenheimer with a buy rating and a $385 price target on Tesla, told CNBC's “Closing Bell” the stock, and the company, can recover from this.
“The potential for this platform is generating an awful lot of cash flow,” Rusch said. If “they implement some fiscal discipline around growth and increment operating margins, we do think there is still an awful lot of capital that is still very bullish on this name and will continue to buy the name even with this sort of overhang.”
— CNBC's
Patti Domm
contributed to this report.
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