Analysts were relieved on Monday at the terms of Tesla chief Elon Musk’s settlement with the SEC reached over the weekend, but some remain concerned over longer-term challenges the automaker faces.
Shares of Tesla jumped during Monday’s trading session, after falling on Friday over concerns the billionaire businessman would be ousted from his leadership roles. Musk's settlement with the SEC requires him to relinquish his role as chairman for at least three years and pay a $20 million fine to settle the commission's securities fraud charges filed over allegations of misleading investors. The settlement leaves Musk as CEO.
Tesla analyst Garrett Nelson of CFRA Research upped his rating on the stock Monday morning to Hold, after downgrading it on Friday to Sell. Nelson told FOX Business the settlement, which is still subject to court approval, “reflects certainty Musk is going to remain with the company in the CEO role.” He said his outlook for shares is now more positive than it was before the downgrade.
Nelson, who called the $20 million fine as "pocket change," noted that as part of the settlement, the company will have a “healthier level” of corporate governance as it separates the chairman and CEO roles, and requires the appointment of two new outside members to the board.
“[Musk] had way too much control over the boardroom and the company,” he said, adding it was an unusual situation that the entrepreneur was chairman, CEO and also Tesla’s largest shareholder.
Ivan Feinseth of Tigress Financial Partners, also a Tesla analyst, called the settlement “an incredibly beneficial outcome for the company,” adding that while he remains neutral on the stock, he would be a buyer in the $255-$275 price range.
Analysts from Cowen wrote in a note over the weekend that while the settlement would likely lead to a near-term bump for Tesla shares, it could leave Musk open to future litigation – including class-action lawsuits that have already been filed. Additionally, they raised concerns about cash flow, production issues, increasing competition and employee turnover.
Musk will also be subject to new corporate communications controls and processes, which many analysts view as a positive in light of the tweet regarding Musk’s considerations to take the company private, which sparked the SEC’s charges.
Musk has also been known to post eccentric messages on Twitter and gave an unusual and emotional interview to The New York Times in August detailing the difficulties he faced as head of the electric automaker.