Will Tesla share rally if Musk retires from Twitter?

MarketBeat.com – MarketBeat

One company that has been in the headlines lately is Elon Musk’s “second” company Tesla, Inc. (NASDAQ: TSLA). The stock is down 57.35% so far this year, with many analysts attributing at least part of the decline to Musk being distracted with the Twitter purchase.

Investors and even politicians are taking notice.

To some extent, Tesla’s downward trajectory has paralleled the broader auto industry. Nevertheless, it is unavoidably true that Tesla’s performance is worse than established car manufacturers such as e.g General Motors Company (NYSE: GM) or Ford Motor Company (NYSE: F)or even some rival electric car manufacturers like China’s BYD Company Limited (OTCMKTS: BYDDF).

Regulatory filings show that on Dec. 14, after the closing bell, Musk sold nearly 22 million Tesla shares between Dec. 12 and 14, worth $3.58 billion. Many analysts who follow the company believe the proceeds will go towards financing Twitter, which Musk bought in October.

There was heavier than normal downside trading volume on December 12, 13 and 14. The stock fell 6.27% on December 12th, 4.09% on December 13th and 2.58% on December 14th.

Big investors are taking notice. Insider trading is only a fact of life for listed companies. Contrary to popular belief, it does not always signal that an insider is trading on secret information that will send shares lower. Managers sell stocks for prosaic reasons, such as raising money to buy a house or finance college tuition.

Breach of fiduciary duty?

But there is also a corporate governance angle when an insider, especially the CEO, sells a large number of shares. The managing director’s fiduciary duty is towards the company’s shareholders. If Musk, or any CEO of a public company, takes actions that harm other shareholders, that could be a breach of his fiduciary duty.

Over the weekend, Indonesian billionaire KoGuan Leo, the third-largest individual owner of Tesla shares, asked Musk to step down from his role as the automaker.

On Monday, news broke that Massachusetts Senator Elizabeth Warren sent a letter to Tesla Chairman Robyn Denholm, claiming that Musk’s actions could harm Tesla shareholders. Warren also raised the question of whether Tesla’s board, which also has a fiduciary duty to shareholders, has adequately addressed the situation with Musk. In her letter, Warren Denholm questioned whether Musk had appropriated the company’s assets and created conflicts of interest.

In another twist, Musk asked Twitter users in a poll whether they thought he should step down as CEO, and said he would follow their opinion. Tesla shares only rose after the news that the majority thought Musk should step down as head of Twitter. Shares were in the red about an hour into Monday’s session before rebounding.

Will Tesla share rally if Musk retires from Twitter?

Not all the news is bad

To be sure, there has been some good news for S&P 500 component Tesla recently.

Bloomberg reported last week that Tesla plans to build a new manufacturing facility in Mexico. There has been no announcement from the company yet, and it’s unclear exactly what Tesla plans to build there.

In addition, PepsiCo Inc. (NASDAQ: PEP) is preparing to roll out 100 Tesla Semi trucks next year. Thirty-six are already in operation.

MarketBeat analyst data for Tesla shows a “hold” rating on the stock. Since November 29, 12 analysts have lowered the price target on Tesla or downgraded the rating. Six increased their goals or upgraded their rankings. One reiterated its “buy” rating.

On Monday, Oppenheimer downgraded the stock to “market perform” from “outperform.”

Meanwhile, Wedbush analyst Dan Ives wrote that he expects Musk to step down from his role at Twitter and renew his focus on Tesla.

The analyst consensus price target for Tesla is $264.91, representing a potential upside of 78.23%. That’s certainly a plus for Tesla at the moment, along with Wall Street’s expectation that the company will earn $4.08 per share this year, up 81% from 2022. Next year, it’s up another 40% to $5.72 per share.

Tesla is part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.

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