Electric vehicle maker Tesla (NASDAQ:TSLA) is a really a two-part story. On one hand, the technology and actual product are amazing. If you’ve ever driven or sat in one, it’s easy to see why people are enamored with the vehicles. They are pretty cool and have plenty of amazing technology packed in. Unfortunately that has very little to do with Tesla stock.
Long has Tesla been fraught with large debts, missed promises/production figures and insanely high cash burn. That’s caused many investors to call the stock a big short candidate and not worthy of its lofty valuation. And this year, Tesla bears have gotten plenty of additional ammunition from pretty strange behavior from founder Elon Musk and his flock.
And over the weekend, that behavior got even more bizarre. The problem is, a what point do investors say enough is enough and send Tesla stock lower?
The Woes Start Early for Tesla
Maybe the struggle of trying to please Wall Street is finally getting to Elon Musk. Over the last year or so, TSLA’s main man has been off his game, to say the least.
Back in April, Musk and Tesla tweeted some images of Musk lying in the gutter with a big “Bankrupt” sign hanging around his neck. Then came the cannabis-smoking interview on Joe Rogan and the conference call attacks on a bearish analyst.
And we can’t ignore the whole “funding secured” series of tweets. That deal to go private was not really that secure and didn’t end up happening. Moreover, Musk was fined by the SEC for his actions and TSLA was ordered to implement a series of controls before Elon tweets any shareholder/investor-related content in the future.
So, you’d think after all of this, especially the SEC enforcement, Tesla and Musk would sort of lay-low and keep a low profile for the rest of the year. Well, that hasn’t exactly happened. In fact, the story at Tesla has only gotten more bizarre from here.
Musk was interviewed by 60 Minutes. The interview didn’t exactly paint TSLA in a good light. During the piece, Musk mentioned that he did not “respect the SEC” and admitted that nobody at Tesla was pre-approving or watching over his tweets like the settlement required.
Part of that settlement was also to remove Musk as chairman of the board for three years. In the interview, Musk mentioned that he personally selected Robyn Denholm to replace him.
Here again, Musk laughed in the face of the SEC and said that Denholm is not there to watch over him. The money quote being that “I am the largest shareholder in the company, and I can just call for a shareholder vote and get anything done that I want.”
Part of the SEC settlement was also to bring in two new independent directors to reduce Musk’s power over the Tesla board. Clearly, that action hasn’t happened yet.
TSLA Gets More Bizarre Part Two
As if another crazy interview wasn’t enough, TSLA got some more bad news. This time in the case of a lawsuit and continuing legal battle.
Over the summer, former employee Martin Tripp filed a whistleblower complaint against Tesla citing that the vehicle maker was using flawed battery manufacturing practices and hiding relevant info from shareholders. This included the fact that TSLA maybe inflating the number of Model 3 sedans it was making each week by as much as 44%.
Tesla has since counter-sued Tripp for the amount of $167 million dollars and has launched an aggressive campaign against him. Musk has painted him as guilty of corporate sabotage and a disgruntled employee.
The last thing Tesla stock needs is depositions of top executives showing their inner processes considering how fast and loose those processes could be. After all, if you’re willing to tell the SEC to go to heck and not follow enforceable rules, what else are you doing?
Tesla Stock May Be Un-Investable
The problem isn’t the product. Tesla cars are pretty great and have a huge cult-like following. However, the internal governance controls and actions of Musk do provide plenty of pause for would-be investors.
The Bottom Line on Tesla Stock
And that’s just the point. As of the time of writing, Tesla is sitting at $62 billion market-cap valuation. That puts it within some elite company.
However, the firm’s continued actions don’t necessarily warrant that “elite” valuation. At some point, the mania will subside and investors will separate the fervor over the product versus how Tesla is run.
I don’t advocate shorting stocks as the market mania can last a long time, but the problems with Tesla’s culture and these actions make it firmly a don’t buy. There are better stewards of your money out there.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.