You probably know by now that I’m not one to skirt around controversy. As long as I’m helping investors make more informed decisions, I believe it’s okay to stir the pot sometimes. In the case of Tesla (NASDAQ:TSLA) stock, however, I’m feeling too much heat and I don’t want anybody to get burned.
The fact is, controversy can be a good thing or a bad thing, and TSLA stock has sometimes been extra volatile as a result of negative press coverage.
Scandalous news developments blow over eventually, but that doesn’t mean it’s a smart idea to jump in when the Tesla stock price is particularly vulnerable to rapidly shifting trader and analyst sentiment.
Lawsuit Could Rock TSLA Stock
Yesterday, CNBC reported that some large-scale Tesla shareholders are suing the company in opposition to its 2016 acquisition of SolarCity. The lawsuit alleges that the $2.6 billion buyout should never have happened. It also alleges that flawed analysis and improper pricing misled investors.
Back in 2016, Tesla boasted that it was acquiring “the world’s only vertically integrated sustainable energy company” in the SolarCity deal. The lawsuit, which was filed in the Delaware Court of Chancery, claims that Tesla pursued the deal based on false data and without having done its due diligence.
Without delving into the details of the rather lengthy lawsuit, we can hone in on one sentence that sums up the plaintiffs’ contention succinctly.
“Almost immediately after the acquisition closed, SolarCity’s auditors confirmed that SolarCity was, in fact, insolvent.”
Since the suit was filed, a judge has granted it class-action status. Commentators (myself included) are having a field day with the recently released documentation.
For safety-minded investors, it might not be a sound policy to bet hard-earned capital on a company whose figurehead is so decidedly divisive. This might appeal to his hardcore fans, but a CEO as controversial as Elon Musk can weigh on the TSLA stock price as the investing community grows weary of his willful personality.
As you might expect, the official word from Tesla is that the allegations won’t stick.
The Trouble with Musk
Tesla’s scandals are more than just mergers and acquisitions. Much of the negative press centers around the company’s outspoken co-founder and CEO, Elon Musk. I can still recall the outrage that pervaded social media when Musk openly smoked marijuana on Joe Rogan’s podcast. Clearly the man invites controversy, and that can be a double-edged sword.
Just to give you an example — and without repeating Musk’s offensive tweet — the Tesla CEO implied that British diver Vern Unsworth has inappropriate relations with children. Musk deleted his tweet afterwards and he did apologize. But his public-relations damage was already unfolding. Investors are often left wondering whether Musk can keep his brazen personality in check.
Tesla stock owners might also wonder whether Musk is worth his salary. This issue has come up recently as a judge in the Delaware Court of Chancery ruled that the board of directors at Tesla will have to stand trial and defend Musk’s compensation, which is considerable even among CEOs.
Part of the challenge will be evaluating that compensation, as Tesla valued Musk’s 2018 pay package at $2.6 billion. But, it could conceivably grow to more than $50 billion in value if the TSLA stock price goes up. In any event, there’s no denying that the company rewards Musk handsomely. And that might not sit too well with some shareholders — or the Delaware legal system.
My Takeaway on Tesla Stock
I usually like it when a company has a lot going on. Generating buzz in the news usually means that a stock has plenty of trading volume and brand-name recognition.
When it comes to TSLA stock, though, shareholders might learn the hard way that not all publicity is beneficial. That’s why I’m holding off on recommending Tesla stock as a must-own asset. Courting controversy, at least in this instance, could really mean courting calamity.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.