Tesla (NASDAQ:TSLA) CEO Elon Musk is no stranger to Twitter (NYSE:TWTR) controversy. It was only two years ago that a tweet cost Musk and his company each $20 million in fines. Last week, Musk was on a roll. He raised ire for comments downplaying the novel coronavirus. But the message that had investors watching closely was a tweet on May 1 that declared the TSLA stock price was too high.
In the aftermath of that tweet, TSLA closed down 10.3% on Friday. The question is, what happens next?
Will Musk receive another fine from the U.S. Securities and Exchange Commission? Will he take another “break” from Twitter? And perhaps most importantly — at least from an investor standpoint — where will Tesla stock go from here?
Elon Musk Causes TSLA Stock Chaos
Tesla’s CEO is prone to making inflammatory statements. Some of these don’t directly involve Tesla, but they can still cause unwanted drama. For example, there was the infamous “pedo guy” tweet from 2018. That resulted in a $190 million lawsuit against Musk that was eventually dismissed last December.
Another 2018 Twitter misstep caused considerable pain for both Tesla and Musk personally. After he tweeted that he was considering taking Tesla private for $420 per share, the SEC got involved. Musk and his company were each fined $20 million. The SEC also forced Musk to step down as Tesla’s chairman.
Musk caught considerable flack for his May 1 tweet “Now give people back their FREEDOM.” This continued a rant he had been on for several days, railing against the coronavirus lockdown. While Twitter said that Musk’s statements did not violate its rules, the series of tweets landed him in the spotlight. And most reactions to the resulting controversy were not overly positive.
Musk’s personal feelings about the validity of the coronavirus lockdown aside, he sent another tweet on May 1 that had a dramatic impact on TSLA stock. When Musk wrote “Tesla stock is too high [in my opinion],” the market reaction was immediate.
TSLA stock lost 10.3% of its value on May 1, wiping out $14 billion in market capitalization. It also shaved $3 billion off Musk’s own stake in Tesla.
Will Musk Face Penalties?
Given what happened to TSLA stock as a reaction to Musk’s latest tweet, the question has to be asked. Is the SEC going to step in again?
The Verge asked legal experts, including Santa Clara University law professor Steve Diamond. He responded:
“The worst circumstances for Musk would be if he were buying shares of Tesla, or the company were participating in a buyback program. I assume neither is the case.”
However, Diamond noted that part of Musk’s settlement with the SEC for his tweet about taking Tesla private was that all tweets about Tesla must be vetted by the company’s legal team. Given that Musk has indicated that he did not have that May 1 tweet approved by a lawyer, the SEC could get involved.
“If it was not vetted, he’s at risk of being hauled into court again by the SEC. The process was meant to catch these kinds of tweets before they went out. If he did it spontaneously, I think he’s gonna have an issue.”
Will TSLA Stock Bounce Back?
Tesla has been through these Twitter misadventures before. The effect of Musk’s comments tend to be immediate and reactionary, and then things return to normal.
On Aug. 7 2018, TSLA stock opened at $343.84, and closed at $379.57 for a 10% pop after Musk tweeted his musings about taking the company private. The volume of shares trading hands jumped, topping 30 million. Within a week, Tesla stock was back to its pre-tweet level.
Odds are, the same thing is going to happen after Elon Musk’s latest Twitter controversy.
As InvestorPlace Markets Analyst Luke Lango pointed out on Friday, investors should ignore Musk’s tweet. If they instead focus on the company, they’ll see:
“… it becomes increasingly clear that Tesla is a long-term winning trajectory, and that the recent plunge has created a buying opportunity in Tesla.”
In other words, don’t panic.
However, be prepared for the short-term fallout of another potential SEC investigation into Elon Musk.
Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015. As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.