Tesla Inc. shares soared early Monday, following an unexpected resolution over the weekend of the electric-car maker’s regulatory drama, which resulted in outspoken CEO Elon Musk retaining his key leadership role, removing doubts about the future of the company without its brain trust and founder.
The stock got another boost from a report that Musk had told employees that the company was “very close” to turning a profit. That report from Bloomberg News emerged hours after Tesla and Musk settled a Securities and Exchange fraud probe.
Tesla stock TSLA, jumped over 16% in early trade, putting it on track for its highest daily return in 5 years, according to FactSet data. Tesla plunged 14% on Friday on news of the SEC lawsuit, which alleged Musk misled investors over his tweet that said he was considering taking the company private.
As a part of the SEC regulatory settlement that harks back to Musk’s ill-fated tweet that he had “funding secured” for a transaction to take Tesla private at a price of $420 a share, Musk and the company must pay a combined $40 million. The 47-year-old tech luminary must also relinquish his chairman role and enlist two new independent directors at the company.
“We think the focus can now return to fundamentals, and think there are several upcoming catalysts (including Q3 deliveries this week) which can drive shares higher,” Ben Kallo and David Katter, research analysts at Baird Equity Research, said in a note to clients, as they stuck to a $411 price target and an outperform rating.
Third-quarter results coming in early November and pending announcements of the new chairpersons and directors could prove a positive for stocks, Baird analysts said.
“Importantly, we think Model 3 production may be on track to meet guidance, based on company announcements and leaked production numbers,” the Baird researchers said.
As for expected changes to Tesla’s corporate governance resulting from the SEC agreement, investors and market participants appeared to be sanguine about the bolstering of the leadership ranks at the car maker.
“Some investors have previously pointed to perceived weak corporate governance as a barrier to owning the stock; we believe changes to the [Tesla’s] board should make the stock easier to own for certain investors,” said the analysts.
“This chapter is now behind us,” a private client money manager Vestact wrote in a blog on Monday. “It means Tesla will have improved corporate governance, and Musk can now focus on running operations and not have to worry about board-level policy.”
For Tesla, having a non-executive chairman means that “the CEO becomes accountable to the board, instead of having a board mostly rubber-stamp decisions.” The money manager expects shares to rebound this week, though they remain of the view the auto maker is a “very risky holding,” and perhaps not for everyone.
“Elon will either succeed or go down in flames…,” wrote Vestact strategists.
Tesla’ s sole junk bond issue also rallied on the news. The $1.8 billion of 5.200% notes that mature in August of 2025 jumped more than 4 points in early trade to 88 cents on the dollar, sending the yield down to 7.571%. The notes tightened by 58 basis points to a spread of 449 basis points over comparable Treasurys.
