While the S&P 500 continues to flirt with that January record high, it’ll take a lot to kill the spotlight on Tesla today.
Shock waves are still rippling after CEO Elon Musk’s bombshell tweet about plans to take the company private, which demolished short sellers and sent Tesla’s stock rocketing higher. Shares finished up 11% yesterday, but have dropped 2% at as trading kicks off this morning.
It may be the biggest story yet in a summer that has been buffeted by more back-and-forth developments on trade, and a mostly upbeat parade of corporate earnings.
The Tesla saga has plenty of room to run. There are questions over the identity of those “funding-secured” backers and investing chat rooms are dominated by verbal fisticuffs between the faithful and those ready to bail, as future earnings also remain a subject of debate. Many are also pondering whether Musk’s Twitter announcement could get him in trouble with the regulators. In the latest development, Tesla’s board of directors said they met several times over the last week to discuss the option of taking the company private.
Not too many analysts are weighing in on Tesla yet. But our call of the day finds Baird analysts boldly predicting shares of the electric-car maker haven’t seen their best days, thanks to the company’s fearless leader.
“We think some shareholders may demand a steeper premium than the $420 mark, and we think shares could move higher as shorts cover and investors demand a higher price to go private,” said analysts Ben Kallo and David Katter, in a note to clients. “We view the risk/reward as extremely favorable at current levels.”
The Baird analysts argue that there is more flexibility for Tesla with finding sources of capital if it doesn’t go private, while investors will benefit from added liquidity and oversight requirements of a non-private Tesla.
Another catalyst for those shares is reports of that Saudi stake in car maker—believed to be around $1.7 billion to $2.9 billion. They note how Tesla shares got a lift last year after China tech giant Tencent 0700, +1.96% took a 5% stake—viewed as a sign of confidence in the company—and think the same could happen thanks to the House of Saud.
On that note, here’s one view from Markets.com Neil Wilson: “At $420 it would be a $70bn company without a profit. Public or private, that is a valuation that is beyond the sensible. However, if Saudi Arabia really is behind this and prepared to bankroll Musk then it could be viable.”
Last word goes to Global Macro Investor founder Raoul Pal, who tweets that Tesla may ultimately belong in private hands, with those who truly understand the risk.
In the end, $tsla in private hands with long term risk capital that understands the risk is the right thing. The public should not take VC risk. Whether he pulls it off or not is a different matter. Remember Richard Branson did this with Virgin. Note: I’m no Musk or Tesla fan.
— Raoul Pal (@RaoulGMI) August 7, 2018