Tesla Inc (Nasdaq: TSLA) stabilized following more negative analyst commentary about CEO Elon Musk’s proposal to take Tesla private. J.P. Morgan cut its price target for TSLA stock by 36 percent, and now analysts are openly skeptical that Musk can back up his “funding secured” claim.
On Aug. 8, J.P. Morgan analyst Ryan Brinkman raised his price target for TSLA stock from $195 to $308 following Musk’s initial tweets about a go-private deal valued at $420 per Tesla share. On Monday, Brinkman lowered his target back down to $195 and said he is no longer assigning any value to the potential privatization deal. The J.P. Morgan target cut comes after Vertical Group cut its price target for TSLA stock to $88 last week.
“Our interpretation of subsequent events leads us to believe that funding was not secured for a going private transaction, nor was there any formal proposal,” Brinkman says.
The U.S. Securities and Exchange commission is investigating Musk’s tweets about the deal and whether or not his claims were made in good faith. Musk claimed in a blog post that he had “no question that a deal with the Saudi [Arabian] sovereign fund could be closed.”
Brinkman says it has become clear that the potential deal is not as certain as Musk made it seem.
“Tesla does appear to be exploring a going private transaction, but we now believe that such a process appears much less developed than we had earlier presumed,” Brinkman says.
Tesla investors have also filed two class-action lawsuits about Musk’s infamous “funding secured” tweet.
The uncertainty and confusion have sent TSLA stock plummeting 18.7 percent since Aug. 7. Citi Research analyst Itay Michaeli says if the deal to go private falls through, Tesla should consider raising capital in the near term.
“Ultimately, credit risk is a function of confidence, without which a company’s financial position can quickly spiral into distress,” Michaeli says.
Tesla has repeatedly said it does not need to raise additional capital in 2018.
“If a go-private transaction is looking less likely, we think it’d be wise for Tesla to at least try to raise significant new equity capital sooner rather than later,” Michaeli says.
J.P. Morgan has…
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