Tesla
stock was falling early Wednesday after a Delaware court late Tuesday voided CEO Elon Musk’s pay package, which awarded him some $300 million performance-based options. An analyst’s call to sell the stock isn’t helping either.
The ruling, which essentially nullifies Musk’s 2018 pay package worth roughly $56 billion if
Tesla’s
market capitalization hit $650 billion—which it has in the past—could have wide implications for the rest of corporate America.
Judge Kathaleen McCormick “was critical of [Telsa’s] corporate governance,” says Carl Tobias, Williams Chair in Law at the University of Richmond. “It is an important precedent for corporate governance.”
Tesla stock was off 1% on Wednesday. The
Nasdaq Composite
was down 0.9%, while the S&P 500 futures was off 0.4%. Tesla shares have fallen 19.7% over the past month while the
S&P 500
and
Nasdaq Composite
have risen 4.6% and 6.3%, respectively.
The ruling creates an overhang for Tesla stock, wrote Baird analyst Ben Kallo in a Wednesday report. Tesla’s board will have to do something. Without the award, Musk has, essentially, received no compensation for running the company for the past few years. Kallo expects an appeal.
Along with the overhang, “we also see risk to first-quarter delivery numbers due to the Red Sea shipping disruptions and their impact on production at Giga Berlin,” wrote Kallo. “We continue to like Tesla long term, but see downside near term.”
Wall Street expects Tesla will deliver some 494,000 vehicles in the first quarter, according to FactSet, up from about 485,000 delivered in the fourth quarter of 2023.
He has designated the stock a “bearish fresh pick.” Fresh pick designations are used at Baird to denote timely calls. Kallo sees Tesla stock heading lower now. The bearish call comes despite his Buy rating and $300 price target.
He doesn’t have a bearish target. If the stock drops, Kallo can simply remove the Fresh Pick tag in another report.
Coming into Wednesday trading, Tesla stock was trading well off its 52-week high of $299.29, set last summer. Shares were outperforming some of those of its competitors Wednesday, as
Lucid Group
shares fell 0.3% to $3.45,
NIO
shares fell 2% to $5.67, and
BYD
shares were down by 2% in Hong Kong trading.
General Motors
stock rose 0.1% to $38.09.
Tesla’s trading volume of 105.7 million shares on Tuesday was 12 million below its 50-day average daily volume of 117.7 million.
Kallo rates Tesla stock at Buy. Overall, 38% of analysts covering Tesla stock have Buy ratings, with an average price target of about $217. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
Write to Al Root at allen.root@dowjones.com and Rupert Steiner at rupert.steiner@barrons.com
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