Breakingviews - Musk suit could uncover Tesla’s true value

Tesla Chief Executive Elon Musk attends a forum on startups in Hong Kong, China January 26, 2016. REUTERS/Bobby Yip

NEW YORK/WASHINGTON (Reuters Breakingviews) - Tesla shareholders may soon find out what their company is really worth. The Securities and Exchange Commission is pushing to have Elon Musk removed as both chief executive and board member at the $53 billion electric-car maker, accusing him in a lawsuit on Thursday of making “false and misleading statements” about a plan to take it private. Tesla would be depleted without Musk, but also more rationally valued.

The insight the SEC sheds into Tesla’s inner workings would be funny if there weren’t so much money at stake. An example: Musk picked the $420 price at which he planned to buy Tesla shares, the filing suggests, partly because he thought his girlfriend “would find it funny” – that number being slang for smoking cannabis. Musk’s cavalier style could now be his undoing, if the SEC does manage to get him unseated. Tesla’s stock fell more than 10 percent in after-hours trading.

The speed of the SEC’s action adds gravity. It often takes the agency at least a year to bring allegations. Elizabeth Holmes, the chief executive of venture-funded medical testing firm Theranos, didn’t face SEC charges until two years after her company had been banned by the Centers for Medicare & Medicaid Services from running a lab. She was fined and barred from serving as an officer or director of a public company for 10 years.

Even after factoring in Thursday’s post-market decline, Tesla still trades at a turbocharged 31 times estimated earnings for 2020. That’s high for a carmaker that has serially failed to hit its targets, and is largely down to the premium investors afford Musk himself. Assume the shares of a Musk-less Tesla stabilize around 11 times 2020 earnings – roughly 50 percent higher than BMW’s multiple. It would then be worth some $14 billion, three-quarters less than at Thursday’s close.

At that price, Tesla could even be an attractive takeover target. Much, though, depends on it first being able to speed past a looming liquidity crunch. The company is burning cash and has $1.2 billion of debt that comes due by March. The SEC throwing the book at Musk is a seismic event, but it isn’t the only problem that could force Tesla onto a dramatically different path.


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