Tesla (NASDAQ:TSLA) stock is down significantly year-to-date, but it shot higher recently due to a notable news item. This doesn’t guarantee that Tesla’s shareholders will fare well in the second half of 2024, though, and I am currently bearish on TSLA stock.
Tesla is a famous electric vehicle (EV) manufacturer that’s headed by the company’s equally famous CEO, Elon Musk. It’s entirely possible that some of Tesla’s shareholders believe more in Musk than they do in the company itself.
This could be problematic, since buying a stock is effectively the same as owning a small piece of a business. If selling Tesla vehicles isn’t Musk’s highest priority at all times, it will be difficult to own TSLA stock with confidence.
Musk’s Pay Package: Don’t Jump to Conclusions
It’s the big EV-industry news of the day. Tesla’s shareholders recently approved (or more precisely, re-approved) Musk’s highly generous pay package. Astoundingly, the shareholders voted in favor of a compensation plan for Musk that’s valued at approximately $56 billion.
Don’t jump to any conclusions, though. This isn’t a done deal, since a judge in Delaware voided Musk’s compensation package earlier this year, calling the approval process “deeply flawed.”
Thus, there could be a prolonged legal battle ahead. Even if you feel that Musk’s $56 billion pay package would be a good thing, there’s no guarantee that it will withstand the legal process. Plus, bear in mind that, win or lose, battles in the U.S. court system are always costly.
Speaking of potentially prolonged and costly legal battles, Musk is reportedly the target of a probe by the Securities and Exchange Commission (SEC). The Wall Street Journal stated that the SEC “has been investigating Musk’s late disclosure of his purchases of Twitter stock before he took over the company” and alleging that Musk “and his adviser brushed off compliance with a rule that required him to reveal his ownership once it passed 5% of Twitter’s shares.”
This leads us to another conclusion that investors shouldn’t jump to. Don’t assume that a $56 billion pay package will prevent Musk from being distracted away from Tesla. Just the SEC’s Twitter/X investigation, by itself, will undoubtedly take up some of Musk’s time and attention.
Musk Is a Busy Man
Furthermore, Musk isn’t only involved with Twitter/X and Tesla. He also needs time to run SpaceX, the Boring Company, Neuralink, and xAI, which developed the Grok artificial intelligence (AI) chatbot.
Also, Morgan Stanley (NYSE:MS) analyst Adam Jonas brought up a valid point. Even the shareholders’ approval of Musk’s gigantic compensation package doesn’t actually fulfill the Tesla CEO’s objective of attaining a 25% blocking minority voting power.
That’s right – $56 billion won’t be enough to satisfy Musk. “To offset tax impacts and to close the gap to 25% will require further purchases or other mechanisms (capital or voting) to raise Mr. Musk’s stake,” Jonas clarified.
So, Musk will be busy running half a dozen businesses and, most likely, seeking more voting power at Tesla. Yet, even when he actually directly his attention to Tesla’s operations, he won’t necessarily be focusing on selling electric cars and trucks.
Remember, Tesla isn’t actually a car company – or at least, that’s what Musk thinks. “Tesla is an AI/robotics company that appears to many to be a car company,” he declared on X.
Musk seems to be easily distracted as his thoughts move from one obsession to another. Maybe he wants Tesla to be an AI company or a seller of robotaxis. Perhaps he just wants people to buy the odd-looking Cybertruck, which Musk admitted will not be profitable until 2025.
Do the shareholders and customers really want Musk to push robotaxis and AI and Cybertrucks? He should probably focus on getting back to basics, selling the vehicles that the customers really want, and improving Tesla’s financials.
As a reminder, Tesla’s first-quarter 2024 revenue, earnings, and operating profit margins all came in below Wall Street’s consensus estimates. In addition, as The Los Angeles Times pointed out, Tesla “disclosed its lowest automotive profit margin, 15.9%, in five years, a major decline from its peak of about 30% in the first quarter of 2022.”
Is Tesla Stock a Buy, According to Analysts?
On TipRanks, TSLA comes in as a Hold based on 10 Buys, 14 Holds, and nine Sell ratings assigned by analysts in the past three months. The average Tesla stock price target is $176.96, implying 4.3% downside potential.
If you’re wondering which analyst you should follow if you want to buy and sell TSLA stock, the most profitable analyst covering the stock (on a one-year timeframe) is Alexander Potter of Piper Sandler, with an average return of 91.63% per rating and a 54% success rate. Click on the image below to learn more.
Conclusion: Should You Consider Tesla Stock?
Jumping to conclusions can be dangerous for your financial health. Just because Tesla’s shareholders approve Musk’s massive compensation package, this doesn’t necessarily mean it will be approved in court.
Just as importantly, the pay-package vote doesn’t ensure Musk’s undivided attention to Tesla or his commitment to a focused strategy of selling the vehicles that customers actually want. Consequently, I am bearish on TSLA stock and fear that it’s vulnerable to a continued drawdown throughout the remainder of 2024.
