Munster Mulls Over Musk's SEC Charges: 'The Company Will Survive'

Late Thursday, the Securities and Exchange Commission charged CEO Elon Musk with fraud and ordered his removal from Tesla Inc TSLA following an investigation into controversial take-private tweets. The lawsuit catalyzed a 13.7-percent plunge in the stock — and shook the faith of one of Musk’s most ardent supporters.

The Experts

Loup Ventures managing partners Gene Munster and Doug Clinton remain bullish on Tesla.

The Thesis

By the Street’s reaction, consensus believes Musk could be deposed as CEO and chairman and that his departure would be a loss for the company.

“We think this is an overreaction and believe there is a 50-50 chance Musk remains CEO after this SEC matter is resolved and an even greater chance he remains involved somehow with Tesla in any case,” Munster and Clinton wrote in a note.

In their assessment, Musk’s complete removal could result in more harm than profit for shareholders, and a financial settlement would be the ideal outcome. They anticipate a resolution — including Musk’s payment of a substantial penalty — in six or more months but warn investor lawsuits may pile on in that time.

“This is a negative, given it adds further distraction at a critical 6-month juncture in the company’s viability,” Munster and Clinton wrote. “Despite this, we think the company will survive.”

They had previously advocated for Musk’s removal from the board to increase the body’s influence, and SEC pressure may help achieve that. Meanwhile, they expect Musk to continue his involvement at Tesla regardless of his title and suspect that business, outside management, is improving.

Price Action

At time of publication, Tesla shares were set to open down 12.1 percent at $270.20.

Related Links:

Citi Downgrades Tesla To Sell, Faces 'Risk Of A Spiral'

Gene Munster: 3 Ways Elon Musk Is Hurting Tesla