Morningstar

What Would Tesla Look Like Without Musk?

Without Musk, we estimate that Tesla is worth, at best, about $126 per share.

Securities In This Article
Tesla Inc
(TSLA)

On Sept. 27, the SEC filed a civil complaint against

The SEC is seeking civil penalties, disgorgement of any ill-gotten gains, and wants to bar Musk from serving as a director or officer of any U.S. public company. The latter item is most significant for investors in our opinion because as we said in our Aug. 26 note, "We think for now Musk is effectively Tesla and without him Tesla is just a capital-intensive automaker burning cash with too much debt due soon."

If Musk were not allowed to be a key decision-maker at Tesla, or if we grow more uncomfortable with the legal risk surrounding Tesla in the future, then we would likely raise our weighted average cost of capital to nearly 12% from about 10%. This change, holding all else equal in our model, would lower our fair value estimate to about $126 from $179, but for now we are maintaining our fair value estimate while we see how this complaint plays out over time in the courts or via litigation.

The SEC held a short press conference and we also read its complaint. The agency believes that at the time of the Aug. 7 tweet, Musk knew he had never discussed going private at $420 per share with any potential funding source and had done nothing to research if all current shareholders could remain owners if Tesla went private. This issue was a key reason Musk eventually abandoned his plan to go private as announced via a late night Aug. 24 blog. The complaint does say Musk met on July 31 with a sovereign investment fund, which Musk said in an Aug. 13 blog post was from Saudi Arabia.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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