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Tesla share price doesn't flinch at JPMorgan suit

Tesla [TSLA] founder Elon Musk had a strange response when the Wall Street Journal asked him to comment on the recent news that JP Morgan [JPM] would be suing the company for $162m.

Via the Journal, Musk warned JP Morgan boss Jamie Dimon (pictured above) that he would give the bank a one star review” on Yelp if it did not withdraw a $162m lawsuit against his business, adding:This is my final warning!”

 

 

 

One expensive tweet

Last week, JP Morgan filed a lawsuit in the Southern District of New York accusing Tesla of flagrantly” breaching a contract between the two firms in 2014, relating to warrants Tesla sold to the bank.

These should have given JP Morgan the right to buy Tesla stock at a set strike price and date.

 This is a breach of contract action to recover over $162m immediately due and payable by Tesla to JP Morgan,” said the notice sent to Tesla. It added that as per expiry the agreement on warrants issued by Tesla to the bank, the EV maker was to give cash or stocks if the share price rose above an agreed limit. Tesla has not made the payment.

“This is a breach of contract action to recover over $162m immediately due and payable by Tesla to JP Morgan” - JPMorgan in a notice sent to Tesla

 

The dispute revolves around how JP Morgan re-priced the warrants following Musks memorable 2018 tweet where he said he was considering taking Tesla private at $420 per share, and that funding had been secured.

JP Morgan said the warrants contained standard provisions that allowed it to adjust the price to protect both parties against the economic effects of "significant corporate transactions involving Tesla," such as an announcement the company was going private, Reuters reported.

What the outcome is likely to be is unclear, and we can expect more of a response from Musk and Tesla than the helpful Yelp suggestion in the days ahead.

 

Tesla’s share price stays strong

The issue is not impacting either blue-chip’s share price. JP Morgans shares dipped after it filed on 15 November, but have since recovered to $166.96 on 24 November’s close.

Teslas shares climbed around 10% to $1116.00 largely down to an announcement that it is likely to start selling its Model S Plaid vehicle in China by early next year.

Wedbush Securities analyst Dan Ives has a $1,400 price target on the stock, up from $1,100, on the stock. Ives believes Tesla can grab around 50% of what he believes is going to be a $5trn EV market powered by the US pumping $7.5bn into charging networks.

$1,400

Wedbush Securities' Dan Ives's

 

The Street is continuing to digest the massive transformation coming to the auto industry around the electric-vehicle revolution,” he said, as reported by Bloomberg. This green tidal wave will result in a $5trn market opportunity over the next decade, with Tesla leading the way.”

 

Musk’s management style

Most analysts however are more reserved. They are bullish overall about Tesla’s future with a consensus ‘outperform’ rating, but they also hold an average target price of $857, suggesting that they view Tesla as currently overvalued, according to Market Screener.

Tesla shares are uncertain not just because of the operational challenges and competition from Chinese rivals, US EV start-ups like Rivian [RIVN] and traditional car manufacturers such as Ford [F] but also Musk’s temperamental tweets.

A recent example was Musk asking his followers on Twitter whether he should sell 10% of his shares in Tesla only to see the share price fall after they voted ‘yes’. Of course, Musk followed up on that and has sold about half that stake for around $9.8bn so far.

Blue Whale Capital founder and fund manager Stephen Yiu recently told Investment Week that Tesla would not be trading at $1trn if it weren’t for Musk.

Comparing Musk’s firm with Amazon [AMZN], Yiu said the e-commerce giant has "a lot of things that could substantiate the value it is trading at. If you look at the valuation of Tesla, it is difficult to justify.”

That is a testament to Musks entrepreneurial strengths and unfiltered personality, but also reveals how vulnerable the share price is to the chief’s actions and whims.

Nigel Green, CEO of deVere Group said Musk despite his obvious abilities represents “a governance concern”.  Green also told Investment Week that regulators would close in on Musk, while Mirabaud analyst Neil Campaign said: “The G in ESG has been ignored by investors to a great degree thus far."

The JP Morgan court case may fizzle away or be resolved. The main question is what this means for Teslas reputation going forward.

One wrong tweet, and it could be in trouble.

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