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The trial weighing on the Tesla share price

Despite hitting an all-time high of $895.90 during intraday trading on 26 January, up 27.1% year-to-date, the Tesla share price [TSLA] quickly took a turn for the worse as it dropped 37.2% to close at $563 on 8 March, its lowest close since November 2020.

While the Tesla share price was initially quick to recover, closing at $707.94, up 1.9% year-to-date a week later on 15 March, it fell again on 29 March, closing at $611.29.

The Tesla share price bounced back again in April, but quickly fell following its first-quarter earnings release on 26 April and continued to do so for nearly three weeks.

On 19 May, the Tesla share price sank even lower than it had in March, when it reached an intraday low of $546.98, although at $563.46 it managed to close 46 cents higher than it did on 8 March.

While the Tesla share price has managed to recover somewhat since the last slump, closing at $646.22 on 16 July, it remains down 8.4% so far this year. It has failed to reach the same value it had before the release of its first-quarter earnings.

Now, in the latest controversy, the company may be forced to compensate shareholders if the Tesla-SolarCity trial doesn’t end in favour of Elon Musk, CEO of Tesla (pictured). How is likely to affect the Tesla share price?


What’s the Tesla trial about?

Musk has been accused by Tesla shareholders of pressuring the company’s board to approve a $2.6bn acquisition of SolarCity, a solar panel company founded by his cousins, which was allegedly running out of funding.

As a result, the shareholders suing Musk — mostly union pension funds and asset managers — want Musk to recoup the acquisition costs, as they believe the deal was smeared with conflicts of interest and failed to deliver the profits Musk had promised.


Valuation of Tesla's acquisition of SolarCity


However, Musk, who owned 22% of both Tesla and SolarCity at the time, claimed that “since it was a stock-for-stock transaction and I owned almost exactly the same percentage of both [companies], there was no financial gain”.

Meanwhile, other Tesla directors settled the allegations from the same lawsuit with a payout of $60m to shareholders, without admitting fault. As it is likely to take months before the trial comes to a close, how could this ongoing legal battle affect the Tesla share price?


The road ahead

Bank of America analyst John Murphy recently raised his price target on Tesla from $700 to $750 and it would appear that his outlook for the stock has not been swayed by the court trial. Instead, he’s looking to the upcoming second-quarter earnings results, due 26 July.

A research note seen by The Fly suggests the analyst expects “beats across the board versus low expectations and outlooks" for the automotive industry.

Despite the ongoing semiconductor shortage that’s weighing down sales for many tech companies, Murphy believes this is resulting in additional pent-up demand "to be more rationally released over a multi-year recovery”.

As the electric vehicle (EV) industry continues to be a new and disruptive sector amid the wider auto-market, and though it would seem that electric cars are the future, many EV stocks remain fairly volatile.

The KraneShares Electric Vehicles and Future Mobility ETF [KARS] hit an all-time high of $48.35 last week before closing at $48.26 on 12 July, a 19.8% year-to-date rise.


Tesla's holding in the KraneShares Electric Vehicles & Future Mobility ETF


Although the ETF fell 5.9% to close at $45.50 on 16 July, this was still up 10.9% year-to-date. While Tesla accounts for 54.90% of the ETF’s holding (on 20 July), it would seem that its other investments have stabilised some of Tesla’s recent losses.

The Global X Autonomous and Electric Vehicles ETF [DRIV] has just 2.25% of its funds allocated to Tesla, and has outpaced KARS for much of the last 12 months. While latter peaked last week, its previous best close was on 16 February when it reached $47.78, up 18.6% year-to-date, whereas DRIV peaked on 8 June when it closed at $28.58, up 19.2% year-to-date — when KARS up just 10.4% year-to-date.

That said, the gap between the two ETFs seems to be closing. Whether Tesla proves to be a valuable asset or a hindrance for EV ETFs is yet to be seen.

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