Musk Charges Prompt Comparisons of Tesla With Valeant, Enron

Fraud charges filed by the SEC against Tesla Inc.  (TSLA)  CEO Elon Musk are prompting dire predictions for the stock.

Shares of the Palo Alto-based carmaker fell sharply Friday, down  12.2% as of 11:30 a.m., in the wake of the SEC action which stems from Musk's August 7 tweet that he had secured funding to take the electric vehicle maker private.

The case fueled the stock slide today and comparisons with spectacular collapses in the past such as Valeant Pharmaceuticals, now Bausch Health Companies Inc. (BHC) and Enron. 

In an online video discussion, gormer Kase Capital managing partner Whitney Tilson and current Stanphyl Capital managing member Mark Spiegel did not hold back with these criticisms.

"I've been comparing [Tesla] to Valeant," Tilson said. "The odds that Tesla goes the way of Valeant, the ultimate cult stock, the ultimate cult CEO, the ultimate bull-bear debate. The odds just went to 50%, you could easily see this thing spiral down."

Tilson estimated that the stock could quickly fall below even $100 per share. "There's a 50/50 chance that we will look back today down about 10% in the same way that Valeant, it turns out, underreacted," Tilson said.

Spiegel, a noted short-seller of Tesla, added that "Enron people saw problems, but Enron had a very small short interest right to the very end, so it made it a lot easier to go down," Spiegel said. "This is the first thing that I've ever shorted that had a massive short interest. To me it was just so obvious and checked every box."

Spiegel said that he believes Musk will be forced out of the company. "We've got the facts dude," he quipped. "You're done." 

Spiegel added that he is 90% certain that the stock will fall below $100 this year.

Analysts Trim Targets

While analysts were certainly not as bearish as the two hedge fund managers, they did temper their estimates.

"We remain equalweight rated but are reducing our target price to $285 per share from $300 per share on TSLA, reflecting slight adjustments to our scenario analysis weighing fundamentals, regulatory risks, and the potential for a CEO change or removal," Consumer Edge Research senior analyst James Albertine wrote in a note Friday morning. "We are advocating for a major change in the C-Suite, which we think should involve CEO Elon Musk's departure/diminished role and therefore weigh on shares near-term."

Citi analyst Itay Michaeli downgraded the stock to sell from his previous neutral rating, noting the damage that Musk's departure could do to the personality driven brand.

"There's little question that Mr. Musk's departure would likely cause harm to Tesla's brand, stakeholder confidence and fundraising -- thereby increasing the risk of triggering a downward confidence spiral given the state of Tesla's balance sheet," Michaeli  wrote in a note published Friday morning.

The catch-22 in the situation is that the company risks "reputational harm" even if Musk stays on.

As a result of the damned-if-you-do, damned-if-you-don't situation, Michaeli slashed his price target on the automaker from $356 per share to $225.