Tesla hit by flurry of downgrades after Elon Musk sued by SEC for fraud

Electric carmaker Tesla Inc (NASDAQ:TSLA) was hit by several downgrades on Friday after controversial CEO Elon Musk was sued by the US Securities and Exchange Commission for fraud over his now-abandoned plan to take the company private.

The controversy was triggered by a tweet from Musk last month he will take the company private and that funding had been “secured.”

Am considering taking Tesla private at $420. Funding secured.

— Elon Musk (@elonmusk) August 7, 2018

Shares  of Tesla were down 9.3% in the premarket to $278.99 after closing on Thursday 0.67% lower to $307.52.

Citi analyst Itay Michaeli downgraded Tesla to a Sell from Neutral and lowered his price target to $225 from $356. 

“We think even after the post-close stock pullback (to $274), risk/reward is still tilted negatively,” Citi said in a note to clients. 

READ: Tesla faces criminal probe by US over Elon Musk’s statements on aborted go-private plan – Bloomberg

JPMorgan sees a “number of negative implications” for Tesla shares from the SEC suit.

Analyst Ryan Brinkman reiterated an Underweight rating on Tesla with a $195 price target.

He said the most significant negative relates to the SEC’s request that the court prohibit Musk from serving as an officer or director of any public company, including Tesla. Such a move which “could hasten the inevitable transition” of Tesla shares toward being valued based upon fundamentals alone, Brinkman tells investors in a research note.

Brinkman reiterates his belief that the Tesla’s fundamentals “do not support a value close to the current trading price.” Further, beyond this “key man risk” concern, which he believes “is of vital importance,” Brinkman also see a number of other risks, including the potential for decreased confidence in the company on the part of investors, consumers, and suppliers.

READ: Nomura Instinet downgrades Tesla shares and slashes price target by 25%

The plan to go private was later dropped by Musk and investors have since filed a lawsuit over claims he misled investors.

The Justice Department is also supposed to be investigating Musk over the issue.

Tesla is the world’s biggest electric carmaker.

Story by ProactiveInvestors