By Tesla stock experienced a decline early on Wednesday following a Delaware court ruling that invalidated CEO Elon Musk’s pay package. This package included approximately $300 million in performance-based options. Additionally, an analyst’s call to sell the stock has further contributed to its decline.
The court ruling essentially nullifies Musk’s 2018 pay package, valued at around $56 billion, which would have been awarded if Tesla’s market capitalization reached $650 billion. As Tesla has previously achieved this milestone, the implications of the ruling could extend beyond just the company itself and affect corporate America as a whole.
Judge Kathaleen McCormick expressed criticism towards Tesla’s corporate governance during the ruling. This aspect of the decision sets an important precedent for future considerations of corporate governance, according to Carl Tobias, Williams Chair in Law at the University of Richmond.
Tesla stock saw a decrease of 2.6% in premarket trading on Wednesday. Nasdaq Composite futures were down 0.9%, while S&P 500 futures experienced a 0.4% decline. Over the past month, Tesla shares have fallen by 19.7%, in contrast to the 4.6% rise of the S&P 500 and the 6.3% increase of the Nasdaq Composite.
Baird analyst Ben Kallo pointed out that this ruling creates uncertainty for Tesla stock in a report published on Wednesday. The company’s board now faces the task of finding a solution since Musk will effectively receive no compensation for leading the company over the past few years without this award. Kallo predicts that an appeal will likely be pursued.
In addition to the aforementioned uncertainties, Kallo also identified risks to first-quarter delivery numbers due to disruptions in Red Sea shipping, which could impact production at Giga Berlin. Despite the short-term challenges, Kallo maintains a positive outlook on Tesla in the long run. However, he does foresee potential downside in the near future.
Tesla Set to Deliver Nearly 500,000 Vehicles in Q1
Wall Street analysts are expecting Tesla to deliver approximately 494,000 vehicles in the first quarter of 2023, according to FactSet. This projection reflects a slight increase from the approximately 485,000 vehicles delivered in the previous quarter.
Bearish Fresh Pick Designation
One particular analyst, Kallo from Baird, has designated Tesla’s stock as a “bearish fresh pick.” This label is used at Baird to highlight timely calls. Despite giving the stock a Buy rating and setting a price target of $300, Kallo expects the stock to decline in value.
However, it’s important to note that Kallo does not have a specific bearish target for the stock. If the stock does drop, he can easily remove the Fresh Pick designation in a subsequent report.
Tesla Stock Performance and Comparison
Tesla’s stock has been trading below its 52-week high of $299.29, which was reached last summer, leading up to Wednesday’s trading session. Interestingly, Tesla’s shares were outperforming some of its competitors on Wednesday: Lucid Group shares fell by 0.3% to $3.45, NIO shares fell by 2% to $5.67, and BYD shares were down 2% in Hong Kong trading. On the other hand, General Motors saw its stock rise by 0.1% to $38.09.
Trading Volume and Analyst Ratings
In Tuesday’s trading session, Tesla recorded a trading volume of 105.7 million shares, which was slightly below its 50-day average daily volume of 117.7 million shares.
Kallo rates Tesla’s stock as a Buy. Currently, approximately 38% of analysts covering Tesla’s stock also have Buy ratings, with an average price target of around $217. It’s worth noting that the average Buy-rating ratio for stocks in the S&P 500 is about 55%.
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