For those who somehow missed the news, Tesla shares plunged on Friday after the SEC announced a lawsuit for fraud against Tesla Chairman and CEO Elon Musk.
Shares sank 14% Friday, but held the critical 200-week moving average, something TheStreet pointed out on Friday. On Monday, we're seeing a violent rally higher as Musk has agreed to a settlement with the SEC. It includes resigning as chairman for three years, paying a $20 million fine and adding two independent board members to Tesla.
The reward, though? He stays on as CEO.
It's interesting to see the bears' take on this news. On Friday, they were gleeful over the anticipation that Musk would soon be out as chairman and CEO, barred from serving as an officer or a director of a public company. Post-plea, though, many bears are acting equally giddy on the premise that Musk is staying on as CEO and will, if I may paraphrase, "drive Tesla into bankruptcy even faster."
So which is it, bears, Friday's take with a Musk-less Tesla or Monday's take with Musk at the helm?
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The market seems to disagree that the latter argument is good for short-sellers, as the near-17% surge is ripping many of the shorts right where it hurts.
It seems like a farce for the bears to cheer the weekend news, particularly given how much Tesla stock would have fallen had the news been that Musk was out as CEO.
Another interesting observation is Tesla's 2025 bonds. They flinched on Friday's news, but not by much, and stayed well above the 52-week low. Now changing hands at 87 cents on the dollar, they're up more than 3% on Monday.
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Moving Forward With Tesla
Monday's price action does not spell the all-clear, but it's clearly a vote of confidence from investors. However, this situation must prove pivotal to Musk and his team going forward. This needs to be a wakeup call that the last few months are not how successful companies operate.
Going forward, it would be wise for Tesla to add to a chief operating officer to work alongside Musk. Tesla is no longer producing one vehicle in limited quantities. It's manufacturing tens of thousands per month, has an energy business and is working on future models. It's clear that Tesla needs a solid No. 2 in the C-suite.
The SEC settlement calls for Tesla to add two independent board members and it would be wise to make these positions count. This is an opportunity for Tesla to solidify its leadership and add legitimacy to its ranks. The question is, will it?
Adding someone like Sheryl Sandberg from Facebook (FB - Get Report) , one of Alphabet's (GOOGL - Get Report) (GOOG - Get Report) co-founders Larry Page or Sergey Brin, or perhaps an old auto exec like Alan Mulally who was with Ford (F - Get Report) and before that Boeing (BA - Get Report) , would be huge for Tesla's credibility.
OK, so those are some "dream candidates," if you will, but it's hard to deny what it would mean for Tesla going forward.
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So what now?
The market hates uncertainty and Tesla has had plenty of it this year. With clarity around Musk now, attention shifts to third-quarter production and whether Tesla was able to achieve GAAP profitability and positive cash flow.
We'll know the answer to production in the next few days, while we'll likely have to wait until early November when Tesla reports its quarterly results to figure out cash flow and the bottom line. The one other thing to watch for is the DOJ case involving Tesla and Musk.
For the technicians out there, it would be highly constructive for Tesla to stay above $300 and grind higher to give its 200-day moving average another shot.
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