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Wednesday, August 12, 2015

Elon Musk’s Daredevil Antics Add Risk to Tesla Shares

Elon Musk wing walk daredevil

Elon Musk just did something Tesla (Nasdaq: TSLA) shareholders have good reason to worry about. Musk just strapped himself to the top of a biplane and went for a joy ride in the sky. The daredevil stunt (see video) may play well for his legendary status as a young eccentric genius and playboy jetsetter but it is probably unfitting for the CEO of a $30 billion company. If God forbid something went wrong, TSLA shares would have been critically displaced and billions of dollars in market value would have gone with him.

visionary
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

The departures of some corporate leaders are actually celebrated by their shareholders. For instance, when McDonald’s (NYSE: MCD) embattled CEO Don Thompson said he would walk away earlier this year, the stock jumped 3%. However, Tesla’s shares have performed far better than McDonald’s shares over the last several years. TSLA is still up approximately 10.6% year-to-date despite recently soft production guidance given at its earnings report.

Furthermore, the iconic Chairman and CEO of Tesla Motors (Nasdaq: TSLA) is as important to his company and its shares as arguably any CEO today. So when he plays daredevil, the shares are likely to take a hit. If he had died in the stunt, which he thankfully pulled off, the shares of Tesla would very likely have seen their valuation permanently impaired as well.

Musk is integrally tied to the company he co-founded, Tesla Motors. The importance of Musk to the organization is evident in his extensive title alone: Co-Founder, Chairman, Chief Executive Officer and Chief Product Architect. That’s four critical roles he fills for the company. He is the visionary behind Tesla’s founding, and so its evolution is presumably following a path he envisioned. If that role were passed forward to another person at this point, certainly Tesla’s historic development from dream to reality would be overshadowed by questions about how it might proceed without Musk. That is exactly what happened to Apple (Nasdaq: AAPL) shares after Steve Jobs died.

As Chairman and CEO, Musk has played a critical role in the operational efforts and progress of Tesla; would another person fill those roles adequately? And who would have confidence in another chief architect considering how well a job at it Musk has done? The Model S has been named Motor Trend Car of the Year and Best Overall Car by Consumer Reports for two years in a row. So if overnight these four critical roles for Tesla were suddenly vacated, left empty by the sudden and tragic death of a visionary of this age, how do you think TSLA shares would react?

Tesla stock chart
Day Chart of TSLA Against that ofthe QQQ


TSLA would have tanked Monday morning had a tragedy occurred. TSLA shares actually did open lower Monday and suffered into midday while the shares of the PowerShares QQQ (Nasdaq: QQQ), which tracks Tesla peers in the Nasdaq-100, opened higher and traded steadily in the green on the day. While TSLA has been under pressure since reporting its earnings last week, its shares had stabilized. Monday’s trading may be indicative of a realized risk being incorporated into the valuation of Tesla shares given the death-defying stunt of Musk over the weekend.

Elon Musk is a special sort of CEO, a nonconformist and we love him for it. Though, in this day and age of younger CEOs at companies like Google (Nasdaq: GOOG), Facebook (NYSE: FB) and GoPro (Nasdaq: GPRO), I suppose we might expect to see more CEOs take similar risks. So perhaps because of Musk, the contracts of CEOs will in the future contain clauses requiring the non-participation of the executive in risky behavior. The contracts of well-paid and team-critical professional athletes contain such clauses, so corporations would be taking the lead from that precedent. I’m sure such clauses already exist for some, but obviously not in this case.

Having Musk sign such a clause would serve two value-added purposes now. First, it would serve to reassure Tesla shareholders that he won’t be taking such risks in the future and perhaps restore any value discount that might register because of it. Secondly, it might help Tesla to realize its full potential over the next decade or two. If I were a Tesla shareholder, I know I would rest easier.

There’s just one problem. The penalty to athletes for injuries sustained while participating in restricted activities is adjustment to their otherwise guaranteed salary. Does Musk even care about having his salary penalized for skydiving or whatever he may choose to do? He is growing his wealth with the share price appreciation of Tesla and his other investments, and he has a good deal of wealth already safely set aside. And I’m not even sure the guy cares about money to begin with. Thus, all Tesla shareholders can do is pray and maybe hope Musk gets into less risky games, like say playing bridge with Warren Buffett and Bill Gross. I follow Tesla and other iconic ideas of the day, and invite interested investors to follow my column here at the Wall Street Greek blog for updates.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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