Shares of Tesla (TSLA) could jump sharply in the next year as the company starts making money more consistently, according to an analyst at Baird. The upbeat analyst note comes as an explosive Wired magazine deep-dive reported that CEO Elon Musk had a habit of going on firing sprees, with some employees being told not to walk too close to Musk's desk in case it jeopardized their career.
ANALYST SEES NARRATIVE AROUND TESLA CHANGING: Baird analyst Ben Kallo told investors in a research note that he believes that the narrative will continue to change around the electric car maker from "Tesla will never make money" to "Tesla can be sustainably profitable," adding that the narrative on Tesla, particularly in the middle of 2018, "was as negative as we have experienced in our coverage, but we believe sentiment will continue to improve as the company proves it can be self-supportive." Kallo, who raised his price target on shares to $465 from $411 and maintained an Outperform rating, also believes the narrative on valuation will start to shift during 2019 from an overvalued stock to one which provides growth at a reasonable price and that Tesla's valuation is justified, particularly compared to peers. Importantly, Kallo says he does not believe the company's strong Q3 results were a "flash in the pan" and thinks the automaker can maintain profitability. "Further execution will reinforce investor belief the company can be self-supportive, which should be a positive catalyst," the analyst contended. Kallo continues to see several catalysts that could drive shares higher, and said results for the first half of 2019 could benefit from easy comps given the Model 3 delay.
'ELON'S RAGE FIRINGS': Separately, a report from Wired said that Elon Musk had a habit of going on firing sprees. According to Wired's Charles Duhigg, who spoke to numerous Tesla engineers, executives and other employees over a six-month period about what it was like to work at Tesla during its Model 3 "production hell," sources described an instance where Musk fired a young engineer on the spot for reasons that were unclear, shouting at him and using expletives. One manager told Duhigg that called Musk's outbursts "Elon's rage firings" and that the manager had forbidden subordinates from walking too close to Musk's desk at the Gigafactory out of concern that "a chance encounter, an unexpected question answered incorrectly, might endanger a career." A former high-ranking executive told Duhigg that Musk would occasionally say "I've got to fire someone today," and when the executive said he didn't, Musk would reply, "no, no, I just do. I've got to fire somebody." "Everyone came to work each day wondering if that was going to be their last day," another former executive said. A Tesla spokesperson told Wired in response to Duhigg's findings that "Elon cares very deeply about the people who work at his companies. That is why, although it is painful, he sometimes takes the difficult step of firing people who are underperforming and putting the success of the entire company" at risk.
WHAT'S NOTABLE: In a recent interview on CBS's "60 Minutes," Musk said his tweets are not approved by the automaker prior to publication as he lashed out at the Securities and Exchange Commission, saying he did not respect the agency. The executive's use of his Twitter account drew fire in August when he tweeted that, "Am considering taking Tesla private at $420. Funding secure." He did not pursue any go-private deal and pulled back on those plans a few weeks later. The SEC would eventually charge him with securities fraud, with both parties reaching a settlement not long after, and Musk agreeing that his "communications relating to the company… including Twitter" would be overseen by his board. However, when asked by Stahl if someone reads them before his tweets go out, the CEO replied "no." "Freedom of speech is fundamental […] I want to be clear, I do not respect the SEC,” Musk said, adding that he uses his tweets "to express myself." As part of the settlement, the executive also had to relinquish his position as chairman of the Tesla board, being replaced by Robyn Denholm. Musk has been under fire from investors for his tweets and behavior. In September, Musk appeared on"The Joe Rogan Experience," a podcast hosted by stand up comic Joe Rogan, during which Rogan shared what he said was a cigarette with marijuana and tobacco with the CEO. Musk also drank whiskey and fired a flamethrower during the interview. The appearance on Rogan's show came not long after an interview with The New York Times, during which Musk told the publication about his "excruciating" year. During the interview, the Times said Musk "alternated between laughter and tears."
PRICE ACTION: Shares of Tesla, up about 1.3% in pre-market trading, are now up about 0.4% to $368.
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