Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The Wall Street Journal reported Tesla’s TSLA board began to search for a successor to current CEO Elon Musk around one month ago. The board also told Musk that he needed to spend more time on Tesla.
Why it matters: Since President Trump was elected, Musk had been spending time in an advisor role to Trump. This created the risk that Musk’s time as an advisor would distract him from his leadership role at Tesla, potentially causing Tesla to see slower progress on its goals.
Musk’s political actions could also turn some consumers away from buying a Tesla, which would weigh on the company’s financial results.
The bottom line: We maintain our $250 fair value estimate for narrow-moat Tesla. We think Musk is likely to remain CEO for as long as he wants to run the company. Musk’s message of spending more time at Tesla during its recent earnings call should satisfy the board’s demand.
Musk potentially leaving Tesla highlights the company’s key person risk. If Musk were to be replaced, we would expect the stock would see a significant decline following the news.At current prices, we view Tesla’s stock as fairly valued with the stock trading slightly above our fair value estimate but in 3-star territory. We recommend investors wait for the stock to offer a margin considering an entry point.
Big picture: In our view, many Tesla shareholders are in the stock because of Musk’s visionary leadership. Along with this, Musk has held additional prominent leadership positions in other companies for years.
This includes him taking a leadership role at X (formerly Twitter) when he first acquired the company. In our view, Musk’s advisory role to President Trump was a similar side venture to his initial role at X after the acquisition closed.We maintain our Exemplary Capital Allocation Rating. We don’t see strong evidence that Tesla’s results suffered due to Musk’s other ventures.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
