Tesla's rough year took an unexpected turn this week when Chief Executive Elon Musk engaged in a public dispute with a well-known Tesla stock advocate on Wall Street.
The confrontation erupted after Wedbush analyst Dan Ives urged the Tesla board to set "ground rules" for the controversial CEO's political involvements. Musk hit back by telling the Ives to "shut up."
The clash was unusual, though it's been known to happen in tech. In 2003, Merrill Lynch analyst Steven Milunovich sent a scathing an open letter to the Sun Microsystems board, blasting CEO Scott McNealy's "brash and contrarian personality." "The act is getting old," he said of McNealy. Milunovich also warned that the server maker was about to plunge into a "ravine filled with carcasses" of tech companies that no longer exist. Sun was acquired by Oracle in 2010.
Tipping Point
Ives on Monday warned the Tesla board of directors that the tech giant has reached "a tipping point." Tesla "cannot have Musk spending more and more time creating a political party which will require countless time, energy, and political capital," he argued.
Ives defended his note despite Musk's reaction.
"We are big supporters of Tesla but have to call it like we see it even though Elon does not agree with it," Ives told Investor's Business Daily.
Recalling the Sun Microsystems conflict, he added, "The Steve vs Scott showdown speaks to the differing views CEOs and analysts can have ... just like this."
Well, not exactly.
The Sun brouhaha was mainly a Silicon Valley affair. The Tesla showdown seems bigger. It features in one corner, the world's richest man who became one of President Donald Trump's most avid supporters before morphing into one of his harshest critics. In the other corner, you have a veteran tech industry analyst, a colorful Wall Street figure known for his pastel attires and his spirited endorsement of the AI revolution.
Tesla Stock Advocate
Gil Luria, D.A. Davidson's head of technology research, said Ives has played a key role in the rise of AI.
"He's done a terrific job of advocating for AI," he told IBD. "And in the process, he's helped a lot of investors, both institutional and retail investors, make a lot of money."
Ives is also known as a staunch Tesla bull and a Musk believer.
"If Musk continues to lead and remains in the driver's seat, we believe Tesla is on an accelerated growth path over the coming years," he said in a July 2 note. "Tesla's future is in many ways the brightest it's ever been."
But then Musk's feud with Trump flared up again, leading to the stunning announcement that he was forming a new political party.
Luria argues that Ives was merely doing his job when he put out the note urging the Tesla board to rein in Musk.
"When an analyst thinks that the company is going in the wrong direction and articulates their opinion about that, that is within the role of a research analyst," he said. "Once in a while, an analyst that knows a company really well will posit that there's a certain set of actions a management team can take in order to increase the value of the shares. And that's exactly what Dan Ives did."
Stacy Rasgon of Bernstein Research agreed.
"Nothing wrong with giving suggestions to management and the board of directors in my view," he told IBD. "You know me, I'm all for calling it out and living with the consequences."
Ives' note urging the board to "act now," said directors should include Musk guidelines as part of a massive new pay package and a 25% voting rights.
Pros And Cons For Analysts
There could, however, be consequences for a Wall Street analyst, he said.
"Management can shut analysts out of earnings calls (I know that one well)," Rasgon said. "And it can result in less access."
But there are also advantages in speaking out, he said.
""I've also found that if companies get mad at something you write it usually means you're on to something," he said.
Besides, Tesla's troubles aren't exactly a secret, including Musk's controversial role in Trump's campaign and the early months of his second term.
"The damage that Mr. Musk has done to the Tesla brand by entering politics has been not only profound, but maybe irreversible," Luria said. "That damage is now so severe, it may be irreversible."
But despite the turmoil, Musk will likely continue to play a key role in Tesla, he said.
"Elon Musk isn't going anywhere," Luria said. "Elon Musk is going to do what Elon Musk wants to do, which again is why a suggestion that the board of directors may kindly ask Mr. Musk to comply with some guidelines is a helpful suggestion."
