by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Nothing to see here. Move along. It was just an accident, just bad timing. The barrier that Wall Street used to call a Chinese wall—barricading firms against conflicts of interest between their analysts and their investment bankers—is still intact. Or so they say at Goldman Sachs, at Morgan Stanley, around the corner, down the block and in the bars.
Tesla, the electrifying electric-car stock, went up some more on May 18 after Goldman Sachs analysts issued an upgrade to a Buy rating and set a price target of $250. “Following a 23% decline in the share price post the Model 3 unveil, we do not believe Tesla shares are fully capturing the company’s disruptive potential,” said Goldman analyst Patrick Archambault.
The stock rose 3%, to $211. Later the same day, Tesla announced a secondary offering of stock—$1.7 billion worth. And it said that Goldman would be co-managing the issue, earning fees and spreads.
If anything, Goldman Sachs analysts are pikers. Those at Morgan Stanley, the offering’s co-manager, declared Tesla “arguably the most important car company in the world” back in July 2014, with a price target of $320 a share and a production target of 1% of the global automotive market by 2028. More recently, they put out a report raising their price target to $465—more than twice the price in the market on Friday.
These announcements combined to put more money in the pockets of Tesla and its CEO, Elon Musk, who sold about 2.7 million shares—to say nothing of the underwriters. Enthusiastic investors paid cheerfully. …
… The real hyperenthusiasts, of course, are at Tesla. In its first-quarter letter to shareholders, issued on May 4, it reported receiving more than 325,000 reservations for its new Model 3 in the first week in which it had accepted them. It said: “This implies about $14 billion in future sales, making the Model 3 the biggest consumer-product launch ever.”
Well, no. It’s a product launch only in terms familiar to a small area of Northern California where the word “vaporware” was coined decades ago. It could become a product launch late in 2017, when the company says deliveries of the Model 3 will start. And it implies essentially nothing about future sales. The company did collect $1,000 for each reservation, but the deposits are refundable, if the company can afford it. (Tesla was kind enough to advise depositors that there’s no escrow arrangement to hold their money.)
Slick manipulation of the numbers at many companies these days has started to draw the attention of the Securities and Exchange Commission. Tesla is a prominent example of a company that issues earnings reports to investors that do not use generally accepted accounting principles. As SEC Chairman Mary Jo White said in March, “Your investor-relations folks, your CFO, they love the non-GAAP measures because they tell a better story….We have a lot of concern in that space.”