Martin Tripp, a former employee of Tesla Inc (NASDAQ:TSLA), is not backing down. His latest move: A filing of a whistleblower complaint with the Securities and Exchange Commission.
In fact, he has hired the law firm of Meissner Associates, which specializes in these types of claims (its motto is “When you are a David that needs to take on a Goliath”). The allegations include misleading statements from Tesla Inc about production levels of the Model 3 (by as much as 44%), damaged batteries (that included punctures) and the reuse of old parts.
Oh, and Tripp has also setup a GoFundme page for the legal costs. More than $14,000 has been donated so far (the goal is to raise $500,000).
This action has come after the automaker filed a $1 million lawsuit against Tripp. The allegation? Well, Tesla Inc believes that Tripp hacked confidential information and provided it to third parties. The company also claims that he spread false information to the media. Something else: There was a claim that a friend of Tripp said that he would “shoot the place up” and the authorities were called in. But there appeared to be no substance to this threat.
So yes, it’s a big mess. And no doubt, the attorneys will be the obvious beneficiaries of all this.
Now when it comes to Silicon Valley, lawsuits are very common. Let’s face it, the stakes can be very high, as seen with nose-bleed valuations. Remember the disgruntled early players in companies like Facebook (NASDAQ:FB) and Snap (NYSE:SNAP)? They certainly made for juicy stories (and even a plot-line in a movie called The Social Network).
But with the Tripp-Tesla case, the potential damages may not necessarily be material. For example, the notable case that Meissner won for a whistleblower was against Monsanto (NYSE:MON). The judgement was a mere $22 million, which is pocket change for a company like Tesla Inc.
Instead, the real potential damage for the company is about the reputation. If an investigation does provide evidence that Tesla Inc cut corners, then this could ultimately hurt sales and damage the premium brand.
But then again, as is typical with most litigation, it will take time for the case to wind through the U.S. court system. It could easily take years.
Bottom Line for Tesla Inc Stock
While I think there is probably not much to worry about the Tripp-Tesla case, I still think there are near-term challenges. Even though the company has finally hit its goal of producing 5,000 Model 3’s per week, it is far from clear if this pace is sustainable. According to a recent report from JPMorgan Chase’s (NYSE:JPM) Ryan Brinkman, the production was likely due to costly short-term measures. Actually, his price target on Tesla Inc stock is $180, which implies 44% downside.
In the meantime, there are signs that the demand for the Model 3 is flagging, perhaps because of the delays and the higher pricing. After all, TSLA recently ended its reservation program, indicating that the conversion rate is far from robust.
Interestingly enough, even some of the company’s biggest shareholders are getting antsy. James Anderson, whose firm holds 12.8 million shares, has noted that CEO Elon Musk must focus more on Tesla — and not get too involved in distractions, such as his other ventures.
All in all, I think this is pretty good advice. But it does seem unlikely that Musk will change his ways. In other words, in light of the difficulties with the Model 3 — and how important it is for the company to get to profitability — I would avoid Tesla stock for now, at least until there is a better valuation.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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