Goldman's Tesla upgrade smells bad, but does it cross a line?

A Tesla Motors upgrade from Goldman Sachs looks like a case of bad timing. The bank's analysts upgraded the carmaker on May 18, just hours before their banking cohorts took a role in a $1.7 billion stock sale expected to launch in the next day or two. It smells fishy, especially as the note gave a timely boost to Tesla's stock price. But there's plenty to suggest otherwise.

Tesla boss Elon Musk basically told an earnings call earlier this month he would be hitting up investors for cash. The only question was how much. That is, in part, what Goldman's autos researchers were assessing in their note. They plumped for $1 billion.

Tesla Model S sedan
VCG | Getty Images
Tesla Model S sedan

So when Tesla announced its equity offer later in the day, markets inevitably buzzed with speculation that the investment bank was failing to keep church and state separate. Even Frank Quattrone, the tech veteran who a decade ago avoided a conviction over IPO allocations, took to Twitter, saying "I'm sure this is just coincidence…"

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The reality looks rather duller. Crucially, Tesla has been a Goldman client for years: the bank and rival Morgan Stanley led its initial public offering and usually run its secondary stock deals. In other words, Goldman has already done all the work to convince Musk to hire its bankers.

There's one more point: the reason for keeping a so-called Chinese wall between research and banking is to show both are independent. As odd as it may sound, Goldman allowing both its bankers and analysts free rein could actually show that the wall is working as intended. Downgrading the company, of course, would have offered far stronger proof.

Commentary by Antony Currie of Reuters Breakingviews.

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