SEC's 'UFC-like fight' with Elon Musk is dragging down Tesla's stock

  • Tesla CEO Elon Musk's dispute with the SEC is an "overhang" on the stock, an Oppenheimer analyst said.
  • The SEC asked a judge to hold Musk in contempt for violating a settlement with the agency.
  • Musk has called the SEC's actions "unprecedented overreach."
Tesla CEO Elon Musk speaks during the unveiling of the new Tesla Model Y in Hawthorne, California on March 14, 2019.
Frederic J. Brown | AFP | Getty Images
Tesla CEO Elon Musk speaks during the unveiling of the new Tesla Model Y in Hawthorne, California on March 14, 2019.

Tesla CEO Elon Musk's habit of sparring with federal securities regulators is making Wall Street nervous.

Tesla shares seesawed Tuesday, falling by as much as 2.2 percent before recovering, hours after the Securities and Exchange Commission doubled down on its allegation that Musk "blatantly violated" a settlement with the agency by discussing the company's production forecasts on Twitter on Feb. 19. The agency has filed a request for a court to hold Musk in contempt, which Musk's legal team called "concerning and unprecedented overreach on the part of the SEC."

Concerns are growing that Musk's troubles with the SEC have become a needless and cumbersome distraction for a company that already has a lot on its plate.

"I think it's an overhang on the stock," Oppenheimer analyst Colin Rusch said Tuesday on CNBC's "Squawk Box." "There's really no benefit from this sort of activity."

Tesla has just finally begun selling a long-awaited $35,000 variant of the Model 3 midsize electric sedan, a key product for the company in many investors' eyes. Tesla also just unveiled another crucial product: a crossover utility vehicle called the Model Y, which is meant to bring Tesla into one of the most popular segments in the car market. Both vehicles were unveiled within the last month and are priced lower than the rest of its lineup to appeal to a mass market.

The company is also building a factory in Shanghai and is continuing to expand its "Gigafactory" in the U.S., both of which are massive investments.

Investors thought the battle between Musk and the agency was over, but unfortunately it appears the SEC is "doubling down on their UFC-like fight with Musk & Co.," said Wedbush analyst Dan Ives. "The last thing the bulls want to see is the SEC and Musk back in the courts. We believe it's caused some investors to trim positions as the worries around this situation are starting to grow on the Street."

The electric car maker's stock had long seemed to defy gravity, with many analysts and investors characterizing it as a "cult stock" that soared despite concerns over the company's performance.

But Tesla shares have fallen 16 percent over the last 12 months, and 19 percent from their price at the beginning of the year.

Of course, there are several concerns on the table, including the company's cash position, its ability to maintain profitability and demand for its Model 3 midsize sedan and newly revealed Model Y crossover.

But worries have also swirled around Musk's behavior, including his sometimes controversial comments on social media and in interviews.

"I do think it's begun to impact the stock," Rusch said. "People are hedging themselves just a little bit considering that the first part of the year is typically weak for car sales."

Musk settled a dispute with the SEC in September over a tweet he made in August in which said that he was considering taking Tesla private and that he had already secured the funding, which later turned out to be incorrect. Musk's settlement with the agency requires Tesla to preapprove anything Musk says publicly about Tesla, including whatever he says on social media.

"It is therefore stunning to learn that, at the time of filing of the instant motion, Musk had not sought pre-approval for a single one of the numerous tweets about Tesla he published in the months since the Court-ordered pre-approval policy went into effect," the SEC said in a court document filed Monday.

Musk, who tweeted Feb. 19 that he expected Tesla to produce 500,000 cars in 2019, defended the comment by saying was only discussing information he had previously revealed.

"Under no fair reading of the materiality standard did Musk's proud and optimistic restatement of publicly disclosed information, coming after the market closed, 'significantly alter' the total mix of information available to investors," said his legal team in a March 11 response to the SEC.