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Vertical Group's Gordon Johnson Thinks More SEC Charges Will Come For Tesla: 'Fraud Is In The DNA'

Vertical Group's Gordon Johnson Thinks More SEC Charges Will Come For Tesla: 'Fraud Is In The DNA'

Tesla Inc (NASDAQ: TSLA) tumbled Friday as the Street weighed securities fraud charges levied against CEO Elon Musk. Some say things could get worse.

Vertical Group’s Gordon Johnson posited that the company, its CFO and its board could be implicated in the charges. Tesla’s investor relations confirmed to shareholders that Musk’s tweets were sincere; the CFO was complicit in pumping Musk’s false announcement; and the latter continues to back Musk — which Johnson says amounts to “aiding and abetting.”

A Persistent Problem

The details are indicative of corporate's cultural issues, Johnson said.

“We think fraud is in the DNA of Tesla, and this was the most obvious manipulation of stock we’ve ever seen in our career,” he said on the PreMarket Prep trading show. “[...] We believe based on our research that Tesla is committing accounting shenanigans and basically fraud.”

Johnson cited the Solar City deal as a reflection of poor accounting and pointed to suspicious practices in Tesla’s cash-boosting collection of vehicle deposits, delayed deliveries to paid consumers, and premature revenue collection on underformed autonomous cars.

Given these factors, Vertical Group anticipates additional SEC charges against Tesla. Johnson has a Sell rating on Tesla's stock with an $88 price target.

Where Tesla Could Go From Here

Tesla doesn’t seem to have many safeguards. In Johnson’s assessment, any hope for a sale is unfounded.

“I don’t think that anybody wants to buy their technology, I don’t think that anybody wants to buy their plant, because they’re making cars and losing money,” he said. “It’s not a money-making operation.”

At this point, bankruptcy could be the best option.

“We think the best-case scenario for Tesla is a Chapter 11 filing where they restructure the debt and the company brings in a real CEO who knows how to run an auto company, they completely revamp their manufacturing operation,” Johnson said.

He considers this route unlikely, though.

“Under that scenario, the stock is massively lower, and it seems like they’re not willing and not even considering doing that,” the analyst said.

As the board delays exploration of a Chapter 11 filing, Johnson suspects it may be backed into a Chapter 7 — which would yield far worse repercussions.

Listen to the full interview with Johnson at 47:55 in the clip below.

PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET here. The replay can be found on Benzinga's YouTube channel, and the podcast is on iTunes, Google PlaySoundcloudStitcher and Tunein.

Latest Ratings for TSLA

Feb 2020Cowen & Co.MaintainsUnderperform
Feb 2020Morgan StanleyMaintainsUnderweight
Feb 2020BernsteinMaintainsMarket Perform

View More Analyst Ratings for TSLA
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