Daiwa Downgrades Tesla Over Increasing Governance Concern

Daiwa Capital Markets has lowered Tesla’s rating to Neutral from Outperform and reduced their 12-month price target. The downgrade is based on concerns about corporate governance, especially after a Delaware judge raised questions about the independence of Tesla’s Board, resulting in the cancellation of CEO Elon Musk’s compensation. The Wall Street Journal’s recent report further highlighted these governance issues. Daiwa analysts believe these concerns may lead to uncertainties regarding potential changes in Tesla’s Board and leadership.

It is important to note that while analysts are upbeat about Tesla’s growth prospects, the downgrade is based solely on governance concerns. Daiwa emphasises the importance of Tesla’s management focusing on long-term goals and improving automotive manufacturing techniques for their overall investment thesis. Tesla’s commitment to long-term objectives is demonstrated through investments in full self-driving (FSD), next-generation (lower-priced) EVs, and robotics. This sets Tesla apart from the broader industry, which is scaling back due to a short-term slowdown in EV demand. Any disruptions to these capabilities could impact Tesla’s technological and cost advantages. For instance, a reshuffling of the Board might cause delays in decision-making and limit investment time horizons.