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Highlights
- JP Morgan has filed lawsuit against Tesla Inc. in a Manhattan federal court for breach of contract.
- Tesla’s stock grew more than 10 times since JP Morgan’s warrant price adjustment in 2018.
- JP Morgan stock price remained unchanged, while Tesla Inc. stock gained around 3% on Tuesday afternoon.
Yet again, Tesla is in the news for the wrong reasons. JP Morgan Chase & Co. (NYSE:JPM) has sued the EV maker Tesla, Inc. (NASDAQ:TSLA) for US$162.2 million.
According to JP Morgan, both sides had sealed a contract in 2014, in which JP Morgan had a right to buy Tesla stock in exchange for warrants at a set ‘Strike’ price and date in June and July this year. The warrants expired this year, and the share price of Tesla soared higher at the time of warrant expiry. According to JP Morgan, Tesla should have paid JP Morgan the stocks or cash when the warrants expired, but it didn’t happen.
JPM has filed a suit in the Manhattan federal court for breach of contract by Tesla. In 2018, the bank had re-priced its Tesla warrants after Elon Musk’s tweet comments about planning to go private. The stock price of Tesla plummeted sharply at that time.
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Source – Pixabay
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Background
JP Morgan said the warrants had the provisions of adjusting the price to protect against economic effects of Tesla’s corporate transactions like ‘going private’ at US$420 a share in 2018.
The 2018 tweet raised the price volatility of Tesla stocks that lasted for 17 days. However, a second tweet to refute the plan helped regain some lost grounds. The stock price jumped around 11% in a single day to close at US$75.91 on Aug 7, 2018.
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Both Elon Musk and Tesla Inc were filed US$20 million each by SEC on charges of misleading investors. Musk also had to step down as a chairperson and remained CEO after that.
JP Morgan said the price adjustments were under the standard provisions, but Tesla failed to fulfill its obligation in full. However, in 2019, Tesla complained about the bank’s inappropriate adjustments to take price volatility advantage but didn’t question its calculations at that time. Now the bank is challenging the EV maker for defaulting on the warrant payment on expiry.
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"We have provided Tesla multiple opportunities to fulfill its contractual obligations, so it is unfortunate that they have forced this issue into litigation," JPMorgan said, according to Reuters. JP Morgan stock remained unchanged from the previous close at US$166.555, while Tesla Inc. stock was trading up 3.77% at US$1051.065 at 1:19 pm ET on Tuesday.
JPM stock rose around 43%, and TSLA stock shot up nearly 130% in one year.
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Bottomline
Elon Musk is currently the world’s richest person with a net worth of around US$279 billion, as per Bloomberg Billionaire Index. After his last week’s stock sale worth around US$7.0 billion and a Tweeter spat with a senator over the weekend, he sold 934,000 shares, worth around US$930 million, on Monday. Investors, however, should analyze the company fundamentals and the market carefully before investing in stocks.
