Is Tesla Paying the Price for Musk’s Shenanigans?

The world’s largest electric vehicle (EV) maker, Tesla (TSLA), has come to see the worst of days lately. Its founder and CEO, Elon Musk’s fixation with buying microblogging site Twitter (TWTR), is hurting the stock’s performance for no apparent fault of its own.

TSLA stock has lost over 38% since the initial disclosure of Musk’s stake in Twitter, and the lockdown at the Shanghai factory has added pressure to Tesla’s production schedules.

However, the latest round of events at Twitter’s annual general meeting, held on May 25, has given a breather to the TSLA stock. In the last two days alone, the stock has gained 13.5%.

Moreover, the billionaire’s ways of overtly expressing his thoughts, constant tiffs with regulatory authorities, recent tweets about political dispositions, and the case of sexual misconduct have all piled up on TSLA’s stock price. Even Tesla’s exit from the S&P (SPX) 500 ESG Index has dragged down the stock’s price and investor confidence.

Fans have displayed polarized emotions through the entire turmoil. Many are imploring their idol to stop pitting Tesla’s stock for the sake of Twitter, while a few continue to support him.

Latest Roll-Out of Events

Part of Musk’s $44 billion deal was supposed to be funded by keeping Tesla shares as collateral. However, a regulatory filing on Wednesday disclosed that Musk has decided not to use TSLA shares as margin and will fund the additional $6.25 billion through equity. This has raised Musk’s equity contribution to the deal to $33.5 billion, which also includes backing from several large investors.

Although this means that TSLA stock is free, it raises the question of whether Musk plans to sell his Tesla shares to fund the increased portion of equity.

Notably, the shareholder vote on the takeover was deferred to a later date, but both Musk and the Twitter CEO have confirmed their commitment to the deal.

Musk has put the Twitter deal temporarily “on hold” due to the unclear picture of the actual bot size in its monetizable daily active users (mDAUs).

Analysts Weigh In

Wall Street analysts have been closely monitoring Musk’s every move and its impact on Tesla’s stock, and several lowered the price target on TSLA stock due to the series of ongoing events and shared their views.

Yesterday, Jefferies analyst Philippe Houchois cut the price target to $1,050 (48.4% upside potential) from $1,250 while maintaining a Buy rating.

Houchois is confident about Tesla’s fundamentals and believes the car maker is capable of generating higher free cash flows compared to cars manufactured, which might be used in battery vertical integration projects.

However, it’s the series of negative news that is hurting its stock performance. For all the reasons mentioned above, Houchois believes the overhang on the stock will remain and only Musk can resolve the issues.

Recently, UBS analyst Juan Perez Carrascosa set a price target of $1,100 on TSLA stock and maintained a Hold rating.

Similarly, Daiwa analyst Jairam Nathan lowered the price target on TSLA to $800 (13% upside potential) from $1,150 while reiterating a Buy rating. Nathan’s price cut came from Tesla’s Shanghai plant lockdowns, which according to him have impacted production by about one million EVs.

He also believes that the supply chain issues have affected Austin and Berlin factories’ production by a combined 800,000 EVS. Thus, he has lowered the earnings forecast for FY22 and FY23, thereby lowering the price target. Nonetheless, Nathan believes deliveries will grow by 46% in 2023, and rise to 1.8 million units.

Daniel Ives of Wedbush has given out constant views on every occasion during the Musk Twitter Saga. Just before the Twitter shareholder meeting, Ives noted to expect “more fireworks” heading into it.

Ives had recently cut the price target on TSLA stock to $1,000 (41.3% upside potential) from $1,400 due to the expected slump in deliveries from the Shanghai shutdown.

Overall, the Wall Street community is cautiously optimistic about the TSLA stock, with a Moderate Buy consensus rating based on 14 Buys, 10 Holds, and six Sells. The average Tesla price target of $930.55 implies 31.5% upside potential to current levels.

Points to Ponder

It is ironic how the EV maker’s stock trajectory has become dependent on the social media company’s events. Yes, the Twitter takeover will be one of the most important ones in history as Musk is expected to set the definition of “free speech” after the buyout, yet it is overhyped at the same time.

Furthermore, analysts’ diminishing expectations of the stock due to both external and internal factors is pulling down the stock more. The latest line of events hints that Musk is probably trying to restore confidence in Tesla’s shareholders.

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