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When it comes to Tesla stock, the captain has signaled he’s not going down with the ship.
Elon Musk sold off another 22 million shares in the EV manufacturer this week, according to filings with the Securities and Exchange Commission. The sale generated $3.6 billion in cash — and it follows a series of trades earlier this year, collectively netting him about $40 billion.
The latest move by the South African-born entrepreneur comes at a moment when traditionally high-flying Tesla shares have taken a sharp tumble. And, according to industry analysts, the timing is especially unsettling for investors considering the latest move by the Federal Reserve to raise interest rates. Add Musk’s controversial handling of his Twitter takeover and there is growing concern that Tesla’s share price will continue to tumble.
A 60% downturn — and an upward bump
Traded on the Nasdaq as TSLA, the carmaker’s shares have tumbled by nearly 30% since Musk completed the acquisition of Twitter, while falling about 60% since the beginning of the year. After touching yet another 52-week low on Wednesday, the stock closed at $156.80, a $4.15 decline, on Wednesday.
Shares slipped a bit in overnight trading, but bounced upwards as soon as the market opened Thursday. A purchase by one key shareholder, ARK Invest, may have helped give TSLA shares a bit of momentum. But most observers continue warning that the downturn isn’t over yet.
“The Twitter nightmare continues as Musk uses Tesla as his own ATM machine to keep funding the red ink at Twitter which gets worse by the day as more advertisers flee the platform with controversy increasing driven by Musk,” said Wedbush analyst Dan Ives. “When does it end?”
Parallels
A look at the stock chart shows a close parallel between the Tesla stock price and Musk’s involvement with Twitter. What was already a modest decline accelerated as he launched his bid for the social media service, rapidly accelerating once he completed the deal.
Since then, Musk has engaged in some highly controversial activities, reversing Twitter’s ban on figures like former President Donald Trump, Congresswoman Marjorie Taylor Greene and various Holocaust deniers, among others. He has personally posted conspiracy theories, attacked not only President Joe Biden but Democrats at large, and even called for the prosecution of long-time White House medical advisor Anthony Fauci.
In turn, that has led to a large exodus from the social media platform, including about half of its top-50 advertisers.
A distracted CEO facing hefty interest fees
Some Tesla investors, such as Ives, fear that Musk is not only distracted by his Twitter trouble but also that he will continue selling off stock in the automaker to address the financial headaches he now faces.
For one thing, he will have to cover about $1 billion annually in interest on the loans that financed the $44 billion Twitter purchase. All told, Musk borrowed about $13 billion, including a $3 billion unsecured loan carrying a hefty 11.75% interest rate, according to Bloomberg. The news service this month reported that Musk may face pressure to provide margin loans to Morgan Stanley and other lenders. That could help him lower some of his borrowing costs.
But, even then, servicing his debt is expected to cost more than Twitter is currently generating due to lost advertising revenues.
The social media service is relaunching its Twitter Blue feature but it has yet to demonstrate whether that and other moves under study could generate enough needed cash.
Pressure mounts for a stock buyback
Musk’s latest actions are expected to further fuel calls for Tesla to launch a stock buyback. “THIS NEEDS TO HAPPEN NOW,” Ross Gerber, a partner in the California-based Gerber Kawasaki Wealth & Investment Management group — a large Tesla investor — declared in a tweet.
Musk’s handling of the Twitter acquisition — and his seeming distraction from Tesla operations — aren’t the only reasons why analysts and investors are growing more nervous.
The Federal Reserve yesterday raised interest rates by another 0.50%, bringing them to their highest level in 15 years. Even before that move, there were signs of a slowdown in demand for new vehicles.
A growing backlash
And complicating matters for Tesla, in particular, there have been signs of a potential backlash among generally Liberal EV buyers to Musk’s open swing to Conservative politics. That was driven home when thousands of fans gathered at a comedy fest in San Francisco last Sunday loudly booed Musk when the executive was brought on stage by comedian Dave Chappelle.
The Morning Consult, a consumer sentiment tracking service, found “Between October and November, Tesla’s net favorability among Democrats has fallen 20.3 points (while) it increased 3.9 with Republicans.”
Separately, tracking service TrueCar reported a sharp decline in consideration of Tesla products by potential EV buyers in the U.S. since mid-year.
Global headaches
But Tesla’s problems extend abroad. The automaker has been a powerhouse in China’s booming EV market. But it faces not only growing competition from domestic Chinese manufacturers but a slowdown in the country’s economy due to its COVID crackdown. According to Reuters, Tesla will temporarily idle its Shanghai plant during the final week of this year to balance supplies and demand.
Back home, meanwhile, Tesla is taking steps to ensure that it maximizes fourth-quarter sales, announcing a rare incentive program, running through the end of this year. The company posted strong earnings and a big increase in deliveries for the July-September quarter but still fell short of the consensus Wall Street sales forecast. That’s something it apparently wants to avoid again, according to several observers.
While investors appear to be growing increasingly nervous, not everyone sees Tesla stock as a bad bet. ARK Invest, another major shareholder, on Thursday morning made its first purchase of shares in a month, investing about $11.7 million in TSLA based on the prior-day closing price.
And Goldman Sachs earlier in the week issued an advisory setting a target price of $235 for Tesla shares, which would be a roughly 50% jump from where it’s currently trading. That said, the high-profile investment firm actually cut its target from $305 a share — and it warned that the stock could plunge as low as $135 if the economy continues to falter.
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