Tesla Stock Continues to Plummet after Musk’s Twitter Acquisition

Tesla (NYSE: TSLA) stock fell 5% yesterday and hit a 17-month low. The stock has been in a freefall since its CEO Elon Musk completed the Twitter acquisition.

Tesla has lost 44% this year and over half from its all-time highs. Last year, Tesla’s market cap surpassed $1.2 trillion as it became the worst automaker ever to command a market cap in excess of $1 trillion. Fast forward to 2022, and its market cap is around $620 billion. While that’s still almost thrice that of Toyota Motors, the stock has slumped over the last year and has underperformed the markets by a wide margin.

Musk’s Twitter Acquisition is Making Tesla investors wary

Last month, Musk completed his acquisition of Twitter. Like almost everything associated with Musk, the acquisition was full of drama. Musk made an offer to buy Twitter at $54.20 per share but the company’s board declined his offer. Eventually, the board relented as Musk’s offer price was way above Twitter’s stock price.

However, Musk subsequently backed out of the deal pointing to the alleged fake accounts on Twitter. Twitter sued Musk calling upon the billionaire to honor his deal. Amid the legal battle, Musk agreed to buy Twitter at the original terms.

Tesla stock also reacted to the drama over Musk’s Twitter acquisition. The stock fell after Musk proposed to buy Twitter. Musk already splits his time between Tesla, SpaceX, and some of the other companies that he owns. Markets fear that he would end up spending more time at Twitter when he should be spending his energies at Tesla.

Tesla stock has sagged this year

Multiple factors are leading to the crash in Tesla stock. Firstly, we have a wider sell-off in growth shares especially those in the EV (electric vehicle) industry. Amid the slump, NIO fell to a multi-month low while Xpeng Motors hit its lowest level ever. Even Rivian stock slumped and at one point its market cap even fell below the humongous cash on its balance sheet.

Lucid Motors stock has also lost over three-quarters of its market cap over the last year and fell to the lowest level since its merger with Churchill Capital IV in 2021. To be sure, the drawdown in Tesla stock is actually lower as compared to other startup EV companies.

Meanwhile, along with the macro weakness, company-specific factors are also contributing to the crash in TSLA stock.

TSLA missed Q3 revenue estimates

In Q3 2022, Tesla reported revenues of $21.45 billion which was below the $21.96 billion that analysts were expecting. In the third quarter of 2022, Tesla delivered 343,830 cars, a new record. The deliveries were however below what Wall Street was expecting. In the previous quarter also, its deliveries were below expectations but it was due to the lockdowns in China.

TSLA missed third-quarter delivery estimates

Commenting on the delivery report, TSLA said, “As our production volumes continue to grow, it is becoming increasingly challenging to secure vehicle transportation capacity and at a reasonable cost during these peak logistics weeks.” Tesla said that “In Q3, we began transitioning to a more even regional mix of vehicle builds each week, which led to an increase in cars in transit at the end of the quarter. These cars have been ordered and will be delivered to customers upon arrival at their destination.”

Elon Musk sees strong demand for Tesla cars

Notably, while many are getting concerned about the demand for Tesla cars, Musk sees strong demand for Tesla. During the Q3 earnings call, he said, “I can’t emphasize enough, we have excellent demand for Q4, and we expect to sell every car that we make for as far in the future as we can see. So, the factories are running at full speed, and we’re delivering a recovery make and keeping operating margins strong.”

He emphasized, “we’re very pedal to the metal come rain or shine. So, we are not reducing our production in any meaningful way, recession or not recession.”

Musk sees TSLA stock running way higher

Musk also talked about the possibility of a $5-$10 billion share buyback in 2023. Tesla has never done a stock buyback and does not pay a dividend also.  He also said that TSLA stock has room to run way higher than these levels.

He said, “I see a potential path for Tesla to be worth more than Apple and Saudi Aramco combined. That doesn’t mean it will happen or that it will be easy, in fact it will be very difficult, require a lot of work, very creative new products, expansion and always good luck. But for the first time I’m seeing, I see a way for Tesla to be, let’s say roughly twice the value of Saudi Aramco.”

Tesla to benefit from Inflation Reduction Act

Analysts turned bullish on Tesla after the passage of the Inflation Reduction Act. President Joe Biden signed the Inflation Reduction Act which would hasten EV adoption in the country. Tesla cars stopped qualifying for the federal EV tax credit as it crossed the minimum threshold of sales. Now, even Tesla cars would be eligible for the subsidy from 2023.

Apart from Tesla, General Motors and Toyota Cars also did not qualify for the EV subsidies after crossing the threshold. So, the expansion of the EV tax credit to all Tesla cars is certainly a positive for the company especially as the company launches more models. It said that Semi deliveries would start from this year only while Cybertruck’s deliveries would begin from 2023.

Meanwhile, in the short term, the noise over Musk’s Twitter acquisition would continue to weigh heavy on Tesla stock. Even some of the Tesla bulls see Musk’s association with Twitter as a needless distraction especially as the EV competition heats up globally.