Tesla Inc.’s takeover of Twitter is turning out to be the least of its investor’s problems, even as there is an effect on its shares. The slump in Tesla’s stock over the past few months has been attributed to Elon Musk’s decision to take over Twitter Inc.
Factors Contributing into Tesla Stock Plunge
As per Bloomberg News, even if Musk walks away from the deal after his address to the Twitter employees on Thursday, the share price of Tesla is facing headwinds that may not allow it to recover its lost value.
The US stocks are entering the bear market phase thanks to soaring inflation, higher interest rates, and fast worsening investor sentiment that threatens to trigger a recession.
Growth and Tech companies’ valuations are bet on expectations of big future earnings and seem to be the worst hit in the current stock market rout, and Tesla is one of them.
Tesla shares are down 39% since Musk disclosed that he had a stake in Twitter Inc. During the same period S&P 500 index fell by 19%.
Initially, the stock fell after the disclosure when shareholders of Tesla thought that Musk was spreading himself too thin trying to overhaul Twitter while running Tesla and Space Exploration. Musk has tried to use his Tesla shares as collateral to fund the Twitter deal, though the financing does not include the pledging of Tesla shares.
The good news has been overshadowed by broader anxiety caused by the negative headlines on the economic gloom. For example, Tesla did not get the anticipated boost when it announced the widely anticipated splitting of its shares. In contrast, in 2020, the company made a similar move that saw a 60% share price jump from the day it was announced until it was executed.
The company is also facing other troubles such as rising input costs, supply chain shortages, and production disruption that refuses to go away, especially in China due to Covid lockdowns. These have all contributed to hurdles in the stock price rally.
Market watchers say that whatever the Twitter outcome will not positively affect Tesla Investors. While the takeover of Twitter by Musk finally may again mean he is spreading himself too thin, if the deal does not take place, it will not be clean either.
Interactive Brokers chief strategist Steve Sosnick says there are reasons to believe that if the Twitter deal terminates, it will be after complicated and lengthy negotiation or litigation. None of these will use Musk’s time and energy.
Musk had expressed his reluctance about the acquisition of Twitter last month and said it was on hold temporarily. However, the deal continued in the background, with Twitter Executives telling the staff that they would enforce the agreement.
Given that Musk tends to surprise investors, anything is possible, according to Sosnick.
