Elon Musk’s posts on Twitter about his deal to buy the social media company are having a ripple effect on Tesla stock, too.
Tesla investors, however, shouldn’t get too far ahead of the situation.
(ticker: TSLA) CEO said on Twitter early Friday morning that his deal to buy Twitter (TWTR) was “temporarily on hold” pending a calculation related to the number of fake accounts on the platform. He said later Friday morning that he was “still committed to acquisition.”
Twitter investors are reacting with angst. Shares of Twitter are down more than 12% in premarket trading to $39.50. A deal collapse risks sending Twitter shares back to roughly $39, the level they traded at just before Musk’s initial stake in the company was disclosed.
Tesla investors, on the other hand, are reacting with relief. Shares of the electric vehicle company were up 6.5% to $775.69. For them, Musk’s purchase of Twitter represented a distraction at best and, at worst, something that could damage Tesla’s brand.
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futures were up about 1.4% and 1%, respectively.
Musk said the Twitter deal was temporarily on hold after Twitter released new estimates on the number of spam and bot accounts were released.
aren’t a new issue. Musk has said several times that removing spammers and bots is important to increasing Twitter’s value.
Twitter “is the least bad public square, a forum for the exchange of ideas,” said Musk on Tuesday at the Financial Times Car of the Future conference. “It could be a lot better …in order to be better it needs to really get rid of the bots and the scams, scammers. Anyone trying to create fake influence on the site.”
Musk doesn’t seem worried about potential damage to Tesla’s brand from his involvement with Twitter. “I’m confident we can sell all the cars we can make,” said Musk in response to a question about the commercial impact of Twitter on Tesla.
The move in Tesla’s stock price on Friday suggests investors might not agree with his statement. That’s one reason Tesla shares are higher on news that the deal is one hold.
Another issue, beyond branding and perceptions, has been an overhang for Tesla investors as well. Musk is planning to pledge some of his Tesla stock as collateral for a loan to buy Twitter. That created the risk of a margin call and a sale of Tesla stock if the shares declined substantially. Investors don’t like seeing large blocks of stock sold by management. The loan and Musk’s leverage had taken on “a life of its own,” according to Wedbush analyst Dan Ives.
Ives doesn’t cover Twitter, but he rates Tesla at Buy. His price target is $1,400 a share, compared with the stock’s closing level of $728 on Thursday.
Before Musk said he was still committed to the purchase, Ives characterized Musk’s first Twitter post on Friday as bizarre, saying it will “send this Twitter circus show into a Friday the 13th horror show.” He said two things are possible now: Either the deal falls apart or it will be renegotiated.
The idea that Musk still ends up purchasing Twitter, even at a lower price, is something Tesla investors shouldn’t discount.
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(FFND) co-founder Gary Black also suggested the possibility of deal renegotiation to Barron’s.
Coming into Friday trading, Tesla stock is down about 36% since Musk’s initial Twitter stake was disclosed. The
is down about 22% over the same span. It’s hard to say exactly how much of the excess decline in Tesla stock, relative to the index, is Twitter-related. Tesla is typically more volatile than the Nasdaq, rising more in good times and falling more when things get bad.
Figuring out what Musk will do, or what it means for Tesla stock, isn’t easy. What is clear is that Musk’s moves will affects both investors in Tesla and Twitter.
Write to Al Root at email@example.com