- Tesla stock fell nearly 10% intraday on Thursday.
- TSLA stock then recovered modestly, closing 8% lower.
- Elon Musk still going ahead with Twitter takeover.
Twitter (TWTR) was one of the best, if not the best, performers on Thursday in a market meltdown. Tesla by comparison took a serious hammering and was headed for double-figure percentage losses at one stage on Thursday. Then, a modest recovery – if you can call it that – saw Tesla close 8.3% lower at $873.28. Twitter closed up 2.65% at $50.36.
Tesla (TSLA) stock news: Should lenders get nervous on collateral for TWTR deal?
We all know Tesla trades on a super-high multiple so we don't need me adding my opinion here. All was well and good when things were going up but clearly, things are not so well now. Tesla makes excellent cars and has basically invented the EV sector, but when the market turns lower TSLA stock always tends to underperform just as it outperforms when the market is bullish.
Now a new development may be hanging on the stock: Elon Musk's takeover of Twitter.
This looks like it may get across the finish line as more rumors circulated this week that Elon Musk was tapping up old investors and private equity houses to advance him more cash for the deal. That may have been fine at the start of the week but things move pretty quickly in finance. Monetary conditions are tightening rapidly and we would not be surprised to see some potential dealmakers back out if conditions continue to deteriorate. Already several private equity firms have turned down being involved. Banks too will be reassessing their collateral needs as Tesla continues to suffer.
If you are a lender in this Twitter takeover deal you would be getting increasingly nervous watching Thursday's TSLA stock fall. Yes, you have some comfort in the 40% downside, but 40% is nothing to Tesla, a few days or weeks is all it can take to move that much.
The latest SEC filings show that Larry Ellison of Oracle (ORCL), Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud of Saudi Arabia and Andresson Horowitz are backing the deal. In total, Elon Musk has gotten a commitment of over $7 billion for the Twitter deal.
Twitter (TWTR) stock news: TWTR rallies, but risk-reward skewed to downside
Twitter (TWTR) may finally be seeing some merger arb players enter the stock based on Thursday's price performance. This had been notably absent when TWTR stock languished below $50 and spoke to their lack of belief in the deal getting across the line, but talk this week was that Elon Musk may have other financing in place. The filing on Thursday confirmed this. This sent TWTR stock up over 2% in a day of near collapse for other tech stocks.
Apple (AAPL) closed nearly 6% lower, and Amazon (AMZN) nearly 8% lower. So risk will very quickly pull back if this tech-stock rout continues. Private equity will reassess, banks will reassess but may already be contractually on the hook. Hedge funds will begin to sniff blood in the water if this continues and short sell TSLA stock to try and force the bank's hand, if or once the deal goes through. This is what is behind Elon Musk reaching out for new backing. It is likely he and his banks would prefer to spread the risk a bit more now.
In any event, the risk-reward play is hugely weighted to the downside. On Thursday, I initiated a short position in TWTR to add to my already short TSLA. The take-out price for Twitter is $54.20, so there is limited downside to being short, just $4.20. It is highly, highly, highly unlikely that this offer price gets increased. If the deal collapses, Twitter very quickly trades in the $30s. So my stop is at $53, if Twitter trades there before the deal then it means the probability has moved close to 100% certainty. So I take my loss and move on. A 6% loss or a potential 40% profit, a good risk-reward profile.
Tesla (TSLA) stock forecast: Holding up well, $975 remains pivotal
TSLA stock on Thursday initially tested a high just short of $945. The key was this high was lower than Wednesday's one. $975 remains the pivot, and below there Tesla shares remain bearish. Above and all bets are off.
TSLA stock is actually still holding up well, despite the turmoil. It was significantly lower the last time the Nasdaq and S&P 500 reached current levels, at the start of the Ukraine invasion. Back then, Tesla fell to $700. Since then, the company had strong earnings and delivery numbers and got its plant reopened in Shanghai. So on a micro level, the company is performing. but this is a bigger picture, macro play.
Tesla (TSLA) stock chart, daily
*The author is short Tesla and Twitter.
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