Tesla Motors Inc (TSLA) Stock Hampered by Deal Worries, Filthy Charts

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It’s not too hard to make a fundamental case against shares in Tesla Motors Inc (NASDAQ:TSLA) at current levels, but now the technicals are leaning against TSLA too.

Tesla Motors Inc (TSLA) Stock Hampered by Deal Worries, Filthy Charts

As exciting as Tesla’s solar roof tiles may be, the market has so far given them a thumbs down. Indeed, TSLA stock is down over 4% since automaker revealed the technology last week – and it was down about 7% at one point.

Tesla stock always has a flair for the dramatic, so make of the move what you will. What is indisputable, however, is the technical chart … and that’s warning of a continued downtrend.

The TSLA Stock Chart

TSLA stock formed a death cross the first week of October, and that has put a firm lid on shares. Indeed, TSLA made a couple of runs at breaking resistance at its 50-day moving average in the last month. In both cases, the failure to do so resulted in significant drawdowns.

TSLA
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Those actions brought TSLA below what had been a level of price support going all the way back to early March. At several points, TSLA threatened to fall below $194 but always stood firm.

That’s no longer true.

It’s not just the solar roof tiles that have shareholders on edge. They’re also worried about the company’s need to raise more capital to finance Model 3 operations and fund the Gigafactory. The idea of Tesla taking on more debt or selling more stock — and thus diluting existing shareholders’ stakes — is understandably not all that popular.

SCTY Weighs on TSLA Too

And that’s to say nothing of its proposed acquisition of SolarCity Corp (NASDAQ:SCTY). Shareholders are scheduled to vote on the proposed merger Nov. 17 and CEO Elon Musk sounds supremely confident about the outcome. As he said in a on a recent conference call:

“As I expressed before, I’m pretty optimistic about where the vote is going. The early votes so far have been overwhelmingly in favor and I’d be surprised if it wouldn’t pass.”

Perhaps the slide in TSLA’s share price is because the market is worried that this deal really will go through. And if the merger proposal gets shot down, well, there are better things for a company’s stock than a vote of no confidence in its CEO.

The trouble with the deal is that all mergers engender some uncertainty. The marriage of an automaker to a solar company has it by the bucketful. Moreover, there’s reason to think the combination of TSLA and SCTY will necessitate raising even more capital. Analysts at Oppenheimer had this to say in a recent note to clients:

“We believe a combined entity will face cash needs in four key areas: stationary power capex (primarily solar), auto capex, working capital and operating lease obligations. In total, we expect the combined company needing ~$12.5B for capex through 2018 sourced from a combination of asset-based debt, system refinancing, tax equity and corporate debt.”

This isn’t really what anyone holding TSLA needs to hear. Perhaps that’s why although Tesla had one of its best quarters in years — perhaps its best quarter ever — it did nothing for the stock. Even as the fundamentals are very much headed in the right direction, investors remain highly suspect about the wisdom of this proposed corporate marriage.

The bottom line is that the proposed merger is going to going to be a wild card until the shareholder vote, and perhaps even past it. TSLA bulls might want to focus on how well Tesla is doing with its core business of making electric vehicles, but the reality of the SolarCity distraction is going to continue to intrude.

It’s hard to justify putting fresh capital to work in TSLA stock under these conditions.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/11/tesla-motors-inc-tsla-stock-scty-ipmedia/.

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