$400 Is a Dangerous Price for TSLA Stock Holders. Here’s Why.

  • An analyst has issued a highly bearish price target for Tesla (NASDAQ:TSLA)
  • If TSLA stock hits it, or comes close, it could jeopardize Elon Musk’s Twitter (NYSE:TWTR) deal
  • Shares are rising today, but TSLA has still lost a significant amount of value recently
Tesla (TSLA) Motors store in Piazza Gae Aulenti square in Milan, Italy
Source: Zigres / Shutterstock.com

Tesla (NASDAQ:TSLA) has been on a losing streak lately. Today, TSLA stock is finally back in the green and not a moment too soon. One Wall Street analyst has issued a price target that indicates a new lack of faith in the company. If TSLA stock were to reach it, or even come close, it would render Elon Musk unable to procure the loan he needs to successfully acquire Twitter. Unless TSLA picks up new momentum soon, the deal may not be able to proceed.

Let’s take a look at the finer points of this prediction.

Could TSLA Stock Go to $450?

Toni Sacconaghi of Bernstein has focused on Tesla recently. Specifically, he’s been assessing Musk’s plans to a buy out Twitter and what they mean for TSLA stock. In a note to investors, the analyst emphasized the importance of the $12.5 billion margin loan. Tied to TSLA stock, it is a key component of the $44 billion package that Musk has procured to purchase the social media giant.

With TSLA stock’s recent declines, Sacconaghi thinks Musk’s personal holdings are still large enough to fund the margin loan. But he stresses an important detail. If shares fall below the per-share price of $621, the CEO would no longer be able to borrow the required amount against his TSLA shares. In his words, “If TSLA’s stock price were to drop to $500/share, he would be ~$2.5B short. If the agreed upon deal price for Twitter is ultimately haircut by 10%, Musk could still borrow enough, even if Telsa shares dropped to ~$400.”

However, that doesn’t eliminate another more pressing risk for Musk. Investors have been pulling back in response to his Twitter acquisition plans, worried that he cannot successfully run two companies. As Sacconaghi summarizes, “If the TWTR deal were to close today and subsequently TSLA’s stock price dropped to $350-400, Musk could be forced to sell ~13M Tesla shares.”

And that’s what the analyst sees happening. Just 10 days ago, he set a price target for TSLA stock of $450 and reiterated a “sell” rating. Since then, shares have been declining steadily.

Why It Matters

It doesn’t seem likely that TSLA stock could fall to such a low price. But the past month has seen it shed more than 36% of its value. Its only rally happened early in May on news of production resuming at Gigafactory Shanghai. Since then, shares have only fallen, and more analysts have slashed their price targets. No one has issued a prediction as grim as Sacconaghi, but notorious Tesla bull Dan Ives of Wedbush has lowered his target, as has Alexander Potter of Piper Sandler.

Now Sacconaghi is sounding the warning bells of an important matter that Wall Street can’t afford to ignore. Every day that TSLA stock falls, Musk moves further away from his Twitter deal. While shares are up 1% this morning, they have been highly turbulent this month as investor confidence is compromised. Following the Cyber Rodeo of April 2022, TSLA stock surpassed $1,000 per share. Now it needs a miracle to start making up the ground it has lost.

On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2022/05/400-is-a-dangerous-price-for-tsla-stock-holders-heres-why/.

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