Insights

Why Tesla Stock Jumped Higher on Friday

What happened
On a bright green day for the stock market, with the tech-heavy Nasdaq up a hearty 4.1% as of 3:30 p.m. ET, few tech stocks are revving higher than Tesla (NASDAQ: TSLA).
Elon Musk’s famous electric car company is cruising through the final half-hour of the trading week with a 6.3% gain today — and investors have Musk himself to thank for it.
Image source: Getty Images.

So what
The biggest Tesla news today, you see, actually doesn’t involve Tesla — not directly at least. Rather, the “Tesla” headline that’s grabbing eyeballs on Friday is its CEO’s early-morning tweet advising that he has suspended work on wrapping up his $44 billion purchase of Twitter (NYSE: TWTR):

Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of usershttps://t.co/Y2t0QMuuyn
— Elon Musk (@elonmusk) May 13, 2022

A couple of things are worth pointing out even in a tweet as short as this one:
Thing 1: Musk assured investors (in a reply to his own tweet) that he remains “still committed to acquisition” of Twitter. (So, no, this whole Twitter business wasn’t just Musk messing with our heads.)
Thing 2: But he didn’t say anything about being still committed to paying all of the originally agreed upon $44 billion purchase price.
And finally, Thing 3: Musk seems to be laying down a marker here and saying that if it turns out that 95% or more of Twitter accounts are legit, he’ll proceed with the acquisition as planned. But if any more than 5% of those accounts turn out to be spambots, he’ll have ammunition to fire off in negotiations to lower the purchase price.
Now what
Now why might Tesla investors be interpreting all of the above as good news — good enough to add more than $44 billion (there’s a curious coincidence!) to Tesla’s market capitalization today?
I suspect the answer goes as follows: Forty-four billion dollars is a steep price of admission to Twitter, even for a multi-multi-billionaire such as Musk. As The Wall Street Journal calculated last month, it’s going to require, or already has required, a combination of $25 billion in outside financing from banks; $21 billion in cash from Musk himself; the sale of nearly 10 million Tesla shares to raise that cash; and the pledging of $62.5 billion worth of additional Tesla shares to secure personal loans to Musk.
There’s a lot that can go wrong with such a complex deal, and any hiccup between now and closure of the acquisition could cause Tesla stock to lose even more value than it already has. (Tesla’s already lost 25% of its value since Musk announced his intent to buy Twitter in April, proving the risks here are very real.) The lower the price Musk can negotiate for Twitter, however, the fewer Tesla shares will be involved in the acquisition and the less risk to Tesla shares as a whole.
For that reason if for no other, today’s Twitter news is good news for Tesla stock.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Twitter. The Motley Fool has a disclosure policy. –

What happened

On a bright green day for the stock market, with the tech-heavy Nasdaq up a hearty 4.1% as of 3:30 p.m. ET, few tech stocks are revving higher than Tesla (NASDAQ: TSLA).

Elon Musk’s famous electric car company is cruising through the final half-hour of the trading week with a 6.3% gain today — and investors have Musk himself to thank for it.

Image source: Getty Images.

So what

The biggest Tesla news today, you see, actually doesn’t involve Tesla — not directly at least. Rather, the “Tesla” headline that’s grabbing eyeballs on Friday is its CEO’s early-morning tweet advising that he has suspended work on wrapping up his $44 billion purchase of Twitter (NYSE: TWTR):

Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of usershttps://t.co/Y2t0QMuuyn

— Elon Musk (@elonmusk) May 13, 2022

A couple of things are worth pointing out even in a tweet as short as this one:

Thing 1: Musk assured investors (in a reply to his own tweet) that he remains “still committed to acquisition” of Twitter. (So, no, this whole Twitter business wasn’t just Musk messing with our heads.)
Thing 2: But he didn’t say anything about being still committed to paying all of the originally agreed upon $44 billion purchase price.
And finally, Thing 3: Musk seems to be laying down a marker here and saying that if it turns out that 95% or more of Twitter accounts are legit, he’ll proceed with the acquisition as planned. But if any more than 5% of those accounts turn out to be spambots, he’ll have ammunition to fire off in negotiations to lower the purchase price.

Now what

Now why might Tesla investors be interpreting all of the above as good news — good enough to add more than $44 billion (there’s a curious coincidence!) to Tesla’s market capitalization today?

I suspect the answer goes as follows: Forty-four billion dollars is a steep price of admission to Twitter, even for a multi-multi-billionaire such as Musk. As The Wall Street Journal calculated last month, it’s going to require, or already has required, a combination of $25 billion in outside financing from banks; $21 billion in cash from Musk himself; the sale of nearly 10 million Tesla shares to raise that cash; and the pledging of $62.5 billion worth of additional Tesla shares to secure personal loans to Musk.

There’s a lot that can go wrong with such a complex deal, and any hiccup between now and closure of the acquisition could cause Tesla stock to lose even more value than it already has. (Tesla’s already lost 25% of its value since Musk announced his intent to buy Twitter in April, proving the risks here are very real.) The lower the price Musk can negotiate for Twitter, however, the fewer Tesla shares will be involved in the acquisition and the less risk to Tesla shares as a whole.

For that reason if for no other, today’s Twitter news is good news for Tesla stock.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Twitter. The Motley Fool has a disclosure policy.

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