Tesla Inc (NASDAQ:TSLA) still has an overhang on its shares from CEO Elon Musk's takeover of Twitter Inc (NYSE:TWTR), but demand for the stock is holding firm, according to analysts at Wedbush who repeated an 'outperform' rating and $250 price target on the electric vehicles maker.
In a note to clients, the Wedbush analysts said: "The Twitter circus show continues to go on with Musk laser-focused on turning around this troubled platform while creating controversy on a daily basis.
"The problem is while the PR Twilight Zone of Twitter happens for the world to see and advertisers remain at bay while the Musk wild card of content moderation is front and center, the perceived overhang of 'key person risk' with Musk is a real overhang on Tesla's stock and not abating."
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The Wedbush analysts noted that the Twitter overhang is comprised of three main factors: 1) fear of Musk selling more stock to fund Twitter's red ink, 2) brand deterioration of Musk associated with Tesla, 3) attention of Musk for now all focused on Twitter instead of Tesla
They said: "At the end of the day Musk is Tesla and Tesla is Musk. Any black eyes for Musk in the Street's view will be reflected in Tesla's stock and this speaks to Tesla's stock being down 26% since the Twitter deal officially closed in late October."
Ironically, the analysts added, the demand story for Tesla and overall production capacity globally is moving in the right direction and the company remains on track for a 2 million unit number for 2023, which they said "is very impressive and right on schedule despite the jittery macro backdrop."
The analysts asked the question: "Do we believe the Twitter overhang on Tesla is overdone?" And answered: "YES, and its a frustrating dynamic playing out in the market as perception is reality with Musk digging a deeper hole by the day around the Twitter situation."
They said: "It's very possible Musk can turn around Twitter in this period of madness, advertisers come back to the platform, engagement and DAUs increase, and the path to the super app X for 2024 begins. That said, at what cost? This remains the quagmire for Musk as well as Tesla investors in what has been a period of pain for Tesla bulls in a general risk-off backdrop with Musk's golden child stock under major pressure."
The Wedbush analysts pointed out that Tesla's 4Q remains on track for units midway through the fourth quarter.
"Fundamentally speaking, we believe Tesla is on track for the 430k to 450k range of units in 4Q and should be a sign of confidence for Tesla bulls navigating this Twitter overhang situation. However, in the near-term a lot of the worries surrounds Musk selling more Tesla stock to fund Twitter's treasure chest and the 'attention worries' around key person risk with Musk is hard to ignore," they said.
The analysts concluded: "In a nutshell, the Tesla transformation story over the next few years is still on track and nothing from our thesis has derailed heading into 2023. The Twitter overhang risk is truly what is weighing on Tesla shares here and Musk must reassure investors over the coming weeks/month that the Twitter soap opera will not interfere with the longer-term Tesla growth story.
"We remain steadfastly bullish on the Tesla EV growth thesis over the next few years, but as discussed over the last few weeks recognize that until this Twitter dark cloud passes it will remain an overhang on TSLA."
Contact the author at jon.hopkins@proactiveinvestors.com