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Tesla shares are up nearly 50 percent relative to the stock’s year-to-date low (closing price) of $628.16, with the stock now down just around 22 percent so far this year. This dramatic turnaround in Tesla’s fortunes has stabilized Elon Musk’s financial wherewithal, thereby allowing the ultra-billionaire to take a more conciliatory attitude toward Twitter in the ongoing saga.
As most of our readers would know by now, Tesla shares were hammered between April and May this year as the specter of Musk’s escalating liquidation of his gigantic Tesla stake loomed large over the collective psyche of investors. This liquidation was necessary to fund Elon Musk’s $44 billion deal to take Twitter private. However, as Tesla’s share price was decimated, Elon Musk likely started having second thoughts about his risky Twitter-related gambit.
Of course, Elon Musk eventually ended up walking away from the Twitter takeover deal, citing the proliferation of bots on the platform as a major stumbling block to the consummation of this deal. For its part, Twitter maintains that the CEO of Tesla has no legal standing to walk away from the deal, especially as Musk had waived due diligence in the runup to the finalization of the takeover agreement. Both parties are now heading toward a legal showdown in October.
We believe that Hindenburg Research had granted Elon Musk the original inspiration to walk away from the deal. At that time, Musk was essentially trapped, with Tesla’s share price plunging dramatically since the announcement of his Twitter-related ambitions. Enter the famed short-seller, which published a less-than-stellar view of the takeover deal in which it argued that the deal was likely to be repriced lower given the “nosebleed” leverage, overvalued offer price, and “undue pressure” on Tesla shares.
Crucially, Musk had responded to Hindenburg Research’s bearish thesis with a brief comment, terming the short-seller’s observations “interesting.” Soon thereafter, Elon Musk started raising the issue of bots on Twitter, essentially angling for a way out.
This brings us to the crux of the matter. As mentioned earlier, Tesla’s fortunes have witnessed a sharp turnaround lately, with the stock undergoing a scorching rally in the past few weeks, stabilizing Elon Musk’s net worth in the process. As per the findings of Vanda Research, this rally has been driven largely by retail investors. The research house recently noted:
“Retail investor buying has consistently topped the year-to-date average of $1.36 billion over the past five days, with a focus on “classic” tech stocks like Tesla, Nvidia, Apple, AMD, and Amazon, according to research firm Vanda. On July 29, the figure was $1.64 billion, the highest during a day of positive S&P 500 performance since the start of the 2022 selloff.”
With retail investors already at the forefront of this ongoing rally, Tesla just added a sizable booster to this bullish sentiment by announcing a litany of positive developments at the shareholders’ meeting last night. To wit, the shareholders have now approved a 3-for-1 stock split. Bear in mind that Tesla had cumulatively gained over 1,700 percent when it last announced a stock split. Consequently, the latest move is being interpreted as another attempt to juice up stock gains. Moreover, Elon Musk assured that Tesla has an available supply of 1.5 million battery units and that the company aims to reach a run rate of 2 million units per annum by the end of the year. Additionally, the Cybertruck is expected to enter volume production by mid-2023, and, by 2030, Tesla aims to produce 20 million vehicles per annum. Finally, Musk also hinted at a future share buyback program. Collectively, all of these announcements are expected to further bolster the ongoing rally in Tesla shares.
Consequently, with Elon Musk’s net worth expected to continue to recover from the April – May swoon, the CEO of Tesla can afford to appear more conciliatory toward Twitter. This, in our opinion, bodes well for an out-of-court settlement before October, when the legal showdown between Musk and Twitter officially kicks off.