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Tesla (TSLA) in the Spotlight But Not for the Right Reasons

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Reports are rife that Elon Musk, the man behind the all-mighty Tesla (TSLA - Free Report) , has reversed his course again and is buying Twitter after all. The electric vehicle (EV) giant hasn’t had a smooth run on the bourses in the past three days as it missed third-quarter deliveries expectations and had a not-so-memorable AI Day. Shares may suffer more near-term pain with Musk deciding to go ahead with the TWTR takeover.

Let’s delve deeper.

Optimus Fails to Impress?

Did TSLA AI Day 2022 fall short of expectations? Did the company’s much-awaited Optimus bot fail to live up to its hype? Probably so. Musk introduced the concept of a humanoid robot named Optimus at last year’s AI event. That was just a guy wearing a robot costume. At Tesla’s AI Day 2022 held on Sep 30, the robot did come to life, albeit with limited mobility.

At the show, the prototype of Optimus was seen walking and waving (though a bit awkwardly) but didn’t show off any complex tasks. Tesla did release some videos at the event where one could see the robot performing tasks like lifting boxes and watering plants but those weren’t much impressive. Although the bot has come a long way from last year, there’s a lot that needs to be worked upon to make Optimus the ultra-capable humanoid robot that Musk envisions it to be. In fact, many robotics experts seemed disappointed by Optimus. And probably investors too.

This year Tesla’s AI Day failed to give a boost to the stock’s price. Contrarily, the shares dipped more than 8% on Monday. While an underwhelming AI event might have played spoilsport, shares of Tesla mostly felt the heat from the weaker-than-expected third-quarter deliveries report.

Q3 Delivery Miss

Although the EV titan’s deliveries grew on a yearly and sequential basis, it missed Wall Street’s expectations. The company delivered 343,830 (325158 Model 3 and Y, and 18,672 Model S and X) cars worldwide in the third quarter.

Tesla cites supply chain snafus and logistics challenges as the primary causes of the delivery miss. As stated in the company’s press release “As our production volumes continue to grow, it is becoming increasingly challenging to secure vehicle transportation capacity and at a reasonable cost during these peak logistics weeks.”

In the second quarter of 2022, Tesla snapped its two-year streak of quarter-on-quarter delivery gains, thanks to an extended shutdown in China, supply-chain disruptions and challenges associated with the opening of new factories in Germany and Texas. Notwithstanding the delivery miss in the third quarter of 2022, deliveries jumped 35% from the second quarter of 2022. Nonetheless, investors seem to be finding it hard to digest the delivery miss. They are likely to remain skeptical as the supply chain challenges and rising commodity costs are not likely to abate soon.

Musk Revives Twitter Deal to Investors’ Dismay

In a move that is set to end the legal battle between Musk and Twitter, the former is now moving forward with his original $44 billion deal to buy Twitter. Shares of Tesla are likely to feel the pinch. We have seen this before as well. Tesla shares didn’t react too well to the Twitter takeover news.

In early April, Musk revealed to the world a 9% stake in Twitter. Shares of TWTR exploded with a 27% gain, following the announcement, taking them to their highest levels since last November. Shortly after, Musk announced his plans to purchase the social media platform for a steep $44 billion. He wanted to own and privatize Twitter with the intent to restore free speech with his control of the platform. While the buyout deal hurt TSLA shares, it gave a boost to the Twitter stock.

On May 13, Musk tweeted that the deal was temporarily put on hold, pending details and clarity of an issue within Twitter’s userbase. A report came out that less than 5% of Twitter’s users across the board are fake or spam accounts and the Tesla CEO wanted to make sure that it is not more than that. After all, if a user base highly consists of fake accounts with no real person behind them, it questions the social media’s true success and value.

Following his tweet about his userbase-related concerns, TWTR shares got massively hit in pre-market trading. However, a few hours later, he revealed that he was still committed to the acquisition, giving some relief. Clearly, this acquisition has been a significant driving force behind TWTR shares. Meanwhile, upon his tweet of the deal being on hold, Tesla shares rallied in the pre-market – perhaps a sign that TSLA investors prefer it if the deal isn’t closed.

On Jun 6, Musk threatened to terminate his acquisition deal. He issued a 13D form to state his desire to conduct an independent audit of Twitter’s “spam” accounts, accusing the platform of “obfuscating” in a “clear, material breach of… obligations.”

In July, Musk announced his desire to end the deal as Twitter failed to offer information about fake accounts. Soon after, Twitter sued Musk to enforce the original merger agreement. In retaliation, Musk filed a countersuit against Twitter, escalating his legal fight against the social media platform. On Jul 19, a Delaware judge ruled that the Musk-Twitter dispute will go to trial in October.,

In a move that’s set to put an end to this dramatic saga, Musk announced on Oct 4 his intention to move ahead with the takeover at his original offer. Shares of TWTR rallied 22% on the news on Tuesday. Meanwhile, TSLA slid 3.5% yesterday to close at $240.81 a share. Investors fear that Musk may have to sell more shares in Tesla to fund the Twitter deal. Musk has sold $15.4 billion of Tesla stock so far this year. It is predicted that he may have to raise an additional $2-$3 billion to finance the deal.

Tesla investors also fear that Twitter could be a distraction for the entrepreneur. While Musk also leads SpaceX, Neuralink and The Boring Company, his primary and biggest company is Tesla of course. The company has positioned itself as one of the most widely-followed stocks globally and has been one of the biggest winning investments of the last decade. The company’s primary focus is green vehicles, although it has other operations within the solar business as well.

A big concern of TSLA shareholders is that Musk will be spread too thin across all his responsibilities upon the closing of the acquisition of TWTR. It’s speculated that the widely-hailed Tesla CEO doesn’t have enough time on his hands to navigate both companies properly. 

Musk set out to buy Twitter to uphold the integrity of social media, as many people now see these platforms as potentially harmful to society and nothing but places where negativity is widespread. It will be wildly interesting to see what Musk has in store as the deal is now finalized. Tesla fans and market participants just hope that the deal doesn’t pull Musk too far away from TSLA. 

TSLA and TWTR currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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