Tesla stock slumps as Elon Musk dumps TSLA to fund Twitter takeover, Trump returns to boost DWAC

A hectic day on the social media front which nearly overshadowed Apple (AAPL) and Amazon (AMZN) earnings after the close, as both Elon Musk and Donald Trump took it to their respective social media networks. Tesla (TSLA) stock fell in the regular session before Apple earnings helped the stock market recover after hours, with the Nasdaq futures rising after the tech behemoth beat on the top and bottom lines.

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TSLA stock moved up accordingly in the after-hours and has mostly held these gains despite Apple's bearish conference call. AMZN stock slid on an earnings miss. Twitter (TWTR) closed 1% higher but remains some 10% below the proposed acquisition price of $54.20. Quite a discount but no one is tempted, not a positive sign for the probability of the deal going through. Both sides have agreed to the acquisition, though, so that makes the optics look even worse.

Tesla (TSLA) stock news: No more sales for now?

Firstly, we caught wind of some insider selling on Thursday. Well, the insider as Elon Musk is reported to have sold $4 billion worth of Tesla stock. Elon did take to Twitter after the news became public via SEC filing on Thursday evening.

This may be his intention but he has pledged quite a bit of TSLA stock as collateral for loans to 12 banks financing the TWTR acquisition. The collateral does not kick in apparently unless Tesla falls some 40% from the Tesla share price at the time of the deal completion. However, TSLA is a super volatile stock. It is down nearly 30% since April 5th. So moving 40% to trigger a collateral issue is not as unlikely as it seems.

This puts serious pressure on Tesla stock going forward. CNBC ran a piece on Thursday detailing just how much collateral Elon Musk has put up even before the Twitter deal. According to the report, Musk has $90 billion pledged for various loans. The report also adds that "Musk's stock debt is outsized relative to the entire stock market. His shares pledged before the Twitter deal account for more than a third of the $240 billion of all shares pledged at all companies listed on the NYSE and Nasdaq, according to Audit Analytics. With the Twitter borrowing, that debt could soar even higher." 

According to Forbes, "Musk’s pledged Tesla shares – the 88,331,125 shares disclosed in last year’s proxy statement, plus the estimated 71.3 million pledged to secure his Twitter margin loan (the exact number of shares will be determined once the transaction closes) – are worth a shocking 52% of total aggregate value."

Adding to this pressure is the highly restrictive macro environment we find ourselves in currently. The Fed is going to raise interest rates super aggressively and pull back from printing unlimited amounts of money. The Chinese economy is slowing and remains in various states of lockdown. While last quarter's earnings for Tesla managed to avoid this, Apple was extremely bearish on its conference call and mentioned supply chain issues from China and inflationary problems hitting demand. Tesla faces the exact same issues.

Basic economics teaches us times of restrictive monetary policy and rising interest rates and inflation is not the time to be ramping up debt. Merger arb is running a mile from this deal, that is telling.

Twitter (TWTR) stock news: FTC inquiry on initial purchase

Separately The Information reports that the Federal Trade Commission is inquiring whether Elon Musk's initial 9% purchase of Twitter (TWTR) stock violated antitrust reporting requirements. Musk's initial filing categorized his stake as a passive one which contradicts his comments on the business and now subsequent offer to take over the company. 

In the meantime, former US President Donald Trump finally posted his first post in two months on his founded network Truth Social. TRUTH is to be taken public by SPAC company Digital World Acquisition (DWAC). DWAC stock is up almost 8% in pre-market trading on Friday.

Tesla (TSLA) stock forecast: Elon a short-term bear?

$945 and $975 are now key resistance levels with $700 the key support. The lower TSLA stock gets before the Twitter takeover goes through the better for Elon Musk as his collateral (TSLA stock) kicks in 40% below the price on the day the deal goes through, we believe. However, this may also put pressure on the loan completion ever happening so it is a delicate balancing act.

Apple, as mentioned, was strongly bearish in its conference call and also managed to turn TSLA stock around. There is a direct read-across from these comments to Tesla. Luca Maestri, Apple's CFO, said on Thursday's conference call:

"We believe our year-over-year revenue performance during the June quarter will be impacted by a number of factors. Supply constraints caused by COVID-related disruptions and industry-wide silicon shortages are impacting our ability to meet customer demand for our products. We expect these constraints to be in the range of $4 billion to $8 billion which is substantially larger than what we experienced during the March quarter. The COVID-related disruptions are also having some impact on customer demand in China"

TSLA stock chart, daily

*The author is short Tesla.