The rapid decline in Tesla's stock can be attributed to CEO Elon Musk using it as a bank for financing purposes, said Wedbush analyst Dan Ives.
Shares of Tesla (TSLA) - Get Free Report have tanked by 19.3% during the past month and 51.77% in the past year as Musk continues to focus his attention on Twitter, the social media network that he purchased for $44 billion in October.
Musk has turned to using Tesla shares as a funding mechanism and sold almost $3.6 billion shares of the company's stock in his latest sale that was announced on Dec. 14 in a Securities and Exchange Commission filing.
Twitter Acquisition Presents Problem
“The nightmare of Musk owning Twitter has been an episode out of the Twilight Zone that never ends and keeps getting worse,” wrote Ives in a research note.
Despite being a notable Tesla bull, Ives said Musk's use of shares of the electric vehicle manufacturer is a “funding nightmare.”
During the past five days, Tesla's stock fell by 9.09%. Tesla's market capitalization has fallen below the $500 billion threshold and is now valued at $494.93 billion.
The downfall of Tesla's stock is problematic, Ives said.
“When does it end?" he said. "This remains the worry on the Tesla story as Musk has managed to change the narrative of Tesla from the fundamental EV transformation story to a ‘source of funds'” for Twitter.
The acquisition of Twitter could emerge as a part of acquisition history’s “most overpriced” and one that “remains a train wreck situation,” Ives said.
“The nightmare of Musk owning Twitter has been an episode out of the Twilight Zone that never ends and keeps getting worse,” the analyst said, mentioning that Musk said in April he was no longer planning to sell more shares of Tesla.
Tesla Brand Is 'Polarizing'
Mark Delaney, a Goldman Sachs analyst, said it maintains its buy rating on Tesla, but acknowledged its recent problems with Musk actively fighting with people on Twitter.
"... Musk, currently taking a larger role on Twitter and political topics, Tesla’s brand has become more polarizing," he wrote on Dec. 13. "We believe that Tesla’s brand has significant value related to the company’s leadership position in clean energy and advanced technology. Having consumer focus related to Tesla shift back to these core attributes of sustainability and technology will be important in our view if Tesla is to meet or exceed long-term investor expectations for Tesla."
The company is still "well positioned for long-term growth as an EV cost structure and full solution leader," Delaney wrote.
Tesla is expected to make 420,000 deliveries during the fourth quarter down from a previous estimate of 440,000 and a total of 1.85 million units in 2023 down from 1.95 million, Goldman estimates.
"We are also now expecting a slight sequential decline in non-GAAP gross margin in 4Q22 vs. 3Q22 given the pricing/incentive actions Tesla has instituted during the quarter," he wrote. "We believe our reduced estimates are consistent with the added incentives and price reductions for certain Tesla vehicles this quarter, reduced wait times, and soft macro indicators (such as consumer sentiment and housing/property data)."
Joseph Spak, an analyst at RBC said Tesla's stock price “will likely remain under pressure,” as Wall Street's predictions for margins “recalibrate.”
Spak remains bullish and said he believes that “we see a compelling case for (Tesla) to still drive earnings/FCF higher as the low cost leader and leveraging opex.”
He lowered his price target to $225 from $325.
Since the acquisition to take Twitter private, Musk's attention has been diverted from Tesla. His competitors, such as like China's BYD, are gaining ground and gaining more market share.
Investors have started to lose their patience and want to see some action to turnaround the stock's performance.
The EV company's market cap has fallen drastically from nearly $1 trillion on Jan. 26. Musk was forced to sell shares of Tesla and use margin loans to finance the buyout of Twitter.
It appears to some that the CEO of Tesla has abandoned the company currently and is focused on engaging in attacks on Twitter publicly with advertisers who make up over 90% of its revenue, its users, employees and other well-known people.
His latest attacks against Yoel Roth. the former head of trust and safety for Twitter, and Dr. Anthony Fauci, are only likely to deter advertisers from returning to the website.
The company restarted its Twitter Blue subscription service on Dec. 12 in an effort to ramp up revenue. The service allows anyone that pays a fee each month to receive the infamous blue checkmark, edit their tweets and upload video that is high quality.
Musk's advisers are reportedly pressuring him to use Tesla shares as the collateral for new loans to replace Twitter's debt.
The bankers for Musk are reportedly evaluating whether to replace some of the high-interest debt he took on to buy Twitter with a new set of margin loans backed by Tesla stock that he would be responsible for paying back personally, according to Bloomberg News.
Tesla's board has remained silent and has made no decisions, infuriating some investors such as Leo KoGuan, who tweeted that "Tesla board is missing in action," on Dec. 7. He is one of Tesla's largest individual shareholders and called on the company to carry out a share buyback program to boost the share price and limit the damage to retail investors.
"The market is NOT normal. That is why it is imperative the board is doing the buyback now. Now means now. Not hypothetical, NEW retail investors bought high and forced to sell low, not those who bought Tesla @$4 or less and sold them @$400," KoGuan added.
He said on Dec. 13 in a tweet that the board should protect its shareholders.
"No longer about fundamental of Tesla but smart and powerful negative poison gazing Tesla," KoGuan tweeted. "We are shareholders are accidental war casualties The board is established to protect SH. The board members are smart, hopefully they will perform shock therapy to resuscitate stock price."
Tesla unveiled another round of price cuts in China, adding to concerns over near-term demand in the world's biggest EV market. Tesla also has added more discounts to China-based buyers of its Model 3 and Model Y sedans if the purchases are completed by the end of the year.
The incentives follow both a price cut unveiled in early October and reports last week that Tesla will reduce output at its key Shanghai factory. The move would mark the first time Tesla has voluntarily lowered output levels since the factory was opened in 2018, although covid-19 restrictions and scheduled maintenance clipped production earlier this year.
Musk No Longer Richest Man
The net worth of billionaire Musk continues to plummet as he is no longer the richest man in the world. The number one billionaire is now Bernard Arnault, CEO of luxury group (LVMHF) .
Musk's net worth decline has exceeded the amount of money that both Bill Gates and Jeff Bezos have lost in 2022.
As shares of Tesla decline, Musk has seen his net worth fall by $109 billion year-to-date as of Dec. 15, according to the Bloomberg Billionaires Index.
Bill Gates, the former CEO of Microsoft (MSFT) - Get Free Report, has lost $22.4 billion of his net worth while Jeff Bezos, the founder of Amazon (AMZN) - Get Free Report, has seen his fortune decline by $77.5 billion. The two tech tycoons have lost a combined $99.9 billion.