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Elon Musk, as expected, has sold a sliver of his Tesla (TSLA -2.19%) stake to help fund his acquisition of Twitter. Investors are now left to wonder whether Musk is done selling, which is creating volatility in the stock. Shares of Tesla opened Wednesday up as much as 2.4% before beginning a steady decline, trading down more than 6% for the day as of 2 p.m. ET as investors try to figure out what comes next.
Shares of Tesla are down more than 30% in the last three months, and at least part of that decline is likely due to concerns about how Musk will fund and manage his Twitter adventure. Investors got at least part of the answer on Tuesday night, when Musk disclosed in a regulatory filing the sale of 19.5 million Tesla shares via 38 separate transactions over the past few days.
The executive raised about $3.95 billion from the sales, a significant part of the total cash outlay Musk needs for his $44 billion cash-and-debt purchase of Twitter. Musk has previously sold about $15 billion worth of Tesla shares in order to fund the acquisition.
A large shareholder selling into the open market tends to put pressure on the share price because supply and demand can become temporarily unaligned. If Musk’s sale is all the funding he needs to complete the Twitter deal and that overhang can be removed, it could be a positive for the Tesla share price from here. But Musk has said previously he hoped to avoid further sales, and investors are likely to be cautious, at least for now.
Tesla shares could also be under pressure due to the electric vehicle manufacturer issuing a recall of about 40,000 vehicles over concerns they could lose power steering. The problem can be fixed via an over-the-air software update, according to reports.
For Tesla investors, there is little to suggest the volatility will subside anytime soon. Despite whatever reassurances Musk provides, it is hard to say for sure that there will be no further stock sales. And Twitter adds another distraction to Musk, who already runs SpaceX and The Boring Co. in addition to serving as CEO of Tesla, at a time when the automaker is dealing with macroeconomic pressures.
For long-term-focused investors, the bull and bear case for Tesla is largely unchanged from where it was a year ago. This remains a highly valued stock, but one with much potential for growth from here. But no matter where you think Tesla will be in five years, there is a good chance that this current spate of volatility will continue in the weeks and months to come.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
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