Margin Call Alert: Tesla Stock Falling Below $400 Would Force Elon Musk to Sell 13 Million Shares of EV Maker to Fund Twitter Deal - Bernstein's Sacconaghi

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By Senad Karaahmetovic

Toni Sacconaghi, a Senior Analyst at Bernstein covering U.S. IT Hardware, has discussed implications for Tesla (NASDAQ:TSLA) shares amid an ongoing saga concerning CEO Elon Musk and his deal to acquire Twitter (NYSE:TWTR) for $44 billion.

Musk may “ultimately elect or be forced to purchase Twitter going forward,” Sacconaghi told clients in a note today. The analyst took note of Musk’s deal to acquire Twitter which should be completed via debt, equity, and a margin loan.

Sacconaghi pays special attention to $12.5 billion that will come from a margin loan facility tied to Tesla stock.

“Following the recent drop in TSLA's stock price, Musk appears to have just enough value in his unencumbered Tesla shares to fund the margin loan portion of his proposed Twitter financing. That said, at a TSLA share price of $621 or less, Musk would technically not be able to borrow the full $12.5B against his shares - in fact, if TSLA's stock price were to drop to $500/share, he would be ~$2.5B short. If the agreed upon deal price for Twitter is ultimately haircut by 10%, Musk could still borrow enough, even if Telsa shares dropped to ~$400,” the analyst wrote.

However, the bigger - but also less probable - financial risk for Elon Musk is there is a deeper pullback in Tesla shares, in combination with him completing the deal.

“If the TWTR deal were to close today and subsequently TSLA's stock price dropped to $350-400, Musk could be forced to sell ~13M Tesla shares.”

In other words, Elon Musk would get a margin call.

Sacconaghi rates Tesla with an Underperform rating and a $450.00 per share price target as he struggles to justify TSLA's valuation, “which appears to imply huge volume AND industry leading profitability going forward, which is historically unprecedented.”

Tesla stock price is indicated to open 2.5% lower today, or at $657.90.