Tesla Is Up By 3%, Here Is Why

Key Insights

• Elon Musk tweets that “20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher”.
• Traders wonder whether he tries to negotiate a better price or walk away from the deal. 
• If the deal falls apart, Tesla stock could gain upside momentum.

Tesla Stock Rebounds After Musk Says He Needs Proof That Fake/Spam Accounts Are Less Than 5% Of Twitter Users

Shares of Tesla gained upside momentum in premarket trading after Elon Musk tweeted that his offer to buy Twitter was based on the assumption that Twitter‘s SEC filings on the number of fake/spam accounts were accurate.

He also noted that Twitter’s CEO refused to show proof that fake/spam accounts were less than 5% of the total account number. Musk added that the deal could not move forward until he sees proof of Twitter’s statements.

Traders are trying to guess whether Musk is trying to walk away from the deal without paying the breakup fee or trying to negotiate a better price.

Both scenarios are bearish for Twitter stock, so it’s not surprising to see that Twitter is losing ground in premarket trading.

For Tesla stock, the recent news is bullish. Traders are worried that Musk will have to sell more Tesla stock to finance the deal, so a lower priced deal or a full collapse of the deal would serve as bullish catalysts.

What’s Next For Tesla Stock?

There are two main catalysts for Tesla in the near term. The first catalyst is the fate of the Twitter deal. If the deal is scrapped, traders will have no worries about potential stock sales from Musk, which will provide more support to Tesla shares.

The second catalyst is the situation with coronavirus in China, which has already put pressure on both production and demand for Tesla cars. At this point, it looks that developments in China could serve as a bigger catalyst for the stock, so traders will need to keep a close eye on the country in the upcoming weeks.

It should be noted that Tesla’s valuation has recently declined to more attractive levels, so the stock may be sensitive to positive catalysts. In this light, Tesla will have a good chance to gain additional upside momentum in case Twitter deal continues to fall apart.

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