Twitter continues to be ‘an overhang’ on Tesla stock amid Elon Musk’s recent sale: Strategist

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Morningstar Equity Strategist Seth Goldstein joins Yahoo Finance Live to discuss how Tesla CEO Elon Musk's actions regarding Twitter continue to affect Tesla shareholders.

Video Transcript

DAVE BRIGGS: When most of us need cash, we go to the ATM. When Elon Musk needs money, he goes to Tesla. Elon selling nearly $3.6 billion in shares, according to an SEC filing. He's now sold more than that massive number on your screen, $23 billion, since tweeting, ironically, no further Tesla sales planned in late April. The stock is down more than 60% this year. And our next guest says it's undervalued. Morningstar equity strategist Seth Goldstein with us now. Seth, good to see you. Before we dive into the Tesla stock and the road ahead, what is your reaction to him selling another $3.6 billion and the Twitter distraction overall?

SETH GOLDSTEIN: Well, it's clear that Twitter is an overhang on Tesla stock. And I think Musk may not have anticipated not being able to secure as much permanent financing for Twitter. And as a result, he has to sell Tesla shares to plug the gap and to fund Twitter to get it on its long-term growth plan. So this may not be the final share sale. We could continue to see more sales into 2023, as Musk looks to get Twitter on the right track, which could seem to be an overhang on Tesla's stock.

SEANA SMITH: So, Seth, you don't see any of his action, any of Elon Musk's action over the last couple of months, you don't see that really impacting Tesla's brand. And then I guess, pushing forward there, just the distraction of it, the fact that he's spending so much time at Twitter and not at Tesla, how are you looking at that from an analyst perspective?

SETH GOLDSTEIN: Well, it certainly is an overhang on the stock. And I think that might leave some investors cautious to get into Tesla shares, even as we see it continue to sell off. However, when we look at the underlying Tesla business, they're continuing to meet their growth plans. The two new gigafactories are ramping up. And in fact, just earlier this afternoon, Tesla tweeted that the Austin gigafactory had hit the milestone of 3,000 cars produced a week.

That's continuing to progress as planned. The insurance business is continuing to roll out the new states. And the full self-driving software is continuing to make progress and get to the subscription rollout. And so when we look at Tesla as a company, we see that they are hitting their growth plans. They're meeting their milestones. However, Musk's time with Twitter and the potential for further sales are continuing to weigh on the stock.

DAVE BRIGGS: Yeah, you are-- you still view it as undervalued, price target of $250, nearly $100 more than it sits today. What is the real catalyst to getting anywhere near that point?

SETH GOLDSTEIN: Well, I think we first have to get rid of the Twitter overhang, so that means Twitter needs to secure permanent financing. And either Musk or Twitter needs to give an indication to the markets that Musk will not need to sell shares of Tesla to fund Twitter. Then I think we need to see Twitter have a permanent CEO be named so that Musk can go back to spending most of the time running Tesla. At that point, I think we see Tesla continue to meet its milestones, ramp up production, ramp up delivery to show to the market that there's no demand problem. And at that point, I think we could see the shares start to rise and get closer to my $250 per share fair value estimate.

SEANA SMITH: So, Seth, when do you-- I guess, when do you see the momentum, then, changing on the stock? Is this something that you see happening in a month or two from now, or is this something that's going to take maybe 9 to 12 months?

SETH GOLDSTEIN: It all depends on the Twitter overhang. If Musk were to come out in early 2023 and say, the Twitter financing is secured, we've named a new permanent CEO, then I think that goes away. And then the markets will start to focus on Tesla on a standalone basis. However, if this drags on throughout 2023, then it could continue to weigh on shares.

SEANA SMITH: All right, Seth, so Twitter overhang aside, what about demand? Because that's a concern for Tesla. What about pricing? That's something that a number of analysts have been talking about heading into 2023. What's your outlook there?

SETH GOLDSTEIN: My outlook is for Tesla to have another solid year of seeing solid double digit deliveries growth. And remember, while there is EV subsidy expiration in key markets like China and some EU countries, they definitely will benefit from the Inflation Reduction Act re-adding US subsidies, which is still Tesla's largest market. So I suspect even though we're heading into an economic slowdown, that Tesla demand will still be strong. And as they ramp up production, they'll be able to sell all models produced.

DAVE BRIGGS: Does Tesla need a new CEO?

SETH GOLDSTEIN: I don't think so. When you look at Tesla, even with Musk focusing on Twitter, they're still meeting their underlying goals. If we were to start to see Tesla not reach their goals, not ramp up production, not make progress on the ancillary businesses, then I think it would be fair to say they might need someone to step in and run Tesla full-time. But as long as they're still continuing to meet their operational goals, then I think Tesla is doing just fine.

DAVE BRIGGS: So let's be clear. Twitter needs a new CEO.

SETH GOLDSTEIN: Yes, yes, I think-- and that was always the plan. Musk said he would take over temporarily until they were able to find a new permanent CEO. And I still think that's going to be the case. And I'd imagine that that search is underway as we speak. But until something is announced, that's still going to be an overhang on the market, questioning how Musk is spending his time and if he needs to focus more on Tesla.

SEANA SMITH: All right, Seth Goldstein, very positive on Tesla. We'll see if it gets to 250 a share. Thanks so much for joining us.