Elon Musk is buying Twitter. Should you buy Tesla?
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Last week, Tesla (NASDAQ:TSLA) reported better-than-expected results, as the electric vehicle maker was able to deliver impressive margins despite pressures from cost inflation and supply chain challenges. Since then, however, the company's execution has taken a backseat to the attempts by its CEO, Elon Musk, to purchase social media giant Twitter (TWTR).
Now that the deal has been signed, with the world's richest person agreeing to pay $44B to buy the social media giant, TSLA has seen some blowback. With Musk using a portion of his TSLA holdings as a backstop to finance the TWTR purchase, some investors have gotten nervous about the potential overhang.
At the same time, the EV maker's famously mercurial CEO now has another distraction, just as TSLA faces lingering supply problems, regulatory headaches, intermittent COVID shutdowns in China and a murky global economic situation.
Can TSLA continue to deliver as Musk looks to close his TWTR purchase? Does the world's highest-profile electric vehicle maker represent a buy at this point, despite its potential headwinds?
Telsa's Twitter Overhang
Last Wednesday, Tesla (TSLA) reported quarterly earnings that breezed by analysts' expectations. The figures included non-GAAP net income of $3.7B and revenue that jumped almost 81% to $18.76B.
At the same time, the firm's automotive gross margins rose to 30%, up from 29.2% in the previous quarter. Analysts had expected margins to dip amid supply chain issues and a COVID-related disruption in Shanghai.
In response to the earnings report, TSLA shares rose about 3% in the next session. However, this was followed by three consecutive days of declines, including a 12% plunge earlier this week. With that slide, TSLA finished a session below $900 for the first time in more than a month.
This retreat came in part as a result of a general drop in EV and tech stocks. However, TSLA had the added weight of unfolding details about Musk's $44B Twitter (TWTR) purchase.
Musk has pledged a portion of his TSLA stake to help finance the TWTR purchase. The current TSLA price is far from levels that would prompt a possible margin call, but the risk, however remote, added another complication to the investment equation.
According to reports, Musk has committed $21B in equity financing for the TWTR deal. As Wedbush Securities Dan Ives explains, most of this is likely held as collateral, and thus probably not going to need to be sold to raise cash for the purchase. Still, it has sparked concerns.
"Naturally this has put a black cloud over Tesla's stock in the near-term as the Twitter financing component for Musk is now front and center for the bears," Ives noted.
Is TSLA a Buy?
Looking at TSLA's performance on a longer-term scale, the stock surged to a 52-week high of $1,243.49 last November. This capped off a massive advance over the past two years -- shares traded below $80 in late 2019.
The stock has moderated significantly since its November highs. Tesla (TSLA) reached a closing low of $766.37 in mid-March, part of a general compression of valuations that sent high-growth names sharply lower in the first couple of months of 2022.
The stock has come off its 2022 low but has shown little momentum lately, in part because of the recent swirling headlines around Musk's pursuit of TWTR.
Meanwhile, the analyst community has expressed some doubt about the company's ability to maintain its stellar growth rates. True, of the 37 analysts surveyed by Seeking Alpha, more than half have a bullish outlook -- with 11 Strong Buy ratings and eight Buy recommendations.
However, there is a vocal group of bears as well. Three analysts have issued Strong Sell opinions on the stock. Another six view TSLA as a Sell. The nine remaining analysts in the survey have issued Hold opinions.
Quantitative measures of the company show strong execution on the corporate front, but doubt that the stock's valuation has fallen enough to make it a buy. Seeking Alpha's Quant Ratings give TSLA an A+ for profitability and an A for growth. However, the stock gets an F for valuation, even with it sitting more than 25% below its highs of November.

For more on the impact of the TWTR saga on TSLA, read a deep dive by SA contributor Juxtaposed Ideas. Meanwhile, giving a bullish take, see why fellow SA contributor The Asian Investor argues that the EV maker is in "the best financial position in its existence."