What to Expect if the Tesla Deal Falls Through

 Wayne Duggan

Tesla Inc (Nasdaq: TSLA) dropped another 4 percent on Thursday morning as the initial enthusiasm for Elon Musk’s tweet about taking Tesla private at $420 per share has died off. A number of analysts are questioning whether or not the offer is viable, and analysts says risk for TSLA stock is skewed meaningfully to the downside until investors get more details.

Morgan Stanley analyst Adam Jonas says he sympathizes with Musk’s desire to take Tesla private considering the intense scrutiny he and the company have faced in recent quarters. However, Jonas says the benefits of going private don’t outweigh the risks associated with announcing a potential deal that seems far from complete.

“We believe a failed attempt at a deal would create new challenges for Tesla as a stand-alone company,” Jonas says.

Musk has already been dealing with credibility issues after Tesla repeatedly failed to hit Model 3 production targets over the past year. Several Wall Street analysts are also questioning his claims that Tesla can avoid a capital raise and become cash-flow positive and profitable for the first time in the second half of 2018. Jonas says failing to deliver a viable buyout offer would be yet another blow to Musk’s credibility.

“We’re just saying it may be challenging for Tesla shareholders to fathom the ‘forget-about-the-going-private-thing-let’s-go-back-to-normal’ scenario here,” Jonas says.

CFRA analyst Efraim Levy says the $420 buyout price Musk is claiming doesn’t make financial sense.

“There is skepticism as to where this money comes from,” Levy says. “If it doesn’t come through, the stock is going to crater.”

Unfortunately, with few details available to investors at the moment, TSLA stock price action is being dictated by the market’s willingness to take Musk at his word. By using Tesla’s pre-tweet share price of $340, the $420 buyout price Musk announced and the stock’s current price of around $355 as guides, the market is currently pricing in roughly a 19 percent chance that a deal gets completed at the $420 price in the near future.

Morgan Stanley has an “equal-weight” rating and $291 price target for Tesla. CFRA has a “hold” rating and $380 target for TSLA stock.

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