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Why is the Tesla share price rebounding?

Posted: 27 May 2022 12:34 pm
News
TSLA-shares-27May_1800x1000_Finder

Shares in the electric car maker have slid 30% in the last month, so why are they rising today?

Shares in electric car giant Tesla Inc. (NASDAQ: TSLA) have been under pressure for more than 6 weeks, losing nearly a third of their value in the past month. So it comes as a surprise to investors when the stock jumped more than 7% in Wall Street trading overnight to US$707.73 to be one of the best performing stocks in the US market.

Why has the Tesla stock price jumped?

Part of the latest gains in Tesla shares come amid a lift in the overall market as US stock indexes climbed overnight after data confirmed the world's biggest economy contracted in Q1, easing concerns about aggressive interest rate hikes.

Markets have been spooked in recent months, reflected in the nearly 26% slide in the tech-heavy Nasdaq Composite so far this year, that the US Federal Reserve will aggressively hike rates to tamp down surging inflation. But a slowing economy could prompt more moderate increases.

There has also been an improvement in sentiment in the electric vehicles/battery makers stocks which have seen a heavy selloff in recent months and are now considered to be trading at far more attractive valuations.

This was reinforced this week as tech investor Cathie Wood returns to buying Tesla shares for her ARK ETF funds after more than 2 months.

The EV sector has also been in bigger focus in Europe, given the discussion of a rapid transition coming out of the Davos World Economic Forum event which is acting as a tailwind for the sector. It's helped other sector stocks including Rivian Automotive, Fisker Inc., Solid Power Inc. and Quantumscape Corp close higher.

Twitter overhang

Another factor affecting sentiment in the Tesla stock has been controversial CEO Elon Musk's deal to buy Twitter (NYSE: TWTR).

Tesla investors have been concerned that Musk's plan to buy out all the shares of the social networking giant could risk his holding in Tesla and distract him from the challenges at the EV maker.

Some of those concerns eased this week after Musk notified US regulators that he will rely less on loans in his bid to buy Twitter, and he and partners will now put in US$33.5 billion into the US$44 billion deal.

Analysts have been concerned about Musk using billions of dollars worth of his Tesla shares to back loans, meaning the electric car company's stock price would be affected by the fortunes of Twitter. But the risk of that seems lower now.

Musk's new plan to reduce the marginal loan and increase his equity burden also suggests he is serious about moving the deal forward and bringing down the curtain on the on-off drama surrounding its fate.

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