Tesla Motors Inc announced late Tuesday that it would bid $2.79 billion to acquire SolarCity Corp. Investors weren’t impressed, hammering shares of the electric car maker down 10 percent in after hours trading.
Technical charts indicate that if the post market trend is replicated during the regular session, Tesla shares run the serious risk of sliding into bear market territory.
Tesla Motors Inc Stock – $200 is the Level to Watch Out
TSLA had a near vertical rise from the lows of February. But sentiment tapered in April after the stock hit a high of around $270. The sell-off that followed found support close to the $200-mark. Since then, shares have been consolidating, as traders and investors try to make up their minds.
The century old Dow Theory states that a stock is said to have entered into a down trend on the completion of a lower peak and a lower trough. $200 is what separates the Tesla bulls from the bears. It also coincides with multiple price reversal points in the past. Any close below that area, and the stock would have officially entered into a down trend.
As of writing, Tesla was trading around $193 in Tuesday after hours trading.
Tesla Motors Inc Could Face Shareholder Music
Reinforcing the bearish technical outlook were multiple voices on Wall Street, who said the latest acquisition could end up hurting Tesla.
Oppenheimer’s Colin Rusch foresees “a robust shareholder fight over this acquisition centered on corporate governance.”
“We believe investors are likely to view this transaction as a bailout for SCTY and a distraction to TSLA’s own production hurdles,” Rusch wrote to clients late yesterday, before downgrading the shares to “perform” from “outperform.”
Credit Suisse analyst Patrick Jobin concurs with that assessment. Jobin expects “resistance from TSLA shareholders,” which in turn could create “many corporate governance challenges.”
Elon Musk deems the proposed marriage of Tesla and SolarCity a “no brainer,” saying his plan to integrate the firms would profit both. Musk’s SCTY offer was in the range of $26.50 to $28.50 per share.
Tesla will hold a press conference at 7:30 AM ET to explain its rationale behind buying SolarCity. The shareholders of both the companies will vote on a merger post a due diligence process.
“It is clearly not a ‘done deal’…rather just an offer for now,” Raymond James’ Pavel Molchanov, said on Bloomberg News. “I think there is room for a deal…likely at a higher level, maybe in the $30s.”