If you’re a Tesla investor you may want to think twice before buying more shares anytime soon.
There’s a risk you could unwittingly provide CEO Elon Musk with a vital rally he can use to sell into once Tesla posts Q3 results on Oct. 19.
In short, shareholders could be caught holding the bag for a cash-poor billionaire looking to raise money for his Twitter purchase on the fly.
On Tuesday, Musk shocked markets with news he was prepared to move forward with the $44 billion deal with an envisioned closing date of Oct. 28.
His sudden change of heart preceded the start of a five-day trial later this month in which Twitter sued the CEO at the Delaware Court of Chancery to honor his contractual agreement, a lawsuit he was widely expected to lose.
Between these two key dates in October, there is now a narrow window of time in which the Tesla CEO can raise any remaining portion of the $33.5 billion in equity he has committed to provide and finalize the financing for the $12.5 billion in debt he needs.
Warning from Tesla bull
Future Fund portfolio manager Gary Black, a Tesla bull who has been critical of the Twitter deal since the very beginning, warned of selling pressure ahead.
Even though he estimates Musk has already liquidated $15.4 billion worth of shares in his carmaker, he believes the CEO is still on the hook for more and would be looking for pockets of market strength to unload more stock onto unwitting investors.
“He still needs to sell $5 billion [in] Tesla equity to fund the deal, but can’t because the Tesla trading window is closed until 10/19,” Black posted on Thursday.
This would come on top of the estimated $3.6 billion in Twitter stock Musk already owns and $7.1 billion in outside investment from wealthy third-party backers like Saudi Arabia’s Alwaleed bin Talal and Larry Ellison, assuming they do not renege on their commitment from early May.
If they do, Musk may be forced to stump up even more.
Share sale out of the blue
The problem is coming up with that kind of cash is not so easy, especially as the Federal Reserve continues to tighten credit market conditions at the risk of a recession.
Musk’s enormous wealth is largely tied up in his Tesla stake, where he is the largest single shareholder. To finance his comparatively low-key lifestyle in the past, the CEO has resorted to borrowing against the value of his stock to avoid paying capital gains tax.
To finance the Twitter purchase, Musk already chose to sell twice into periods of relative strength for the Tesla stock.
The first came in late April after which he subsequently pledged that no further sales were planned. That commitment lasted roughly three months before he unloaded more shares, once again without warning.
“In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock,“ he explained in August after the fact.
Each sale immediately followed a lockup period—first Tesla’s Q1 results and then its shareholder meeting—and each marked a local top in the stock price at over $300 once adjusted for August’s three-for-one stock split.
The next such date when Musk can offload more of his shares, should he need to, is immediately following Q3 earnings on Oct. 19. Bears expect him to do everything in his power to drive up the price of Tesla’s shares going into the quarterly report.
Sudden model launch
That’s because the market moved against Musk this week.
First, the reveal of the Optimus prototype robot unveiled last Friday after a six-week delay fell flat, before Q3 deliveries to customers uncharacteristically came short of market estimates.
Together, they sent the stock careening to its worst single-day decline in months.
Tesla has lost a tenth of its value since Friday alone and the lower the price drops, the more shares Musk may have to sell to meet any funding commitments.
Enter the Tesla Semi.
After years of waiting, Musk announced late on Thursday the heavily delayed model would finally run off the assembly line. The first trucks are slated to be shipped to PepsiCo in December, at least one year later than planned.
Nate Anderson, head of short-seller Hindenburg Research, said the news was likely connected to the Twitter deal’s closing. “Fascinating timing on this announcement,” he posted. “I wonder if he may need to sell some Tesla stock in order to raise money for something…”
‘Further mischief and delay’
At present the outcome of the legal dispute between Twitter and Musk remains fluid with no signs the two sides are going to stop lawyering up despite Musk’s pledge to honor the deal come the end of this month.
The social media platform is wary after being burned by entrepreneur twice before.
The first time came when he reneged on a deal to join the board and instead threatened the Twitter board to crash the stock price by selling his stake if the board didn’t accept the terms of his takeover bid.
The second came when Musk subsequently backed out of the deal in July.
“Now on the eve of trial, Defendants declare they intend to close after all. ‘Trust us,’ they say, ‘we mean it this time,’” Twitter’s legal team wrote on Thursday.
Musk could also escape from the deal with a slap on the wrist were the six lenders around Morgan Stanley and Bank of America to pull their debt financing.
Musk could potentially exit with only a $1 billion breakup fee, and while most experts have argued the banks have little leeway to do so, Twitter signaled there was no firm commitment yet.
“Just this morning, a corporate representative for one of the lending banks testified that Mr. Musk has yet to send them a borrowing notice and has not otherwise communicated to them that he intends to close the transaction, let alone on any particular timeline,” it wrote.
Therefore Musk’s proposal to delay closing until Oct. 28 is little more than an “invitation to further mischief and delay,” said Twitter, which hopes to hold Musk’s feet to the legal fire to ensure he executes on his commitment.
As long as the social media platform doesn’t trust the capricious CEO, shareholders might want to be wary as well as we approach Musk’s window that starts with third-quarter earnings.
This story was originally featured on Fortune.com