Elon Musk's focus on a Twitter turnaround creates 3 factors that put Tesla stock at risk, Wedbush says

• Elon Musk's focus on revamping Twitter puts Tesla's stock price at risk, Wedbush said in a note.
• "At the end of the day Musk is Tesla and Tesla is Musk," Wedbush analyst Dan Ives said.
• There are three risk factors to Tesla's stock price created by Musk's increased focus on Twitter.

Elon Musk's increased attention to staging a turnaround at Twitter is creating big risks for Tesla's stock price, according to Wedbush analyst Dan Ives.

The "Twitter overhang" on Tesla's stock relates to Musk's "key person risk" to Tesla, as many investors have bought into the company solely because of him and his record of success in catapulting the EV maker into a formidable competitor in the auto industry.

But Musk's Twitter project has turned into a "circus show" that has created controversy on a near-daily basis, according to Ives.

"The problem is while the PR Twilight Zone of Twitter happens for the world to see and advertisers remain at bay while the Musk wild card of content moderation is front and center, the perceived overhang of 'key person risk' with Musk is a real overhang on Tesla's stock and not abating," Ives explained.

Specifically, Musk's new Twitter turnaround project creates three risk factors for Tesla's stock and its shareholders, according to the note.

1. "Fear of Musk selling more stock to fund Twitter's red ink."

2. "Brand deterioration of Musk associated with Tesla."

3. "Attention of Musk for now all focused on Twitter instead of Tesla."

Already these risks have helped drive a significant decline in Tesla's stock price, with the stock down 27% since Musk closed his $44 billion acquisition of Twitter late last month. Over the same time period, the Nasdaq 100 is flat.

"At the end of the day Musk is Tesla and Tesla is Musk. Any black eyes for Musk in the Street's view will be reflected in Tesla's stock," Ives explained.

While Musk deals with turning around Twitter, the underlying business of Tesla still remains on a solid foundation, with all signs suggesting that demand is holding up. The company, according to Ives, remains on track to deliver 2 million vehicles in 2023, "which is very impressive and right on schedule despite the jittery macro backdrop," Ives said.

Ives ultimately thinks the Twitter overhang on Tesla stock is overdone given the sharp stock price decline in recent weeks. "It's a frustrating dynamic playing out in the market as perception is reality with Musk digging a deeper hole by the day around the Twitter situation," Ives said.

While Ives removed Tesla from his "Best Ideas" list earlier this month, he still rates the company at "Outperform" with a $250 price target, which represents potential upside of 47% from current levels.