Since Musk announced his intention to buy Twitter on April 14 for $43 billion, Tesla shares have gone down more than 50%. This means in less than a year, more than $500 billion has been wiped off Tesla’s $1 trillion market cap.
Yes, in the meantime all growth stocks have experienced a huge sell-off however, Tesla’s losses have undoubtedly been exacerbated by Musk’s Twitter deal.
There are 3 main reasons why Musk buying Twitter has caused Tesla shares to go down.
First, although Elon Musk is the richest person in the world with a net worth north of $185 billion, most of Musk’s wealth is tied up in his 17% stake in Tesla. This means, in order to raise the necessary capital to buy Twitter, Musk had to sell his Tesla shares.
And between April 26 and 29, this is exactly what happened. Although Tesla reported a record-breaking quarter several days prior, out of the blue on April 26 Tesla stock started to crash. And in the next few days, Tesla’s stock price starts to recover only to give up all the gains on the same day.
At the time, the reason Tesla’s stock price was going down was a head-scratcher for the EV maker’s investor community. However, on April 29, in a filing with the Securities and Exchange Commission, it was revealed that Elon Musk selling Tesla shares was the reason the EV maker’s stock went down by 18%.
According to the filing, in those 3 days, Elon Musk sold 9.6 million Tesla shares to raise $8.5 billion to fund his Twitter buyout.
The second reason Musk’s Twitter deal has negatively affected Tesla shares is fears that Musk’s attention will be diverted to Twitter. Musk is one of the busiest people on earth, on top of running Tesla full-time as the CEO, the serial entrepreneur also serves as the company’s Chief Product Architect.
Musk is also the CEO of the space venture he founded, SpaceX. At SpaceX, Musk holds a significant engineering role serving as SpaceX’s Chief Technology Officer.
On top of all this, Musk is also involved in the tunneling venture he founded, The Boring Company, which recently announced it will be building a working Hyperloop.
Add to this, his involvement at his neural implant startup, Neuralink. And to put the icing on top, Musk is also a father to 7 children. By now, I assume you can see how constrained Musk’s time is.
However, despite everything he has going on Musk has now taken on the role of Twitter’s CEO, and from his tweets, it appears that Musk is deeply involved in the daily activities of the social media platform.
And finally, the third reason Musk buying Twitter has negatively affected Tesla was Musk’s (later abandoned) plan to take out a $13 billion margin loan against his Tesla shares to buy Twitter. If you happen to be unfamiliar, a margin loan basically entails using shares in a company as collateral to borrow money.
Margin loans are a creative way to increase cash holdings without having to sell shares. Basically, they allow you to have your cake and eat it too. However, the problem begins if the share price starts to tank.
After the share price goes down by a certain amount, the person who took a margin loan will get a margin call. At this time, the debt holder will be forced to sell his/her shares to pay back the loan. And the more the person is forced to sell, the more the stock price goes down causing a downward spiral and huge losses.
To alleviate this risk, Musk entirely abandoned plans to take out Tesla backed margin loan and instead directly borrowed $13 billion to fund his Twitter purchase. Although there are new rumors suggesting that Elon Musk is reconsidering taking a Tesla-backed margin loan to pay down some of Twitter’s debt. And these rumors have caused a further decline in Tesla’s stock price.
And all these factors added together, Tesla investors have been frustrated with Elon Musk’s involvement at Twitter and its effects on Tesla’s stock price.
One such observer who shared this sentiment on Twitter is long-time Tesla supporter, investor, and financial advisor, Ross Gerber. Gerber wrote on Twitter “Elon has now erased $600 billion of Tesla wealth and still nothing from the Tesla BOD [Board of Directors]. It’s wholly unacceptable.”
What’s interesting here is not the fact that Gerber is unhappy with Musk’s engagement at Twitter, this sentiment has been echoed by a large swath of the Tesla investor base since Musk announced his intention to buy Twitter. But, what is different about Gerber’s statement is that this is the first time a prominent and long-time Tesla investor has called on the EV maker’s Board of Directors to take action against Musk.
Musk in an attempt to quell the anger responded to Gerber by writing “Tesla is executing better than ever!” The CEO then went on to blame the decline in Tesla’s share price on macroeconomic conditions saying “we don’t control the Federal Reserve. That is the real problem here.”
Tesla is executing better than ever!We don’t control the Federal Reserve. That is the real problem here.— Elon Musk (@elonmusk) December 16, 2022
Despite Musk’s reassurance, the Tesla CEO still faced pushback from a Twitter user who wrote “the real problem is shareholders are concerned that Twitter is consuming too much of your time. It’s a valid concern” which prompted Musk to reply “I literally just finished my meeting going over Giga Texas production progress.”
I literally just finished my meeting going over Giga Texas production progress— Elon Musk (@elonmusk) December 16, 2022
It’s nice to hear Musk’s reassurance that he is still committed to running Tesla. However, Musk’s statements seem to have done little to sway the Tesla investor base as Ross Gerber has started a campaign to join Tesla’s Board of Directors in an attempt to presumably reign in Musk’s engagement at Twitter or find a new CEO.
I’ve notified tesla that I wish to run for the BOD of Tesla. I wish to be added to the proxy statement. It’s time tesla shareholders have a voice on the BOD as well as proper communication with the public. I’m asking for your support. Thanks! $tsla— Ross Gerber (@GerberKawasaki) December 16, 2022
Currently, it’s hard to say what proportion of the Tesla investor base agrees with Gerber’s sentiment. However, we will be sure to keep you posted as the situation unfolds. Until then, make sure to visit our site torquenews.com/Tesla regularly for the latest news.
Image: Courtesy of Tesla
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Tinsae Aregay has been following Tesla and The evolution of the EV space on a daily basis for several years. He covers everything about Tesla from the cars to Elon Musk, the energy business, and autonomy. Follow Tinsae on Twitter at @TinsaeAregay for daily Tesla news.