Since Musk announced his intention to buy Twitter on April 14 for $43 billion, Tesla shares have gone down more than 60%. This means in less than a year, more than $600 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. Although recently Musk has revealed that he will be stepping down as Twitter CEO as soon as he finds a replacement.
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.
However, although Musk’s Twitter shenanigans have harmed Tesla’s stock price, in the meantime, the EV maker has never been in a better state as a company.
Just in 2022, Tesla has inaugurated two new massive factories on two continents. And only months after starting operations, Tesla has recently revealed that both Giga Berlin and Giga Texas have reached an annualized production run rate of 150,000 vehicles.
Tesla’s Fremont California plant and Giga Shanghai have also seen significant production increases in 2022, with the plants nearing a production run rate of 750,000 and 1 million vehicles a year, respectively.
Tesla’s full self-driving software (FSD Beta) has finally entered wide release running in well over 150,000 vehicles in North America.
And long gone are the days of websites dedicated to countdowns for when Tesla will be bankrupt. The EV maker is currently in a really strong financial position with over $20 billion sitting in the bank.
And in a recent company-wide email Elon Musk reminded Tesla employees that, despite the stock price going down, the EV maker is actually in excellent condition and that he believes Tesla will be the most valuable company in the plant.
In the email titled “Final Few Days” which was dated December 28, Musk started by thanking Tesla employees “for the exceptional execution in 2022.”
Musk then followed up by rallying the troops to work extra hard to deliver customer vehicles before midnight on December 31. However, after finishing the email Musk followed up by saying “by the way, don’t be too bothered by stock market craziness. As we demonstrate continued excellent performance, the market will recognize that. Long-term, I believe very much that Tesla will be the most valuable company on Earth!”
The Email that Elon sent to $TSLA employees yesterday:“Don’t be too bothered by stock market craziness. As we demonstrate continued excellent performance, the market will recognize that. Long-term, I believe very much that Tesla will become the most valuable company on Earth!” pic.twitter.com/FsFDRnUvCe— Mathias Føns (@FonsDK) December 29, 2022
Currently, Tesla’s market cap stands at around $370 billion and for comparison, the most valuable company in the world currently is Apple, with a market cap just north of $2 Trillion. Or in other words around 6 times Tesla’s value.
Although this is not the first time Musk has expressed his belief that Tesla will be the most valuable company on earth, If it indeed happens this will certainly be exciting for Tesla investors. And it’s nice for the CEO to reiterate this belief at such trying times.
As of now, even though Tesla is executing better than ever as a company, the stock still has a long way to go to overtake Apple. However, we will be sure to keep you posted on Tesla’s stock performance going forward.
Until then, make sure to visit our site torquenews.com/Tesla regularly for the latest news.
Image: Courtesy of Tesla
For more information check out: Tesla Parks 3,000 Model Ys at BER Airport Because Giga Berlin Can't Hold Them
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.