Tesla’s Fears (TSLA) – Get a free report Shareholders and fans are confirmed.
Elon Musk, the CEO of the famous manufacturer of premium electric vehicles, is paying a high price for the acquisition of Twitter (TWTR) – Get a free report.
And unsurprisingly, Tesla is paying the price for it. The billionaire just sold 19.5 million Tesla shares for a total of $3.95 billion, according to regulatory documents filed on Nov. 8 evening.
The sale was completed in 38 transactions on November 4th, 7th and 8th, just days after the completion of the Twitter acquisition. The tech tycoon had taken control of the social network on October 27 after a six-month struggle that was marked by twists and turns and a court stop.
The documents thus confirm the speculation that has been circulating in recent days. According to these rumors, which Musk did not comment on, he would have to sell Tesla shares to secure the deal.
“Musk sold $4 billion worth of stock according to Form 4,” said Dan Ives, an analyst at Wedbush. “The Twitter deal remains an albatross in many ways, but it looks like worries about Musk’s stock sale should now be put to rest. Tesla stock has plummeted since the Twitter deal. A frustrating situation for everyone.”
Exodus of advertisers
Twitter cost Musk too much, $44 billion. The billionaire has around $13 billion in debt secured against his remaining stake in Tesla as part of the leveraged buyout. Since taking over on October 27, he’s been trying to find revenue streams for the social network.
Trouble is, he has to dig deeper because the billionaire says the company is losing $4 million a day. One by one, advertisers are suspending the promotion of their products and services on the platform, fearing it could become a “hellscape” under Musk, who describes himself as a “free speech absolutist.”
Advertising accounts for more than 91% of Twitter’s revenue.
Gene Munster, managing partner at Loup Funds, warned Nov. 7 that Musk could be forced to sell more Tesla shares if advertisers continue to exit Twitter.
“They have a month here to do stuff with kitchen sinks and get people to reset with their products and get advertisers to understand what their content moderation is,” Munster told CNBC on Nov. 7 . “If that reflects the current environment, he will have to sell stocks.”
‘Avoid distress sale’
This is the third time Musk has sold Tesla stock this year. He sold over $8 billion worth of stock in the electric vehicle maker in April and nearly $7 billion worth of Tesla stock in August to fund the deal.
In August, in an exchange on Twitter with a Tesla shareholder and fan, he hinted that he had sold his shares to avoid having to do so urgently if he was forced to buy. He also said he won’t be selling any more Tesla shares for at least this year. The Technoking had withdrawn its purchase offer from the table at the time, but had to put it back on October 4th a few days before the trial began, which didn’t look good for it.
So it’s a massive about-face from the billionaire whose substantial fortune rests on his shares in Tesla and his aerospace company SpaceX.
“@elonmusk are you done selling?” the Twitter user asked him on Aug. 9.
“Yes,” Musk replied. “In the (hopefully unlikely) event that Twitter forces this deal *and* some equity partners don’t go through, it’s important to avoid a fire sale of Tesla stock.”
At the end of the trading session on Nov. 7, Tesla shares fell to a 52-week low at $186.75
Tesla shares are down 15% since Musk inked the Twitter deal on Oct. 27. Since Musk announced his offer on April 25, Tesla shares have lost a total of 43% of their value to $191.30. This equates to a market value loss of approximately $454 billion.
Tesla, previously the sixth largest company in the world by market cap, was overtaken by Berkshire Hathaway on Nov. 7 (BRK.A) – Get a free reportthe holding company of legendary investor Warren Buffett.
The more Musk gets involved with Twitter, the more Tesla falls in the stock market. The billionaire said at the Baron Investment Conference on Nov. 4 that his workload has gone from “78 hours a week to probably 120” since he bought Twitter.
Long-term, Munster believes the Twitter acquisition won’t be a particular problem for Tesla, which has a roadmap filled with products like the semi-truck coming December 1st, the much-anticipated Cybertruck in mid-2023, robotaxis in 2024, and the human robot Optimus in 2023.
“Musk’s Twitter purchase means very little for the future of Tesla and SpaceX,” Munster wrote in a research note last month. “He will continue to dedicate the majority of his energy and time to both companies.”