When Elon Musk announced the financing of his bid to buy Twitter, he promised to deposit $ 21 billion in cash.
Even for Mr. Musk, who is worth well over $ 200 billion, there is a lot of money to be made. Most of his wealth is tied up in Tesla shares, and one of the most obvious ways to raise the money will be to sell some of those shares.
Given Tesla’s enormous market value and its inclusion in major stock indices, almost everyone with a 401 (k) probably owns some Tesla shares. The potential for Mr. Musk to sell some of his holdings, and spend less time on Tesla as he shifts focus to Twitter, has raised questions about the outlook for Tesla’s stock price. The stock fell 12.2 percent on Tuesday, when the S&P 500 index fell 2.8 percent.
Tesla’s shares have lost around 20 percent of their value since Mr. Musk first revealed that he had bought a large stake in Twitter, which started buying speculation. Jim Cramer, the frantic host of CNBC’s “Mad Money” accused Tesla of “damaging this market quite badly.”
Has Musk sold out shares to fund his Twitter bid?
It’s too early to know. Such sales must be reported to the Securities and Exchange Commission, but these reports are not immediate. It may take a few days before the sale is announced.
What impact will the sale of Musk have on Tesla’s share price?
Even a sale of a large portion of Mr. Musk’s Tesla stock is unlikely to affect Tesla’s stock price for too long.
Mr. Musk is Tesla’s largest shareholder, and owns around 17 percent of the company’s shares – around 175 million shares in total.
He must sell nearly 24 million shares at Tuesday’s price to generate $ 21 billion in cash. This is about an average day’s trading volume for Tesla shares – much, but not enough to overwhelm the market. On Tuesday, around 45 million shares were bought and sold.
Mr. Musk’s financing package for Twitter also includes $ 12.5 billion in loans with his Tesla shares as collateral. If Tesla’s shares fall far enough, lenders will demand that Mr. Musk add collateral to support the loans, potentially forcing him to sell more shares to come up with cash.
Mr. Musk has previously sold large portions of Tesla’s shares. Last year, he sold about 15 million shares, worth more than $ 16 billion, over two months. These sales did not seem to measure Tesla’s price down, although it is uncertain whether the price would have gone up if he had not sold.
When Tesla’s shares fall, what happens to the rest of the market?
Tesla is a component of both the S&P 500 and Nasdaq’s composite index. In addition to being barometers of how US equities perform, both indices are reflected by a number of mutual funds that are heavily invested in.
The S&P 500, calculated as the US benchmark index, weighs companies according to their market value. Tesla, worth around $ 900 billion, is one of the most influential stocks in the index.
For every dollar that Tesla shares fell on Tuesday, the S&P 500 lost 0.099 points, according to Howard Silverblatt, a senior index analyst at the S&P Dow Jones Indices. This means that the fall in Tesla’s shares accounted for almost a tenth of the S&P 500 fall on Tuesday.
“So it had a very big impact,” said Mr. Silverblatt, but “not the highest.” Apple, with almost three times the value of Tesla, has a far greater impact. The stock’s fall of 3.7 percent on Tuesday contributed more to the decline in the overall index.
So why did Tesla’s stock fall?
Tesla is a well-known volatile stock. Tuesday’s fall of 12.2 percent was the worst daily decline since September 8, 2020, when it fell around 21 percent of value. But in the last six months, Tesla shares have fallen twice almost 12 percent, on November 9 and January 27.
Some – including Mr. Musk, at times – have suggested that Tesla is overrated. Among those who believe in Tesla’s valuation, which is much higher than that of rival automakers in terms of business size, much of the argument depends on Mr. Musk’s management. Even Tesla acknowledges this, and states as a risk in its latest quarterly report: “We are very dependent on the services of Elon Musk, the techno-king of Tesla and our CEO. Although Mr. Musk spends a lot of time with Tesla and is very active in our management, he does not devote full time and attention to Tesla. “
Much about Mr. Musk’s plan to buy Twitter is unknown, including how involved he would be. “Tesla investors are concerned that Musk may be spending too much time trying to fix the problems of social media giants, and that will remove his laser-like focus,” said Edward Moya, senior market analyst at OANDA.
Or as Mr. Silverblatt put it: “There is an expectation of something that has not happened yet. It will take a while before we know it. “