CEO Elon Musk has offered to buy the social media platform.
on Thursday, sending shares of the automaker lower. Investors may be worried about Musk being distracted as Tesla ramps up production at new plants, but there are other potential concerns as well.
Shares of Twitter (ticker: TWTR) rose 6.7% in premarket trading on Thursday. Tesla (TSLA) fell 2%. The move in Twitter stock adds about $2.5 billion in market value. The move to Tesla’s stock, which is about 25 times more valuable, takes about $21.1 billion in value from it. Combined, the companies are worth less after the offer.
Twitter investors seem to be happy. Twitter shares are up 25% since Musk revealed his involvement with the social media platform. Tesla investors have little to celebrate. The stock is down 8%, while the
they are off around 2.2% and 4.3%, respectively.
Tesla shares are typically more volatile than the market. That’s one of the reasons stocks are down the most. But Tesla investors might also be a little worried about what Twitter means for Musk.
There is the possibility of distraction. Twitter could divert Musk’s attention away from Tesla at a time when electric vehicle sales are surging around the world. Tesla is expected to see rapid growth in sales and competition in the coming years.
The distraction could also be causing investors to consider who could run Tesla besides Musk. Roth Capital analyst Craig Irwin said Barron’s that Tesla is Musk and Musk is Tesla. He doesn’t think there is another executive at the company who can boost Tesla like Musk.
The other reason Tesla stock might be down is that Musk might have to pay for Twitter with Tesla stock. Don’t forget that Tesla shares plunged 16% in the two days following a Twitter poll Musk conducted asking whether he should sell his 10% stake in Tesla to pay taxes on unrealized capital gains. .
The Twitter verse said “yes” and Musk sold more than 15 million shares, worth more than $16 billion. Tesla shares have yet to reach their pre-survey high of over $1,200 per share. Tesla stock’s 52-week high, at $1,243.49, was set just days before the survey was conducted. Tesla shares were at around $1,009 in premarket trading.
Selling large blocks of shares can result in outsized price movements in any stock. It is not easy to place a lot of stock. At the offer price of $54.20, and taking into account what Musk already owns, buying Twitter would require roughly 39 million Tesla shares. That’s a lot of stock.
Of course, maybe Musk could buy Twitter without selling shares. He could borrow against his involvement in Twitter, with the loan collateralized by his position in Tesla. That is not an unconventional idea.
It would prevent the direct sale of Tesla shares. Musk “can line up a private equity backer or lenders who can provide leverage,” he says
Future active fund ETF
founder and portfolio manager Gary Black. “He can sell some shares of SpaceX. He doesn’t necessarily have to sell more [Tesla] values.”
Shares of Tesla could also fall, because the idea of the world’s richest man buying one of the planet’s largest social media platforms is hard for investors to comprehend.
Email Al Root at [email protected]