Tesla Loses $126 Billion in Value Over Musk-Twitter Deal Funding Concern

Elon Musk may have to sell Tesla shares to fund buyout of Twitter.

Tesla Loses $126 Billion in Value Over Musk-Twitter Deal Funding Concern

Twitter's shares also slid, falling 3.9 percent

Highlights
  • Tesla's shares provide Musk majority of his fortune
  • Musk took out a $12.5 billion margin loan tied to Tesla stock
  • Analysts say Musk becoming distracted by Twitter

Tesla lost $126 billion (roughly Rs. 9,66,390 crore) in value on Tuesday amid investor concerns that Chief Executive Elon Musk may have to sell shares to fund his $21 billion (roughly Rs. 1,61,050 crore) equity contribution to his $44 billion (roughly Rs. 3,37,440 crore) buyout of Twitter.

Tesla is not involved in the Twitter deal, yet its shares have been targeted by speculators after Musk declined to disclose publicly where his cash for the acquisition is coming from. The 12.2 percent drop in Tesla's shares on Tuesday equated to a $21 billion (roughly Rs. 1,61,050 crore) drop in the value of his Tesla stake, the same as the $21 billion in cash he committed to the Twitter deal.

Wedbush Securities analyst Daniel Ives said that worries about upcoming stock sales by Musk and the possibility that he is becoming distracted by Twitter weighed on Tesla shares. "This (is) causing a bear festival on the name," he said.

Tesla did not immediately respond to a request for comment.

To be sure, Tesla's share plunge came against a challenging backdrop for many technology-related stocks. The Nasdaq closed at its lowest level since December 2020 on Tuesday, as investors worried about slowing global growth and more aggressive rate hikes from the US Federal Reserve.

Twitter's shares also slid on Tuesday, falling 3.9 percent to close at $49.68 (roughly Rs. 3,800) even though Musk agreed to buy it on Monday for $54.20 (roughly Rs. 4,155) per share in cash. The widening spread reflects investor concern that the precipitous decline in Tesla's shares, from which Musk derives the majority of his $239 billion (roughly Rs. 18,32,255 crore) fortune, could lead the world's richest person to have second thoughts about the Twitter deal.

"If Tesla's share price continues to remain in freefall that will jeopardize his financing," said OANDA senior market analyst Ed Moya.

As part of the Tesla deal, Musk also took out a $12.5 billion (roughly Rs. 95,830 crore) margin loan tied to his Tesla stock. He had already borrowed against about half of his Tesla shares.

University of Maryland professor David Kirsch, whose research focuses on innovation and entrepreneurship, said investors started to worry about a "cascade of margin calls" on Musk's loans.

© Thomson Reuters 2022


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