When Elon Musk put in the funding for his bid to buy Twitter, he promised to pay $21 billion in cash.
Even for Mr. Musk, who has a fortune of more than $200 billion, there is a lot of money to be had. Most of his wealth is tied up in Tesla stock, and one of the most obvious ways to raise money is to sell some of those shares.
Given the massive market capitalization of Tesla and its inclusion in major stock indexes, it is likely that everyone with a 401(k) owns some Tesla stock. The prospect of Mr. Musk selling some of his holdings, spending less time on Tesla while shifting his focus to Twitter, has raised questions about Tesla’s stock price outlook. The stock fell 12.2 percent on Tuesday, with the Standard & Poor’s index down 2.8 percent.
Tesla shares have lost about 20 percent of their value since Mr Musk first revealed he had bought a large stake in Twitter, fueling takeover speculation. Jim Kramer, frantic host of CNBC’s “Mad Money” Tesla accused of “serious harm to this market.”
Did Musk sell shares to fund his Twitter offer?
It is too early to tell. Such sales must be reported to the Securities and Exchange Commission, but these reports are not immediate. It may take a few days for sales to post.
What effect does Musk’s sales have on Tesla’s stock price?
Even the sale of a significant portion of Mr Musk’s Tesla shares is unlikely to affect Tesla’s share price for long.
Mr. Musk is Tesla’s largest shareholder, owning about 17 percent of the company’s stock — about 175 million shares in total.
He would need to sell nearly 24 million shares at Tuesday’s price to generate $21 billion in cash. That’s about the average daily trading volume of Tesla stocks – a lot, but not enough to flood the market. On Tuesday, about 45 million shares were bought and sold.
Mr. Musk’s financing package for Twitter also includes $12.5 billion in loans using his Tesla stock as collateral. If Tesla’s stock falls enough, lenders will require Musk to add collateral to back the loans, which could force him to sell more shares to get cash.
Mr. Musk has sold large slices of Tesla stock before. Last year, he sold about 15 million shares worth over $16 billion over a two-month period. These sales don’t appear to have measurably lowered Tesla’s price, although it’s unknown if the price would have gone up had he not been selling.
When Tesla Stock Goes Down, What Happens to the Rest of the Market?
Tesla is a component of both the S&P 500 and the Nasdaq Composite Index. In addition to being measures of how stocks are performing in the United States, both indicators are mirrored by the many mutual funds that are widely invested.
The S&P 500, considered the benchmark for the United States, measures companies according to their market value. Tesla, which is worth about $900 billion, is one of the most influential stocks in the index.
For every dollar that Tesla stock fell on Tuesday, the S&P 500 lost 0.099 points, according to Howard Silverblatt, chief index analyst at S&P Dow Jones Indices. That means the drop in Tesla stock is roughly a tenth of the S&P 500’s drop on Tuesday.
“So it had a very big impact,” said Mr. Silverblatt, “but not the top”. Apple, with nearly three times the rating of Tesla, has a much greater influence. Its stock’s 3.7 percent drop on Tuesday contributed further to the index’s overall decline.
So why did Tesla stock drop?
Tesla is notorious for being a volatile stock. Tuesday’s 12.2 percent drop was its worst daily drop since September 8, 2020, when it lost about 21 percent of its value. But in the past six months, Tesla’s shares have fallen nearly twice, by 12 percent, on January 9 and 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 rival automakers for the size of its operations, much of the controversy depends on Mr. Musk’s oversight. Even Tesla acknowledges this, noting that it represents a risk in its latest quarterly report: “We rely heavily on the services of Elon Musk, Tesla’s techno-king and our CEO. Although Mr. Musk spends a lot of time with Tesla and is very active In our management, however, he does not dedicate his full time and attention to Tesla.”
Not much is known about Mr. Musk’s plan to buy Twitter, including the extent of his involvement. “Tesla investors are concerned that Musk may spend too much time trying to fix the social media giant’s problems and this will remove its laser-like focus” on Tesla, said Edward Moya, chief market analyst at OANDA.
Or, as Mr. Silverblatt put it: “It is a prediction of something that has not yet happened. It will be a while before we know anything.”