The fears of Tesla (TSLA) shareholders and fans are confirmed.
Elon Musk, the CEO of the famous manufacturer of premium electric vehicles, is paying a hefty price for his acquisition of Twitter (TWTR).
And unsurprisingly, Tesla is paying the price. The billionaire has just sold 19.5 million shares of Tesla for a total amount of $3.95 billion, according to regulatory documents filed on Nov. 8 in the evening.
The sale was completed in 38 transactions on Nov. 4, 7 and 8, just days after the Twitter acquisition was completed. The tech tycoon had taken control of the social network on Oct. 27 after a six-month battle marked by twists and turns and a stop in the courts.
The documents thus confirm the speculations that have been circulating in recent days. According to these rumors not commented on by Musk, he was going to have to sell Tesla shares to shore the deal.
"Musk sold $4 billion of stock according Form 4’s filed," said Wedbush analyst Dan Ives. "The Twitter deal remains an albatross in many ways but it looks like the Musk stock sale worries now should be done. Tesla stock down big since Twitter deal. Frustrating situation for all."
Exodus of Advertisers
Twitter cost Musk too much, $44 billion. The billionaire is in debt of about $13 billion which is secured against his remaining stake in Tesla as part of the leveraged buyout. Since his takeover on Oct. 27, he has been trying to find sources of revenue for the social network.
The problem is that he will have to dig deeper than that because the company is losing $4 million a day, according to the billionaire. One after another, advertisers are suspending the promotion of their products and services on the platform for fear it will become a "hellscape" under Musk, who defines himself as a "free speech absolutist."
Advertising accounts for more than 91% of Twitter's revenue.
Gene Munster, managing partner at Loup Funds, warned on Nov. 7 that Musk could be forced to sell additional Tesla shares if advertisers continue to leave Twitter.
"They have a month here to kind of kitchen sink things and get people to reset with what their products are and get advertisers to understand what their content moderation is," Munster told CNBC on Nov. 7. "If that yields the current environment, he's gonna have to sell shares."
'Avoid an Emergency Sale'
This is the third time Musk has sold Tesla stock this year. He sold over $8 billion worth of shares in the electric vehicle maker in April and sold nearly $7 billion worth of Tesla shares in August to fund the deal.
In August, he had indicated, during an exchange on Twitter with a shareholder and fan of Tesla, that he had sold his shares to avoid having to do so urgently in case he was forced to acquire. He also said he wouldn't sell any more Tesla shares, at least this year. At the time, the technoking had withdrawn its purchase offer from the table but had to put it back on Oct. 4 a few days before the start of a trial which did not look good for him.
It is therefore a huge about-face on the part of the billionaire, whose essential fortune is based 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 responded. "In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock."
At the end of the Nov. 7 trading session, Tesla shares fell to their lowest level in 52 weeks, at $186.75
Tesla shares are down 15% since Musk finalized the Twitter deal on Oct. 27. Since Musk announced his bid on April 25, Tesla shares have lost a total of 43% of their value to $191.30. This represents a drop in market value of approximately $454 billion.
Tesla, which was until now the sixth largest company in the world in terms of market capitalization, was overtaken on Nov. 7 by Berkshire Hathaway (BRK.A), the holding company of legendary investor Warren Buffett.
The more Musk is involved in Twitter, the more Tesla sinks in the stock market. The billionaire said on Nov. 4, at the Baron Investment Conference, that his workload had shot up from "78 hours a week to probably 120” since he purchased Twitter.
Over the long term, Munster believes that the Twitter acquisition isn't going to be a particular problem for Tesla, which has a roadmap filled with products like the Semi truck on Dec. 1, the highly anticipated Cybertruck in mid-2023, robotaxis in 2024 and the human robot Optimus in 2023.
"Musk purchasing Twitter means very little to the future of Tesla and SpaceX," Munster wrote in a research note last month. "He will continue to give the bulk of his energy and time to both companies."
