Since the formalization of an agreement for the takeover of Twitter by Elon Musk, on April 25, Tesla’s action has lost 12% of its value, approximately 100 billion dollars. April 26 was the worst daily drop in the price since September 2020. Investor fears are certainly multiple, but beware, the automaker’s price volatility is legendary.
The sources of doubts of Tesla investors
$44 billion. Raising such a sum is never easy, even if the richest man in the world achieved this feat quickly. This is where the shoe pinches. Musk’s wealth is partly theoretical, based on the value of Tesla stock, and therefore sensitive to fluctuations in it.
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Of the $21 billion paid in equity, Elon Musk may have to sell a number of shares. Of the 17% of Tesla he owns, about 175 million shares, he would have to sell 24 million to get the sum. This is enough to cause shivers, more or less justified, to some investors.
This option is one of many. Such an operation must be declared to the American stock market policeman, the Securities and Exchange Commission (SEC). Jim Cramer, host of a stock market show on CNBCexplained to New York Times that could take several days.
The second explanation for this drop in price is still related to the money needed for redemption. Of the 25.5 billion in debt incurred by Elon Musk, 12.5 billion is based on Tesla shares. If the title wins, the banks could demand a massive and brutal sale of the billionaire, likely to disrupt the operation.
Finally, some investors are probably afraid to see an almost adored CEO, having a center of interest other than Tesla. Elon Musk’s love for Twitter, his activities at the head of SpaceX, Boring Company, Neuralink, and more, that’s a lot at a time when Tesla would need attention.
Despite a very good quarter of 2022, the car manufacturer is going through a difficult period like the others. The rise in the price of raw materials for batteries, the endless shortage of semiconductors, the 0 Covid policy in China and especially in Shanghai which is affecting sales and production…
Tesla is not necessarily very reassuring in its latest quarterly report. the New York Times reports this barely believable admission, “ We are very dependent on the services of Elon Musk, tech king of Tesla and our CEO. Although Mr. Musk devotes a lot of time to Tesla and is very active in our management, he does not devote all of his time and attention to Tesla. “.
Tesla has not only lost value since April 26, but since the beginning of the month. A 20% drop from April 4, the day Elon Musk revealed that he had become the majority shareholder of Twitter. A prospect that has, it seems, disturbed the shareholders of Tesla.
Nothing really alarming
Once all this is noted, it should be put into perspective, warns Jim Cramer. Tesla’s price is known for making constant ups and downs. Many suspect the company to be overvalued, including Elon Musk.
While the 12.2% loss on April 26 is the most spectacular fall since 2020, two falls approaching 12% occurred in November 2021 and at the end of January 2022. Elon Musk has already sold shares massively, 15 million for 16 billion dollars in 2021, without having had any particular influence on the price.
Tesla’s value will be scrutinized in the coming days, when the SEC reveals how Elon Musk will pay his share for Twitter. Be careful, however, not to over-interpret the slightest variation too quickly.