When Elon Musk outlined the funding for his bid to buy Twitter, he promised to provide $21 billion in cash.
Even for Mr. Musk, who is worth well over $200 billion, that’s a lot of money to boast about. Most of his wealth is tied up in Tesla stock, and one of the most obvious ways to raise the cash would be to sell some of those shares.
Given Tesla’s massive market cap and its inclusion in major stock indexes, almost anyone with a 401(k) probably owns Tesla stock. The potential for Mr. Musk to sell some of his holdings and spend less time with Tesla as he shifts his focus to Twitter has raised questions about the prospects for Tesla’s stock price. The stock fell 12.2 percent on Tuesday while the S&P 500 index fell 2.8 percent.
Tesla’s shares have lost about 20 percent of their value since Mr Musk first revealed he had bought a large stake in Twitter, sparking takeover speculation. Jim Cramer, the frantic host of CNBC’s “Mad Money” accused Tesla “to hurt this market quite a bit”.
Did Musk sell stock to fund his Twitter bid?
It’s too early to know. Such sales would have to be reported to the Securities and Exchange Commission, but such reports are not immediate. It may take a few days for sales to be posted.
How would selling Musk affect Tesla’s stock price?
Even if Mr. Musk sold a large chunk of Tesla stock, it probably wouldn’t impact Tesla’s stock price for very 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 have to sell nearly 24 million shares at Tuesday’s price to generate $21 billion in cash. That’s about an average day’s trading volume for Tesla stock — plenty, but not enough to overwhelm the market. Around 45 million shares were bought and sold on Tuesday.
Musk’s financing package for Twitter also includes $12.5 billion in loans with his Tesla stock as collateral. If Tesla’s stock falls far enough, lenders would require Mr Musk to add collateral to support the loans, potentially forcing him to sell more shares to raise the money.
Mr. Musk has previously sold large tranches of Tesla’s stock. Last year, he sold about 15 million shares worth more than $16 billion in two months. Those sales didn’t seem to depress Tesla’s price measurably, though it’s not known if the price would have gone up had it not sold.
What Happens to the Rest of the Market When Tesla Stock Drops?
Tesla is included in both the S&P 500 and the Nasdaq Composite Index. Both indices are not only barometers of stock performance in the United States, but are also reflected in numerous mutual funds that are broadly invested.
The S&P 500, which is considered the reference index in the US, weights companies according to their market value. Tesla is one of the most influential stocks in the index, valued at around $900 billion.
For every dollar Tesla stock fell Tuesday, the S&P 500 lost 0.099 points, according to Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices. That means Tuesday’s drop in Tesla stock accounted for almost a 10th of the S&P 500’s drop.
“So it had a very big impact,” said Mr. Silverblatt, but “not the biggest.” Apple has far more impact, nearly triple Tesla’s valuation. The stock’s 3.7 percent drop on Tuesday contributed more to the decline in the overall index.
So why has Tesla stock fallen?
Tesla is a notoriously volatile stock. Tuesday’s 12.2 percent drop was the worst daily drop since Sept. 8, 2020, when it lost about 21 percent of its value. But in the past six months, Tesla shares have fallen nearly 12 percent twice, on Nov. 9 and Jan. 27.
Some — including Mr. Musk, at times — have suggested that Tesla is overvalued. Among those who believe in Tesla’s valuation, which is much higher than its rival automakers relative to the size of its operations, much of the argument hinges on Mr. Musk’s leadership. Tesla also recognizes this and names a risk in its latest quarterly report: “We are highly dependent on the services of Elon Musk, Tesla’s techno king and our Chief Executive Officer. Although Mr. Musk spends a lot of time at Tesla and is very active in our management, he does not devote his full time and attention to Tesla.”
Much is unknown about Mr Musk’s plan to buy Twitter, including how involved he would be. “Tesla investors are concerned that Musk may spend too much time trying to figure out the social media giant’s woes, and that will take away his laser-focus on Tesla,” said Edward Moya, senior market analyst at OANDA.
Or as Mr. Silverblatt put it, “It is the expectation of something that has not yet come about. It will be a while before we know anything.”