Why Tesla Stocks Have Taken A Massive Tumble
The fate of Tesla shares are more uncertain than ever following Elon Musk's contentious takeover of Twitter.
This article is more than 2 years old
Elon Musk’s recent purchase of Twitter spawned a lot of contention, to put it lightly. Top-tier executives at Twitter attempted to thwart the purchase altogether with a poison pill strategy. And Twitter employees have been exceedingly vocal in raising their concerns pertaining to the acquisition. Now Elon Musk is feeling the heat for his sizable purchase on his own side of the fence. CNN reported that ever since his Twitter purchase was set in stone Tesla stock has been taking massive hits.
To date, Tesla shares have sunk an unprecedented 20%. This is exceedingly problematic for Musk. Why? Because the entire purchase of Twitter is essentially hinging on Tesla’s overall net worth. This means that if Tesla stock continues to plummet at the rate that it has been, Elon Musk might not have enough collateral to back his Twitter bid of $54.20 per share.
As of now, Elon Musk has been able to secure a $12.5 million loan from J.P Morgan as well as an additional $7 million in venture capital to service the Twitter takeover transaction. However, the approval of the hefty loan from J.P. Morgan was tied to the stability of Tesla. The fact that Teslas shares are falling, however, serves as an indicator that investor confidence in both Musk and Tesla is wavering. In fact, massive hedge fund Hindenburg is already shorting Tesla stock. This further supports the indication that Tesla investors are lacking confidence because shorting a stock means that if the price continues to fall the hedge fund will collectively profit from its decline. Overall, the rapidly declining value of Tesla shares could cause J.P. Morgan to reevaluate the terms of the behemoth loan.
Ultimately, right now, it remains unclear which way the dust will settle. This is because there are a multitude of viable scenarios that could end up playing out. First, Elon Musk could succeed with his initial bid despite the cards being stacked higher and higher against him with each passing day. Or in a more drastic move, Musk could decide to cut his losses and walk away from the whole Twitter deal altogether. Or, perhaps what would be more likely, he could renegotiate the terms of his bid in such a way that would please investors and better safeguard Tesla stock.
Some analysts believe the last option is most likely. The powers that be on Wall Street have asserted that Musk should ideally lower his bid precisely to $51.88 per share. Despite the assertions coming out of Wall Street and what seems to be unfolding with Tesla, Elon Musk seemingly remains unphased. In fact, in a moment of apt irony, the billionaire took none other than Twitter to reaffirm that he is not worried. He nonchalantly told the hedge fund that’s betting against him to “look on the brighter side of life.” Whichever way this plays out, ultimately when it comes down to it, if Musk wanted to, he could simply siphon some of his own personal capital to make the deal go through. Regardless, it will certainly be interesting to see how this Tesla-Twitter cookie crumbles.
