Tesla investors were the biggest losers in Elon Musk's Twitter deal, and those losses continue

Tesla investors were the biggest losers in Elon Musk’s Twitter deal, and those losses continue

Twitter users have complained a lot about Elon Musk’s early moves after taking over the social network, but their complaints seem small compared to what Tesla Inc. investors had to endure.

As the United States focused on election returns on Tuesday night, Tesla TSLA,
Chief Executive Musk tried to push through the disclosure of his long-awaited stock sales, revealing that he had sold nearly $4 billion worth of Tesla stock in the previous three trading sessions. Musk has not publicly discussed the stock sales or plans to sell more in the 24 hours following the disclosure, even tweeting about 20 times during that time.

[MarketWatch asked him on Twitter to address the sales twice, and did not receive a reply; Tesla disbanded its media-relations department years ago.]

The sales fueled another drop in shares of the electric vehicle maker on Wednesday, when the stock fell 7.2% to $177.59, its lowest closing price since November 2020. Tesla is currently down 49.6% over the year, which would be by far. the worst year yet for the stock – the previous record annual decline was in 2016, when it fell 11%.

The problems for Tesla investors go far beyond Musk selling off its stock so he can overpay a company with limited growth prospects and a host of other problems, but the bad optics certainly start there.

“He sold caviar to buy a $2 slice of pizza,” said Wedbush Securities analyst Dan Ives.

Ives was one of many on Wall Street to predict that Musk would need to sell more shares to fill a gap in his funding from the $44 billion deal to buy the social media company, or provide funding additional operating. In a phone call Wednesday, he said Twitter’s decision was “a nightmare that just won’t end for Tesla investors.”

One of the reasons it’s not ending is that Musk’s need for money from Twitter isn’t over with recent sales, which bodes well for more in the future. Musk said in a tweet late last week that Twitter experienced a “massive drop in revenue” due to activists pressuring advertisers to pull their ads, and he will have to keep paying employees he didn’t fire while servicing a debt that analysts say will cost him $1 billion dollars per year, far more than Twitter has generated in profits in the past two years. Twitter reported a net loss of $221 million in 2021 and a net loss of $1.13 billion for 2020.

Read more about Elon Musk potentially pumping up Tesla shares ahead of a sale

“The first two weeks of ownership were a ‘Friday the 13the“horror show,” Ives said, adding that the audit plan and mass layoffs of 50% of employees — and then trying to rehire some of the engineers, developers and cybersecurity experts — were “really stupid.” And, according to CNBC, Musk has also recruited more than 50 Tesla engineers, including many from the Autopilot team, to work at Twitter.

“But it’s consistent with how this thing has been handled,” Ives said, adding that Musk was “way above his skis” with the Twitter acquisition.

Amid all the chaos of his first two weeks on Twitter, how long has Musk had to run his other businesses? Musk was already splitting his Tesla time with SpaceX, The Boring Company, Neuralink, and many other companies, and now he’s taken on the gargantuan task of turning a social media business that was never very profitable, or valuable, into something which is worth it. $44 billion he paid.

The effort, Ives said, has “tarnished his brand,” which in turn risks hurting Tesla. Many investors have bought into the Tesla story because they believe Musk is a genius and support his vision to electrify the auto industry. Twitter doesn’t fit into that view except as a platform for spouting opinions, vitriol, and promoting wackier concepts.

Since Musk began his quest to buy the company, he has endured more criticism than ever before, with even some fans beginning to cast shade or question his decisions. Investor Gary Black, managing partner of Future Fund LLC, for example, pointed out that Tesla’s top engineers shouldn’t be using Twitter, where the news is getting worse.

Tesla is not a company that can just run at this point. Musk said he didn’t want to be chief executive but there was no one else to take over the automaker, which is why he served as CEO for years. It’s unclear, however, how much effort he actually put into trying to recruit someone. Now, as Tesla deals with its usual myriad of issues, it’s been spending its time trying to turn Twitter into a payments company, or maybe a subscription company, or maybe an “everything app,” or everything he will propose tomorrow.

“Musk needs to look in the mirror and end this constant Twitter-overhanging ride on Tesla’s history, focusing on the golden child Tesla, who needs his time more than ever given the soft macro, production/delivery issues in China and increasing competition from electric vehicles from all corners of the world,” Ives wrote in a note Wednesday, in which he reiterated an outperform rating on Tesla stock.

For Twitter to get anywhere near the valuation that Musk paid, it’s going to take a ton of attention from a targeted leader, but how can Musk be that leader? and give Tesla the attention it deserves? The answer is that he can’t, and is very likely, to give Tesla the attention it needs Twitter instead after committing $44 billion (not all of its own) to the venture. Tesla investors will be left staring at the sea of ​​red this year has wrought and wondering if its leader is about to sell more stock to fund his other endeavors.

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