Clouds have gathered over Tesla (TSLA) .
The manufacturer of premium electric vehicles seems to be going through the experience of the abandoned child or that of the darling who has fallen from grace.
The firm seems to have lost the attention of its charismatic and visionary co-founder and CEO Elon Musk. Blame on Twitter (TWTR) which requires a lot of attention, as its influence on public and political life is colossal.
Twitter doesn’t generate profits like Tesla, but the platform is seen as the de facto public square of our time, a place where trendsetters and opinion makers meet. Twitter decides the political agenda of the day and the topics of speech that end up dominating mainstream media coverage.
Twitter is the shiny new thing
With this power also comes responsibility. Responsibility for the content management policy, which means you must be on the alert at all times. Any slippage in the content posted on the platform can cause controversy which can take a lot of time and energy to defuse.
Twitter cost Musk too much, $44 billion. The billionaire has approximately $13 billion in debt which is secured by his remaining stake in Tesla in the leveraged buyout. Since taking power on October 27, he has been trying to find sources of income 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 lest it become “hell” under Musk, who calls himself a “free speech absolutist”.
Advertising accounts for over 91% of Twitter’s revenue.
But the more Musk is involved in Twitter, the more Tesla sinks in the stock market. The billionaire said Nov. 4 at the Baron Investment Conference that his workload had gone from “78 hours a week to probably 120” since he bought Twitter.
The serial entrepreneur tried to reassure investors and Tesla fans by saying he remains very involved in the management of the electric vehicle manufacturer.
“I still do a lot of work at Tesla! I was in our engineering office in Palo Alto until late Thursday night when I had to turn a blind eye to NY,” he said Nov. 5.
Market value down over $430 billion
The message failed to reassure. Since then, Tesla’s stock price has been falling steadily on Wall Street. At the end of the November 7 trading session, shares of Tesla fell to their lowest level in 52 weeks, at $196.66.
Tesla shares are down 12.4% since Musk finalized the Twitter deal on Oct. 27. Since Musk announced his offer on April 25, Tesla shares have lost a total of 41.2% of their value to $197.08. This represents a drop in market value of approximately $436 billion. Tesla, which was until now the sixth largest company in the world by market capitalization, was overtaken on November 7 by Berkshire Hathaway (BRK.A) the holding company of legendary investor Warren Buffett.
It is therefore no surprise that investors and fans of the brand are worried.
“I have a dozen DMs asking why $TSLA crashed today,” Tesla investor Gary Black tweeted Nov. 7. “$TWTR news keeps getting worse. Elon’s top engineers shouldn’t use TWTR. As advertisers leave, TWTR will have to raise more dollars. @elonmusk should bring in 50 managers of brands/executives adv.
Just over an hour later, Black posted another message in which he tried to reassure himself and other Tesla shareholders.
“$TSLA SHs: keep the faith. @elonmusk will figure out how to fix $TWTR. Meanwhile, TSLA fundamentals remain great with lower prices in China leading to huge orders, $7.5000 EV credit US about to go into effect and Cybertruck on deck.Meanwhile TSLA cheapest since Covid peak.
But Gene Munster, managing partner of Loup Funds, thinks Musk could be forced to sell additional Tesla shares if advertisers continue to leave Twitter.
“They have a month here to do things over the kitchen sink and get people to reset their products and let advertisers understand what their content moderation is,” Munster said. told CNBC November 7. “If it gives the current environment, he will have to sell shares in April.”
The billionaire sold nearly $7 billion worth of Tesla stock in August to fund the purchase of Twitter.
Tesla “will continue to grow”
In October, the capricious CEO indicated that Tesla had considered a massive share buyback program, intended to compensate shareholders by driving up the share price.
That stock buyback would be worth between $5 billion and $10 billion, the tech mogul told analysts during the third-quarter earnings call.
“We debated the buyout idea extensively at the board level,” Musk said. “The board generally thinks it makes sense to do a buyout. We want to follow the right process for doing a buyout. But it’s certainly possible for us to do a buyout in the $5 range. [billion] to $10 billion, even in next year’s bearish scenario. Even though next year is a very difficult year, we still have the ability to make a $5 [billion] $10 billion buyout.”
In the long term, Munster believes the Twitter acquisition won’t pose a particular problem for Tesla, which has a roadmap filled with products like the Semi truck on December 1, the highly anticipated Cybertruck in mid-2023, the robotaxis in 2024. and the human robot Optimus in 2023.
“Musk buying Twitter means very little to the future of Tesla and SpaceX,” Munster wrote in a research note last month. “He will continue to devote most of his energy and time to both companies.”
“Musk’s role at Twitter will be monthly. He will bring a leadership team that will work with his ideas and the platform will grow through his involvement,” Munster continued.
“In five years, the company will revert to a public company, at which time Musk will sell some of his holdings. And, over the next five years, Tesla and SpaceX will continue to grow, generating enough additional wealth for Musk that any loss on the Twitter investment will be a rounding error in the grand scheme of his wealth.”