Opinion: 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 first moves after taking control of the social network, but their grievances seem tiny compared to what Tesla Inc.’s investors have endured.

As the US focused on election returns on Tuesday afternoon, Tesla TSLA,
CEO Musk tried not to reveal his much-anticipated stock sales, revealing that he had sold nearly $4 billion of Tesla stock in the three previous transactions. Musk did not publicly address the stock sales or his intentions to sell more within 24 hours of the disclosure, even though he tweeted 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 selling fueled a further slide in the electric vehicle maker’s shares on Wednesday, when the stock fell 7.2% to $177.59, its lowest closing price since November 2020. Tesla is currently down 49.6 % on a year-over-year basis, which would be far and away the worst year 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 his stock so he can overpay for a company with limited growth prospects and a host of other problems, but the bad outlook certainly starts there.

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

Ives was one of many on Wall Street who predicted that Musk would need to sell more shares either to close a gap in financing the $44 billion deal to buy the social media company or to provide additional working capital . In a phone conversation Wednesday, he said the Twitter move is “a nightmare that just won’t end for Tesla investors.”

One reason it doesn’t end is that Musk’s need for cash in relation to Twitter doesn’t end with recent sales, foreshadowing more to come. Musk said in a tweet late last week that Twitter had a “massive drop in revenue” due to activists are pushing advertisers to pull their ads, and it will have to continue paying employees it hasn’t laid off while servicing a debt that analysts estimate will cost it $1 billion a year, far more than Twitter has cleared in profit 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 may pump Tesla shares ahead of sale

“The first two weeks of ownership were ‘Friday the 13th.’u“Horror show,” Ives said, adding that the verification plan and mass layoffs of 50 percent of workers — and then trying to rehire some engineers, programmers and cyber experts — was “really stupid.” And, according to CNBC, Musk has also brought in more than 50 Tesla engineers, many from the Autopilot team, to work at Twitter.

“But he’s been consistent in how he’s handled this thing,” Ives said, adding that Musk is “over his skis” with the Twitter acquisition.

Amid all the chaos of Twitter’s first two weeks, how much time did Musk have to run his other companies? Musk was already splitting his time at Tesla with SpaceX, The Boring Company, Neuralink and several other endeavors, and now he’s taken on the massive task of turning a social media company that was never particularly profitable, nor valuable, into something worth 44 billion dollars paid.

The effort, Ives said, has “tarnished his brand,” which in turn has a big risk of 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 vision, except as a platform to air one’s opinions, engage, and promote weirder concepts.

Since Musk began his quest to buy the company, he has come under more criticism than ever, with even some fans starting to 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 running Twitter, where the news was getting worse.

Tesla is not a company that can just go it alone at this point. Musk claimed that he didn’t want to be CEO, but that there was no one else to take over the car company, so he served as CEO for years. It’s unclear, however, how much effort he’s actually put into trying to recruit someone. Now, as Tesla faces its usual host of problems, it’s spending its time trying to turn Twitter into a payments company, or maybe a subscription company, or maybe an “app for everything” or whatever it comes up with tomorrow.

“Musk needs to look in the mirror and end this constant Twitter merry-go-round on the Tesla story, with his focus back on the golden boy Tesla, who needs his time more than ever given the soft macro, production/delivery. problems in China and electric vehicle competition is rising from all corners of the globe,” Ives wrote in a note Wednesday, in which he reiterated an outperform rating on Tesla stock.

Getting Twitter anywhere near the valuation Musk paid for it will require a lot of attention from a focused leader, but how can Musk be that leader? and give Tesla the attention it deserves? The answer is that it can’t, and Tesla is very likely to get the attention it needs on Twitter after committing $44 billion (not all of it its own) to the effort. Tesla investors will be left staring at the sea of ​​red it has created this year and wondering if its leader is going to sell more stock to finance his other endeavor.

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