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Elon Musk Casts Uncertainty Around Tesla

The Tesla CEO has put his $44 billion offer for Twitter back on the table. And as rich as he is, investors are worried.
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Elon Musk is Tesla  (TSLA) - Get Free Report

It is difficult to separate the entrepreneur and visionary from the company he runs. 

The technology group -- Tesla develops humanoid robots and software using artificial intelligence -- and the overall corporate energy owe their place in one of the world's most valuable companies to Musk's ambitions and vision. 

The billionaire's bets have so far paid off. The entire automotive industry is now focused on developing electric vehicles. Car manufacturers are also starting to develop in-house software to make their vehicles autonomous. 

Musk has also innovated by introducing routine over-the-air updates to the software that underpins the vehicles. Competitors are also now considering adopting Tesla's marketing model of direct sales to consumers, along with their traditional sales through dealerships.

Musk and Tesla essentially disrupted the auto industry, and investors are on board. They have just proved it once again after the billionaire revived his offer to acquire the Twitter  (TWTR) - Get Free Report microblogging platform for $44 billion. 

Elon Musk Twitter Lead JS

Plenty of Money -- but Investors Are Worried 

Musk is the world's richest man -- his fortune is estimated at $222 billion as of Oct. 5, according to the Bloomberg Billionaires Index

But the idea of him financing such a huge deal clearly worries investors. His wealth is not liquid; it's tied largely to his Tesla shares. Musk owned 155 million of them as of August and has an option to acquire 100 million more. That gives him control of 20% of the company's shares outstanding. 

While the billionaire has managed to secure backing from seven major banks and third parties to help fund the deal, investors fear he will still have to sell additional Tesla shares to raise what he needs to close the deal.

In August, the billionaire had sold $7 billion of Tesla shares intended to finance the acquisition of Twitter. On Aug. 9, when Musk was asked by a Tesla investor and fan if he was done selling Tesla stock, he answered clearly.

"Yes," Musk said on Twitter. "In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock.

But the environment has changed since then. Instability and volatility set in due to fears of a possible recession as the Federal Reserve aggressively hiked interest rates.

This puts pressure on the seven banks -- Morgan Stanley, Societe Generale, BNP Paribas, Mizuho, ​​Barclays, Bank of America and MUFG -- that had pledged on April 25 to provide it with nearly $13 billion.

Musk must still find at least $6 billion to complete the operation, according to various calculations by experts.

"$TSLA likely to underperform as long as @elonmusk stays mum about whether he has to sell more $TSLA shares," said Tesla investor and bull Gary Black. "That said, if banks pull the plug on $12.5B debt needed, Elon can walk away and pay a $1B termination fee. In that case, $TSLA jumps 5-10% and $TWTR crashes to mid-30s."

'Giving Away Caviar to Buy a $2 Slice of Pizza'

Dan Ives, an analyst at Wedbush Securities, said the rekindling of Musk's Twitter acquisition is bad news for Tesla. 

In a BBC interview, Ives says Musk will have to sell more Tesla shares to fund the Twitter deal, which could cause Tesla stock to drop.

"That's like me giving away caviar to buy a $2 slice of pizza," Ives said.

Tesla shares fell nearly 4% in the Oct. 5 trading session, the first session after confirmation that Musk had put his offer back on the table. 

Besides funding, investors are also wondering if Twitter is going to be a distraction for Musk as Tesla ramps up production capacity and has a busy product roadmap: the Tesla Semi, the Cybertruck, Optimum, the humanoid robot and the robotaxi all in just the next two years.

On the other hand, the tycoon seems to have great ambitions for Twitter, which is part of a global project to launch a kind of Chinese-style super app combining social network, payments, shopping platform, and more.

"Twitter is an accelerant to fulfilling the original vision," Musk repeated on October 5.

'There's No WeChat Equivalent Outside China'

In fact, during an internal all-hands with Twitter employees on June 16, Musk said that his model is WeChat, the Chinese app that mixes social media with payments, games, messaging, booking flight tickets, ordering food, shopping and more.

"There’s no WeChat equivalent outside of China,” Musk said. "You basically live on WeChat in China. If we can recreate that with Twitter, we’ll be a great success.”

Basically, it would be a rival to Meta's Facebook and Instagram  (META) - Get Free Report, TikTok, Uber  (UBER) - Get Free Report, Amazon  (AMZN) - Get Free Report, Apple  (AAPL) - Get Free Report and Alphabet  (GOOGL) - Get Free Report

Musk has always been very effective in multitasking. He already runs Tesla, SpaceX, Neuralink and Boring Co., all big players in their respective industries.