Is Tesla stock now even more risky with Elon Musk’s takeover of Twitter?

  • Tesla’s market capitalization plummeted after Elon Musk’s announcement on Twitter.
  • To reduce risk, Musk secured new funding.
  • Some analysts think the deal could be a big distraction for the Tesla co-founder.
  • For tools, data and content to help you make better investing decisions, try InvestingPro+.

The world’s largest electric vehicle maker, Tesla (NASDAQ:), has lost more than $228 billion in market capitalization since its billionaire founder, Elon Musk, first disclosed plans to buy the platform. social media Twitter (NYSE:) on April 4.

Those numbers represent a nearly 20% loss from the company’s $1.187 billion market capitalization before Mr. Musk’s announcement. TSLA closed Thursday at $873.28.

While the general market environment contributed to the pullback, Musk’s Twitter deal played a significant role. Investors are wondering if the billionaire will tap into his stake in Tesla to help fund the proposed $44 billion takeover.

Musk had raised $13 billion in bank financing, $12.5 billion in margin loans secured by Tesla stock, and pledged to pay another $21 billion himself to acquire the social media company.

However, in the latest development reported yesterday, Musk told reporters he had secured around $7.1 billion in new financial commitments, including billionaire Larry Ellison, a Saudi prince and Sequoia Capital.

Those numbers would allow him to halve the size of a marginal loan to $6.25 billion, making the deal less risky for both Musk and his lenders. The new arrangement also slightly reduces the cash Musk has to bring in personally.

The billionaire recently completed a Tesla stock sale for more than $8 billion that would help him cover taxes on his vested options. In June 2021, Tesla reported that about half of Musk’s stake in the company served as collateral for personal loans.

The next big question

Assuming Musk manages to seal the deal on Twitter by the end of the year, the next big question still on the minds of many investors is whether the world’s richest man is in danger of scattering. taking up this new challenge.

These concerns are particularly relevant if Musk takes on a full-time role at the newly acquired company. CNBC reported yesterday that he plans to serve as temporary CEO of Twitter for a few months after the deal closes.

According to a recent Wall Street Journal analysis, more than half of Tesla’s valuation is based on future projects heavily dependent on Musk. These include driverless robotaxis, which he hopes to start manufacturing in 2024, and his Optimus robot project, which he said will ultimately be worth more than the automotive business and driverless car operation. driver.

The analysis adds:

“The company seems to have enough investors who take him at his word. The question is what will they think if he starts talking less about Tesla and more about Twitter.

His leadership of space exploration company SpaceX is a testament to his unusual ability to multi-task. But what vision can a man have, and in how many different directions can he point it?

Tesla supporters, however, continue to support Musk and his vision to unlock the value of Twitter. Dan Ives, a Wedbush analyst who has a $1,400 price target on Tesla, says in a note that today’s funding announcement removes a significant overhang. He adds :

“This is a smart financial and strategic move by Musk that will be welcomed by the entire company and shows that the Twitter deal is now on a glide path to close by the end of the day. end of the year, which should close the arb gap in the name.”

Conclusion: Should we flee Tesla stock?

Musk’s involvement in Twitter is another distraction Tesla investors have to deal with, especially as competition in the EV market heats up.

Musk is undoubtedly taking a good risk using Tesla shares as collateral, even after securing new commitments. If the electric car maker’s shares take a big drop, it could add uncertainty to the company’s holdings.

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