Regarding the acquisition of Twitter, Musk’s “hi” is flying, but Tesla shareholders are very melancholy.
The day after Musk took down Twitter, Tesla’s stock price plummeted 12%, the biggest one-day drop of the year, wiping $126 billion off its market value, making it the worst performing Nasdaq 100 stock on the day.
Tesla’s drop overnight may not be entirely to blame for “Musk taking Twitter.” But once the time line is stretched, the worries of the market will be clear at a glance:
Since Musk announced his 9.1% stake in Twitter on the 4th, Tesla has fallen 19.2%, while Twitter’s share price has risen 26.4% over the same period.
Clearly, Musk’s acquisition of Twitter has created panic among investors. Some netizens joked that today’s Tesla seems to have been abandoned by Musk.
So, what exactly is the market worried about?
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1. Musk “sells Tesla to buy Twitter”, which affects the normal operation of Tesla
On the 25th local time, Twitter announced that it had accepted Musk’s $44 billion acquisition offer. Musk will acquire Twitter at a price of $54.20 per share and is expected to complete the privatization within this year. To raise funds for the deal, Musk borrowed $12.5 billion from banks, using roughly a third of his Tesla holdings as collateral. In addition, he has to come up with another $21 billion in cash.
Investors are very worried that Musk may sell or pledge more Tesla shares to fund the deal, which is an important reason why Tesla’s stock price came under pressure on Tuesday, which is bound to affect the normal operation of Tesla.
In addition, the downside risk of Tesla has not been lifted at present. If Tesla continues to fall sharply, it may force Musk to make a margin call and cause a series of effects.
According to Musk’s loan agreement, he must provide $100 worth of Tesla stock as collateral for every $20 borrowed, or a loan-to-value ratio of 20%. If on any given day, his loan amount is more than 35% of the value of his pledged shares, he will be forced to make a margin call, at which point Musk will have to sell more of his holdings, prepay the loan or provide additional collateral. According to foreign media estimates, if Tesla’s stock price falls by about 43%, a margin call will be triggered.
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2. After the acquisition, Twitter will distract Musk
In addition to Tesla, Musk is currently in charge of SpaceX, the tunnel construction company Boring Company, and the brain-computer interface technology company Neuralink, covering fields including automotive, aerospace, and biomedicine. Investors are concerned that Musk’s acquisition of Twitter could lead to a lack of energy in the electric car company.
After all, Musk has always shown a desire to get involved in the Twitter business. Moreover, Musk’s task after acquiring Twitter is not easy. In addition to paying off debts, he also needs to reform this historically mediocre company, and reform is not easy.
Gene Munster, managing partner of venture capital firm Loup Ventures, which owns a stake in Tesla, said:
“Musk is distracted. He already has a lot of things to do and is involved in a lot of different projects. It’s a bear for Tesla’s stock price, which could last 1-3 months.”
According to Tesla’s report to the SEC, Tesla has a large backlog of orders in the U.S. market. It is production capacity, not market demand, that limits Tesla’s revenue growth now. For Tesla investors, they would prefer to see Musk focus his energy on accelerating the production capacity of the Berlin and Texas plants.
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3. Strong supervision from western countries
The oversight of Internet platforms by global regulators is also a major challenge facing Musk after acquiring Twitter. At present, countries are strengthening supervision to combat the spread of false content on the Internet.
A leading EU regulator has warned that Twitter must comply with new EU rules on handling illegal and harmful content online if it wants to continue operating in the bloc. That could challenge Musk’s plans to reduce content moderation.
At the same time, U.S. policymakers are doing more about how to rein in the power of big tech companies and force them to clean up harmful content on their platforms.
According to US media reports, White House officials and Democrats are evaluating the impact of Musk’s acquisition and platform management comments on the midterm elections and the 2024 election, especially whether the Tesla CEO will allow former President Trump to return to the social platform.
U.S. Senator Elizabeth Warren said Musk’s deal to buy Twitter once again demonstrated the need for “severe regulation of Big Tech.” “It’s dangerous because one billionaire will determine how millions of people have the opportunity to communicate with each other.”
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