Opinion: Tesla investors are the biggest losers in Elon Musk’s Twitter deal, and the losses continue

Twitter users have complained a lot about Elon Musk’s initial moves after taking over the social network, but their complaints seem minor compared to what Tesla Inc. investors had to endure.

As the US focuses on the election returns Tuesday afternoon, Tesla TSLA,
-7.17%
Chief Executive Musk is trying to finish his long-awaited share sale disclosure, revealed that he had sold nearly $4 billion worth of Tesla stock in the previous three trading sessions. Musk has not spoken publicly about the stock sale or his intention to sell more within 24 hours of the disclosure, despite tweeting roughly 20 times in 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 sales prompted further declines in the electric vehicle maker’s shares on Wednesday, when the stock down 7.2% to $177.59, the lowest closing price since November 2020. Tesla is now down 49.6% on the year, which would be far and away the worst year yet for the stock – the previous record annual decline was 2016, when it fell 11%.

The problem for Tesla investors is far beyond Musk selling his shares so he can overpay for a company with limited growth prospects and a host of other problems, but the bad optics definitely starts there.

“He’s selling caviar to buy a $2 pizza,” said Dan Ives, an analyst at Wedbush Securities.

Ives is one of several on Wall Street to predict Musk will have to sell more shares to close the gap in his financing from the $44 billion deal to buy the social media company, or provide additional operating funds. In a phone conversation Wednesday, he said Twitter’s move was a “never-ending nightmare for Tesla investors.”

One reason it hasn’t ended is that Musk’s need for Twitter-related cash hasn’t been met by recent sales, suggesting more to come. Kasturi said in a tweet late last week that Twitter had a “massive drop in revenue” due to activists pressuring advertisers to pull their ads, and he must continue to pay employees he did not lay off while servicing a debt load that analysts estimate will cost him $1 billion a year, 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 could potentially pump up Tesla shares ahead of the sale

“The first two weeks of ownership have been ‘Friday the 13thTh‘ horror show,” Ives said, adding that it verification plan and Mass layoff of 50% of employees – then trying to hire some more engineers, developers and cybersecurity experts – “really stupid.” And, according to CNBCKasturi has also attracted more than 50 Tesla engineers, many from the Autopilot team, to work on Twitter.

“But that’s consistent with how this thing was handled,” Ives said, adding that Musk “went on his skis” with the Twitter acquisition.

Amidst all the chaos in his first two weeks running Twitter, how much time will Musk have to run another company? Musk has split Tesla’s time with SpaceX, The Boring Company, Neuralink and many other ventures, and now he has taken on the enormous task of turning a social media company that was never profitable, or valuable, into something worthwhile. $44 billion he paid.

That effort, Ives said, has “damaged the brand,” which in turn has a big risk of hurting Tesla. Many investors are buying the Tesla story because they believe Musk is a genius and they support his vision for electrifying the automotive industry. Twitter does not meld to that vision, except as a platform to spout his opinion, vitriol and promote more wacky concepts.

Since Kasturi first tried to buy the company, he has endured more criticism than ever before, even some fans started throwing shade or questioning his decision. Investor Gary Black, managing partner of Future Fund LLC, for example, pointed out that Tesla’s top engineer should not run Twitter, where this news is getting worse.

Tesla is not a company that can run itself at this point. Musk admits he doesn’t want to be chief executive but there’s no one else to take over a car company, which is why he’s been CEO for years. However, it is not clear how much effort he has actually made in trying to recruit others. Now, when Tesla is facing many of the usual problems, he is not wasting his time trying to Twitter to the payment companyor maybe subscription companyor maybe an “everything app,” or what he came up with tomorrow.

“Kasturi needs to look in the mirror and end the continuous Twitter bush on the Tesla story, with the focus again on the golden child of Tesla, which needs more time than ever given the soft macro, production / delivery. problems in China, and EV competition is increasing from all corner of the world,” wrote Ives in a note Wednesday, in which he reiterated an outperform rating on Tesla shares.

For Twitter to reach anywhere close to the valuation Musk is paying it, it will need a lot of attention from a focused leader, but how can Musk become that leader. and give Tesla the attention it deserves? The answer is that he can’t, and is very likely to give attention that Tesla should Twitter instead after making $44 billion (not all of it his) for the business. Tesla investors will be left staring at the sea of ​​red that this year has forged, and wondering if the leader is going to sell more shares to fund his other businesses.

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