The clouds have gathered over Tesla (TSLA).
The manufacturer of premium electric vehicles seems to be going through the experience of the abandoned child or that of the darling who has fallen out of grace.
The firm seems to have lost the attention of its charismatic and visionary co-founder and CEO Elon Musk. Blame it on Twitter (TWTR), which demands a lot of attention as its influence on the public and political life is colossal.
Twitter does not generate profits like Tesla, but the platform is considered the de facto town square of our time, a place where trendsetters and opinion makers meet. Twitter decides the political agenda of the day and the topics of discourse which eventually dominate mainstream media coverage.
Twitter Is the Shiny New Thing
With this power also comes responsibility. Responsibility for the content management policy, which means that you have to be on the alert all the time. Any slippage in the content posted on the platform can cause controversy which may take a lot of time and energy to defuse.
Twitter cost Musk too much, $44 billion. The billionaire is in debt of about $13 billion which is secured against his remaining stake in Tesla as part of the leveraged buyout. Since his takeover on Oct. 27, he has been trying to find sources of revenue for the social network.
The problem is that he will have to dig deeper than that because the company is losing $4 million a day, according to the billionaire. One after another, advertisers are suspending the promotion of their products and services on the platform for fear it will become a "hellscape" under Musk, who defines himself as a "free speech absolutist."
Advertising accounts for more than 91% of Twitter's revenue.
But the more Musk is involved in Twitter, the more Tesla sinks in the stock market. The billionaire said on Nov. 4, at the Baron Investment Conference, that his workload had shot up from "78 hours a week to probably 120” since he purchased Twitter.
The serial entrepreneur tried to reassure investors and fans of Tesla by saying that he remained very involved in the management of the manufacturer of electric vehicles.
"I still do a lot of work at Tesla! Was at our Palo Alto engineering office until late Thursday night when I had to redeye to NY," he said on November 5.
Market Value Down More Than $430 Billion
The message failed to reassure. Since then, the Tesla stock price has continued to fall on Wall Street. At the end of the Nov. 7 trading session, Tesla shares fell to their lowest level in 52 weeks, at $196.66.
Tesla shares are down 12.4% since Musk finalized the Twitter deal on Oct. 27. Since Musk announced his bid on April 25, Tesla shares have lost a total of 41.2% of their value to $197.08. This represents a drop in market value of approximately $436 billion. Tesla, which was until now the sixth largest company in the world in terms of market capitalization, was overtaken on Nov. 7 by Berkshire Hathaway (BRK.A), the holding company of legendary investor Warren Buffett.
It is therefore no surprise that investors and fans of the brand are worried.
"I have a dozen DMs asking why $TSLA getting crushed today," Tesla investor Gary Black posted on Twitter on Nov. 7. "$TWTR news keeps getting worse. Elon’s top engineers shouldn’t be running TWTR. Elon’s threats aren’t helping. As advertisers leave, TWTR will need to raise more $. @elonmusk should bring in 50 brand managers/adv execs."
A little over an hour later, Black posted another message in which he tried to reassure himself and other Tesla shareholders.
"$TSLA SHs: Keep the faith. @elonmusk will figure out how to fix $TWTR. Meanwhile, TSLA fundamentals remain excellent, with the China price cut bringing in huge orders, US $7.5K EV credit about to become effective, and Cybertruck on deck. Meanwhile, TSLA cheapest since Covid peak."
But Gene Munster, managing partner at Loup Funds, believes Musk could be forced to sell additional Tesla shares if advertisers continue to leave Twitter.
"They have a month here to kind of kitchen sink things and get people to reset with what their products are and get advertisers to understand what their content moderation is," Munster told CNBC on Nov. 7. "If that yields the current environment, he's gonna have to sell shares in April."
The billionaire sold nearly $7 billion worth of Tesla stock in August to fund the Twitter purchase.
Tesla 'Will Continue to Grow'
In October, the whimsical CEO indicated that Tesla had considered a massive share buyback program, intended to remunerate the shareholders by boosting the share price.
This share buyback would be between $5 billion and $10 billion, the tech tycoon told analysts during the third quarter earnings' call.
"We debated the buyback idea extensively at board level," Musk said. "The board generally thinks that it makes sense to do a buyback. We want to work through the right process to do a buyback. But it is certainly possible for us to do a buyback on the order of $5 [billion] to $10 billion even in the downside scenario of next year. Even if next year is a very difficult year, we still have the ability to do a $5 [billion] to $10 billion buyback."
Over the long term, Munster believes that the Twitter acquisition isn't going to be a particular problem for Tesla, which has a roadmap filled with products like the Semi truck on Dec. 1, the highly anticipated Cybertruck in mid-2023, robotaxis in 2024 and the human robot Optimus in 2023.
"Musk purchasing Twitter means very little to the future of Tesla and SpaceX," Munster wrote in a research note last month. "He will continue to give the bulk of his energy and time to both companies."
"Musk’s role at Twitter will be month-to-month. He’ll bring on a management team that will run with his ideas and the platform will grow as a result of his involvement," Munster continued.
"Within five years, the company will return as a public company at which time Musk will sell a part of his holdings. And, during the next five years, Tesla and SpaceX will continue to grow, generating enough incremental wealth for Musk that any loss on the Twitter investment will be a rounding error in the grand scheme of his wealth."
