Here’s what Next for Elon Musk and Twitter: Live Updates

Credit …An Rong Xu for The New York Times

When Elon Musk put out financing for his bid to buy Twitter, he promised to put up $ 21 billion in cash.

Even for Mr. Musk, who is well worth north of $ 200 billion, that is a lot of cash to come up with. Most of his wealth is tied up in Tesla stock, and one of the most obvious ways to raise money would be to sell some of those shares.

Given Tesla’s enormous market capitalization and its inclusion in major stock indexes, almost everyone with a 401 (k) probably owns some Tesla stock. The potential for Mr. Musk sells some of his holdings, and spends less time on Tesla as he shifts his focus to Twitter, raising questions about Tesla’s share price. The stock dived 12.2 percent on Tuesday, as the S&P 500 index fell 2.8 percent.

Tesla’s shares have lost about 20 percent of their value since Mr. Musk first revealed he had bought a big stake in Twitter, kicking off takeover speculation. Jim Cramer, the frenetic host of CNBC’s “Mad Money,” accused Tesla of “hurting this market pretty badly.”

Has Musk sold off stock to fund his Twitter bid?

It’s too early to know. Such sales would be reported to the Securities and Exchange Commission, but those reports are not instantaneous. Sales can take a few days to be made public.

What would be the effect of sales by Musk on Tesla’s share price?

Even a huge portion of the sale of Mr. Musk’s Tesla stock would be unlikely to affect Tesla’s share price for too long.

Mr. Musk is Tesla’s biggest shareholder, holding about 17 percent of the company’s shares – about 175 million shares in total.

He would need to sell about 24 million shares at Tuesday’s price to generate $ 21 billion in cash. That’s about an average day’s trading volume for Tesla stock – a lot, but not enough to overwhelm the market. On Tuesday, about 45 million shares were bought and sold.

Mr. Musk’s financing package for Twitter also includes $ 12.5 billion in loans using its Tesla shares as collateral. If Tesla’s stock falls far enough, lenders would require Musk to add collateral to the loan, possibly forcing him to sell more stock to come up with the cash.

Mr. Musk has sold large tranches of Tesla’s stock before. Last year, it sold some 15 million shares, worth more than $ 16 billion, over two months. Those sales did not appear to drive measurably Tesla’s price down, though it was unknowable that the price would have gone up had he not been sold.

When Tesla’s stock drops, what happens to the rest of the market?

Tesla is a component in both the S&P 500 and the Nasdaq composite index. In addition to how barometers of stocks in the United States are performing, both indexes are mirrored by the numerous mutual funds that are invested widely.

The S&P 500, considered the benchmark US index, weights companies according to their market value. Tesla, which is worth about $ 900 billion, is one of the most influential stocks in the index.

For every dollar that Tesla’s stock dropped on Tuesday, the S&P 500 lost 0.099 points, according to Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices. That means the drop in Tesla’s stock accounted for more than a third of the S&P 500’s fall on Tuesday.

“So it did have a very big impact,” Mr. Silverblatt said, but “not the highest.” Apple, with nearly three times the valuation of Tesla, has far more impact. Its stock’s drop of 3.7 percent on Tuesday contributed more to the overall index’s decline.

So why did Tesla’s stock fall?

Tesla is a famously volatile stock. Tuesday’s 12.2 percent decline was its worst daily decline since Sept. 8, 2020, when it sheds about 21 percent of its value. But in the past six months, Tesla shares have fallen almost 12 percent, on Nov. 9 and Jan. 27.

Some – including Mr. Musk, at times – has suggested that Tesla is overvalued. Among those who believe in Tesla’s valuation, which is much higher than rival automakers’ relative to the size of its operations, a lot of the argument depends on Mr. Musk’s stewardship. Even Tesla acknowledges this, stating as a risk in its most recent quarterly report: “We are highly dependent on the services of Elon Musk, techno-king of Tesla and our chief executive officer. Though Mr. Musk spends significant time with Tesla and is extremely active in our management, he does not devote his full time and attention to Tesla. “

A lot about Mr. Musk’s plan to buy Twitter is unknown, including how involved he would be. “Tesla investors are worried Musk might spend too much time trying to fix the social media giant’s problems and that will take away his laserlike focus,” said Edward Moya, a senior market analyst at OANDA.

Or as Mr. Silverblatt put it: “It’s an anticipation of something that hasn’t happened yet. It will be a while before we know anything. “

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