Tesla stock slumps, investors lash out as Elon Musk focuses on Twitter

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While Elon Musk is distracted running Twitter, Tesla’s stock has taken a nosedive. Investors are starting to freak out.

In less than a week, Elon Musk has rolled out and then rolled back policies against linking to other social media platforms on Twitter, suspended the accounts of several prominent journalists, and polled Twitter users about whether he should step down as the company’s CEO.

But while Musk has been consumed by his latest acquisition, Tesla — the main source of his fortune, and the financial foundation for his Twitter purchase — is suffering. With the car company’s stock now down about 65 percent for the year, some prominent shareholders have called for Musk to choose one company or the other. The billionaire has also angered investors by continuing to sell batches of his Tesla shares, including $3.6 billion worth this month, despite saying in April he wouldn’t do so.

In the meantime, competition in the electric car market is increasing, demand from China may be softening and the price of components is rising. Tesla is reportedly planning a hiring freeze and layoffs in the new year, raising questions about just how long its slump will continue — and what that means for Twitter and the rest of Musk’s empire.

It’s not surprising that Musk’s Twitter buy has consumed his attention, said Eric Talley, a professor at Columbia Law School who has closely followed the deal.

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“Once saddled with $13 billion in debt, that’s when things get real and you really have to come up with revenue streams that are reliable so that you can service that debt,” he said. “You put that all together, and it is a project that would require a lot of attention.”

The problem for Musk is that “this is happening not only at a time of retrenchment in the tech sector,” Talley added. “The electric vehicle sector is now starting to get much more crowded and much more competitive.”

Follow the money

Musk’s estimated $148 billion fortune largely rests with Tesla stock. A 2018 salary agreement with the company gave him the right to acquire roughly $50 billion of the company’s shares — a deal so generous it is the subject of an ongoing shareholder lawsuit. He has been selling batches of shares intermittently to fund his Twitter purchase. The most recent sale, last week, netted him $3.6 billion even as Tesla’s share price slumped.

That was an unhappy surprise for many Tesla investors. In April, after selling $8.5 billion in shares to finance the Twitter bid, Musk tweeted he had “no further TSLA sales planned after today.” Yet he made additional sales throughout the year, now totaling $22.9 billion.

On Tuesday, longtime Tesla investor Ross Gerber, the CEO of Gerber Kawasaki Wealth Management, tweeted that “Tesla stock price now reflects the value of having no CEO” — adding that it was “Time for a shake up.” Musk replied by telling Gerber to “go back and read your old Securities Analysis 101 textbook.”

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In response to another Musk tweet that seemed to pin Tesla’s slide on overall market conditions, David Lee, a Tesla shareholder since 2012, let loose. “Do you really think your selling TSLA, possibility of selling more TSLA, and divisive political tweets have nothing to do with TSLA stock performance of late?” he asked Musk.

Musk’s increasing lean to the right, apparent in his comments and actions on Twitter, have also alienated a significant share of Tesla’s customer base. A Morning Consult poll found that “Tesla’s net favorability among self-described Democrats in the U.S. fell to an average of 10.4%” in November, down from 24.8% in October — the month when Musk bought Twitter. During the same period, the car brand’s favorability among Republican’s rose.

That could spell trouble for Tesla, whose consumer base is largely made up of people who describe themselves as center left.

“It’s not just that that field is crowded, it’s that the most likely purchasers of Tesla may be turning against the brand, specifically because of the personality of Mr. Musk,” said Talley.

Meanwhile, Musk’s ongoing stock sell-off is likely adding to Tesla’s slumping share price.

“Any time a large shareholder starts selling a significant chunk of shares, then you’re looking at an increase in supply which will drive down demand because there are more shares available,” said Usha Rodrigues, chair of corporate finance and securities law at the University of Georgia Law School. “Companies are always concerned when a controlling shareholder starts to sell stock and clearly that’s what’s happening here.”

Double dipping?

Another area of concern is whether and how he is diverting resources from Tesla and his rocket company, SpaceX, to help run Twitter — especially since Musk laid off nearly three-quarters of the site’s employees in the first weeks after his takeover.

There have been reports that Musk brought in 50 Tesla engineers to help review Twitter’s code, and over a dozen SpaceX employees were authorized to work at Twitter as of early December. These sorts of redeployments of staff among legally separate companies are uncommon and could be seen as undermining Musk’s fiduciary responsibility to shareholders of his lone public company — Tesla.

“Best practices are to have good contractual arrangements in place to specify what the duties are, who’s being paid for what, so that there isn’t this sort of blurring of the lines between the various corporate entities when the law really requires them to be distinct,” said Rodrigues. “For reasons having to do with just this, you don’t want Tesla shareholders subsidizing Twitter or vice versa. The whole point is that they’re Tesla employees so any work that employees do should benefit Tesla.”

In the meantime, Musk doesn’t seem ready to disengage from day-to-day activities at Twitter. Despite his promise to respect the results of his poll — in which Twitter users resoundingly voted for a new CEO — he has not stepped down as head of Twitter. On Tuesday evening he broke his silence on the matter, saying he would step down when he had found someone “foolish enough to take the job.”


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Nor has he indicated that he will give up the top job at Tesla, leaving it reliant on the choices of its current “Technoking.”

“We are highly dependent on the services of Elon Musk, Technoking of Tesla and our Chief Executive Officer,” the company said in an SEC filing. “Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla.”

Thanks to Dave Tepps for copy editing this article.

  • Benjamin Powers
    Benjamin Powers

    Technology Reporter

    Benjamin Powers is a technology reporter for Grid where he explores the interconnection of technology and privacy within major stories.