‘He sold caviar to buy a $2 slice of pizza’ — Why Tesla investors are the biggest losers in Elon Musk’s Twitter deal
Twitter users have complained a lot about Elon Musk’s early moves after taking control of the social network, but their complaints seem tiny compared with what Tesla Inc. investors have had to suffer.
As the U.S. focused on election returns Tuesday evening, Tesla
Chief Executive Musk tried to slip through disclosure of his long-awaited stock sales, revealing that he had sold nearly $4 billion of Tesla stock in the previous three trading sessions. Musk did not publicly address the stock sales nor his intentions to sell more within 24 hours of the disclosure, even while tweeting roughly 20 times in that period.
The sales fueled a further downturn in shares of the electric-vehicle maker on Wednesday, when the stock fell 7.2% to $177.59, its lowest closing price since November 2020. Tesla is currently 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 problems for Tesla investors go far beyond Musk selling its stock so that he could overpay for a company with limited growth prospects and a host of other problems, but the poor optics certainly start there.
“He sold caviar to buy a $2 slice of pizza,” said Dan Ives, a Wedbush Securities analyst.
Ives was one of several on Wall Street to predict Musk would need to sell more shares to either close a gap in his financing of the $44 billion deal to buy the social-media company, or provide additional operating funds. In a telephone conversation Wednesday, he said the Twitter move is “a nightmare that just won’t end for Tesla investors.”
One reason it isn’t ending is that Musk’s need for cash in relation to Twitter is not done with the recent sales, portending more in the future. Musk 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 will have to continue paying the employees he did not lay off while servicing a debt load that analysts have estimated will cost him $1 billion a year, much 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 potentially pumping Tesla stock ahead of a sale
“The first two weeks of ownership have been a ‘Friday the 13th‘ horror show,” Ives said, adding that the verification plan and mass layoffs of 50% of employees — and then trying to rehire some of the engineers, developers and cybersecurity experts — was “really stupid.” And, according to CNBC, Musk has also pulled more than 50 Tesla engineers, many from the Autopilot team, to work at Twitter.
“But it’s consistent with how this thing has been handled,” Ives said, adding that Musk is “way over his skis” with the Twitter acquisition.
Amid all the chaos of his first two weeks running Twitter, how much time has Musk had to run his other companies? Musk was already splitting his Tesla time with SpaceX, The Boring Company, Neuralink and many other endeavors, and now he has taken on the gargantuan task of turning a social-media company that has never been highly profitable, nor valuable, into something worth the $44 billion he paid.
The effort, Ives said, has “tarnished his brand,” which in turn has a big risk of hurting Tesla. Many investors have bought into the Tesla story because they believe Musk is a genius and they back his vision of electrifying the automotive industry. Twitter does not meld into that vision, except as a platform to spout his opinions, vitriol and promote more wacky concepts.
Since Musk began his quest to buy the company, he has endured more criticism than ever before, with even some fans starting to throw shade or question his decisions. Investor Gary Black, managing partner of the Future Fund LLC, for example, pointed out that Tesla’s top engineers should not be running Twitter, where the news was getting worse.
Tesla is not a company that can just run itself at this point. Musk has claimed he did not want to be chief executive but that there was no one else to take over the car company, which is why he has served as CEO for years. It’s not clear, though, how much effort he actually has made at trying to recruit someone. Now, as Tesla faces its usual multitude of issues, he is off spending his time trying to turn Twitter into a payments company, or maybe a subscription company, or maybe an “everything app,” or whatever he comes up with tomorrow.
“Musk needs to look in the mirror and end this constant merry-go-round of Twitter overhang on the Tesla story, with his focus back on the golden child Tesla, which needs his time more than ever given the soft macro, production/delivery issues in China, and EV competition increasing from all corners of the globe,” Ives wrote in a note Wednesday, in which he reiterated an outperform rating on Tesla stock.
On Thursday, after this column was originally published, Ives took Tesla off Wedbush’s Best New Ideas list. He wrote that the near-term view of the stock “is increasingly becoming more challenged,” citing the “ongoing Twitter train wreck disaster.”
For Twitter to reach anywhere close to the valuation Musk paid for it, it’s going to need a ton of attention from a focused leader, but how can Musk be that leader and give Tesla the attention it deserves? The answer is he cannot, and is very likely to give the attention that Tesla needs to Twitter instead after committing $44 billion (not all of it his) to that endeavor. Tesla investors will be left staring at the sea of red that this year has wrought, and wondering if its leader is about to sell more shares to fund his other effort.