Elon Must has sold $4 billion of Tesla (NASDAQ: TLSA) stock so is this a signal that we should be buying into Tesla? Which actually sounds like a strange sort of question, why should we buy in when a major holder is selling? The answer being that perhaps that seller, Musk, has stopped selling.
The point here is to be trading upon a technical point, not a fundamental or structural one. Sure, we should consider Tesla’s prospects in the EV space, for those fundamentals do always matter. But the idea here, the thought, isn’t about that at all. Rather, it’s about Elon Musk’s bid for Twitter. What effect is that going to have on the price of Tesla’s stock?
To grapes this we need to understand Musk’s own finances. Yes, he’s the world’s richest man. But there is very little to no cash there, it’s all in the stock of his varied enterprises – Tesla, SpaceX, The Boring Company and whatever that AI one is called. So, the Twitter bid calls for $44 billion to come from somewhere. That’s more than even the world’s richest man has to hand of course.
So, some of that is coming in the form of loans. But at least some of it needs to come from Musk himself – he’s committed to $21 billion in equity financing. There’s also $12.5 billion in debt to be secured against Musk’s Tesla shares.
Well, OK, all of this is achievable, for sure. But there is that influence on TSLA to consider – which, since we’re considering the Tesla stock price here seems sensible. At one level, there’s that pledge of Telsa stock against the loan. If something goes wrong with Twitter then that could be called and the holding would presumably be liquidated. That wouldn’t be good but that’s also something which, if it even happens, is somewhere down the road in the middle distance at closest.
The other question is, well, how much Tesla stock is Musk going to sell now to produce what portion of that $21 billion in equity he’s got to find? Which is the very thing which has cut the Tesla stock price by some 10 to 13% since the Twitter issue first started. Having a major holder looking to unload a substantial stake will do that to a corporate share price.
At which point we’ve had our answer – Musk has sold $4 billion of Tesla stock. At which point TSLA goes back up again – it’s up $30, or 3.4%, premarket this morning. The point being here not that Musk has sold stock, it’s that he’s said, having done so, that he has no plans for more such sales in the near future.
Musk’s Twitter deal required that $4 billion, perhaps – but it doesn’t require more. So, the selling pressure on TSLA stock is now alleviated. That is, it is true that Musk selling Telsa stock isn;t a positive for the TSLA stock price, but Musk having sold stock and saying that’s it – for the moment – is a positive. So, it’s not the sale, but the indication of no more sales by Musk that might make us think it’s time to get back into Tesla.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.