Tesla Stock Sinks After Twitter Deal
Tesla Inc.
shares logged their biggest one-day drop in more than a year after founder
said he would buy
Twitter Inc.
The shares slid 12% to $876.42 and were the worst performers in the tech-heavy Nasdaq-100 index Tuesday. The stock had its worst day since September 2020, when it fell 21% after it was passed over for inclusion in the S&P 500 index.
The stock is now down around 23% since April 4, when Mr. Musk first disclosed a position in the social-media company. Mr. Musk’s takeover deal came together quickly and surprised shareholders and market watchers. It also spurred volatility in shares of both Twitter and Tesla.
The takeover adds to a list of high-profile ventures that Mr. Musk has juggled over the past decade. For more than a dozen years, he has led Tesla and rocket-and-satellite company SpaceX in addition to launching startups on the side.
Twitter will now account for around a sixth of his net worth, which is intertwined with his Tesla shares. Roughly $60 billion of his Tesla stock—about a third of his holdings—are collateral for bank loans. Mr. Musk also needs $21 billion in cash, which could mean selling some of his Tesla stockholdings, to close the deal.
Mr. Musk appears to have a sizable cushion before he would have to post more collateral for the $12.5 billion in bank loans used to purchase Twitter. His agreement with lenders indicates that he must post $100 in Tesla shares as collateral for every $20 in borrowings, leading to a so-called loan-to-value ratio of 20%. That amounts to around $62 billion worth of Tesla shares to back the loans.
Mr. Musk’s agreement with lenders states that if on any day the value of his loan makes up more than 35% of the collateral he’s posted on the borrowings, he would face a margin call. He would have to sell some of his shares, prepay the loans or post additional collateral. He would hit that threshold if the value of the posted shares tumbled to roughly $36 billion, akin to around a 43% drop.
That means if the value of those Tesla shares fell by roughly 43%, he would face a margin call.
Tesla stock is notoriously volatile and is known for its giant one-day moves, swings that have made the company a favorite bet for options traders looking to profit from the turbulence. Options on Tesla shares were widely traded Tuesday: Traders had spent more money on bearish options that would typically pay out if the shares fell further than calls tied to a jump, according to Shift Search by Vesica Technologies.
Tesla’s shares had been outperforming the broader market before Mr. Musk disclosed his stake in Twitter. The shares had risen about 2% year-to date through the end of March, while the S&P 500 had fallen around 5% and other hot technology stocks had tumbled even more. The shares also got a boost last week when Tesla reported record quarterly profits, managing to wow investors despite supply chain bottlenecks and disruptions in China.
Recently, things have turned. Tuesday’s losses have dragged the stock down around 17% for the year, compared with the broader market’s roughly 12% decline.
Tesla has also faced growing competition.
Ford Motor Co.
’s first all-electric F-150 pickup truck is rolling off the assembly line Tuesday, pushing the company’s move toward electrification. Shares of other electric-vehicle makers slid as well. Rivian Automotive Inc.’s shares lost almost 10%, while
tumbled 8.7%.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com
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