News report

Elon Musk and Twitter News: Live Updates

Credit…An Rong Xu for The New York Times

When Elon Musk announced funding for his takeover bid for Twitter, he promised to pay $21 billion in cash.

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

Given Tesla’s huge market capitalization and inclusion in major stock indices, almost every 401(k) holder likely owns Tesla stock. The possibility of Mr. Musk selling some of his holdings and spending less time on Tesla as he focuses on Twitter has raised questions about the outlook for Tesla’s share price. The stock plunged 12.2% on Tuesday, as the S&P 500 index fell 2.8%.

Tesla shares have lost around 20% of their value since Mr Musk first revealed he had bought a big stake in Twitter, sparking takeover speculation. Jim Cramer, the frenetic host of CNBC’s “Mad Money” accused Tesla to “harm this market quite seriously”.

Did Musk sell shares to fund his Twitter bid?

It is too early to know. These sales should be reported to the Securities and Exchange Commission, but these reports are not instantaneous. Sales may take a few days to be made public.

What impact would Musk’s sales have on Tesla’s stock price?

Even selling off a large chunk of Mr. Musk’s Tesla stock probably wouldn’t affect Tesla’s stock price for too long.

Mr. Musk is Tesla’s largest shareholder, owning about 17% of the company’s shares, or about 175 million shares in total.

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

Mr. Musk’s financial package for Twitter also includes $12.5 billion in loans using his Tesla shares as collateral. If Tesla shares fall enough, lenders would demand that Mr. Musk add collateral to back the loans, potentially forcing him to sell more shares to find the money.

Mr. Musk has already sold large slices of Tesla stock. Last year, he sold some 15 million shares, worth more than $16 billion, in two months. These sales do not appear to have measurably lowered Tesla’s price, although it is impossible to know if the price would have increased had it not sold.

When Tesla shares go down, what happens to the rest of the market?

Tesla is a component of both the S&P 500 composite index and the Nasdaq. In addition to being barometers of stock performance in the United States, both indexes are mirrored by many widely invested mutual funds.

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

For every dollar that Tesla stock fell on Tuesday, the S&P 500 lost 0.099 points, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. That means Tesla shares’ decline was nearly a tenth of the S&P 500’s fall on Tuesday.

“So it had a very big impact,” Mr. Silverblatt said, but “not the highest”. Apple, with nearly three times the valuation of Tesla, has a much bigger impact. The 3.7% drop in its stock on Tuesday further contributed to the decline in the overall index.

So why did Tesla’s stock drop?

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

Some — including Mr. Musk, at times — have suggested that Tesla is overvalued. Among those who believe in Tesla’s valuation, which is much higher than that of rival automakers relative to the size of its operations, much of the argument hinges on Mr. Musk’s management. Even Tesla acknowledges it, declaring it a risk in its latest quarterly report“We are very dependent on the services of Elon Musk, techno-king of Tesla and our managing director. Although Mr. Musk spends a lot of time with Tesla and is very active in our management, he does not devote all of his time and attention to Tesla.

Much about Mr. Musk’s plan to buy Twitter is unknown, including his involvement. “Tesla investors fear Musk is spending too much time trying to solve the social media giant‘s problems and it will take away his laser focus” on Tesla, said Edward Moya, senior market analyst at OANDA.

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