Tesla’s stock drop could have more than a superficial impact on Musk’s wealth.
Musk took out large personal loans heavily tied to the value of Tesla shares. At times, he has deposited up to 50% of his Tesla shares as collateral to back them up. As the company’s stock price nears $600, Musk is entering dangerous territory with lenders — where they could seek some of his equity to assuage their confidence in his ability to pay, analysts say.
“The Street is going to start speculating, given the stock’s performance, that it’s getting dangerously close to that area code and that’s putting more pressure on the stock,” said Wedbush Securities analyst Dan Ives. “Because it’s a cascading effect. With the stock down 35% since the Twitter deal, it’s never been on the map.
Musk, the world’s richest person, this year launched a hostile takeover bid to buy Twitter. The company and the executive agreed to a $44 billion deal last month, but Musk tweeted last week that the deal was ‘on hold’ as he reviewed the number of automated bots on the site .
Analysts said it could be a tactic to renegotiate the price, which he said he could try.
And if Musk can show he was misled about the number of fake accounts, it would give him the chance to waive a ‘significant adverse effect’ clause, though legal experts have expressed doubts about the strategy. .
Tesla investors have fretted over Musk’s plan to buy Twitter in recent weeks, driving the stock down.
Musk is funding the Twitter acquisition, in part, with financial commitments based on his Tesla stock. If the shares fall too low or if he is forced to give up his equity, it could upset his financing plan.
He is also facing an allegation in a news report that he sexually harassed a flight attendant on board a business jet. Musk denied the allegation online, calling the post a “politically motivated hit” intended to disrupt the Twitter deal.
The S&P 500 plunged into a bear market on Friday as investors continued to worry about inflation and global economic factors.
Tesla’s annual report warned of the potential consequences of Musk’s personal loans on its stock.
“We are not a party to these loans. … If the price of our common stock were to drop significantly, Mr. Musk could be forced by one or more of the banking institutions to sell Tesla common stock to satisfy his loan obligations,” according to the document. “Such sales could result in a further decline in the price of our common stock.”
Tesla’s price has fallen to one of the lowest points the stock price has reached since becoming the world’s richest person, again, last September. Musk was worth about $212 billion as of Friday, according to the Bloomberg Billionaires Index, up from about $259 billion when he first announced his plans to take over Twitter.
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