Right after showing sympathy to Tesla investors, we are back to talking about Elon Musk’s links to Twitter. It still applies to you Tesla investors, and in a big way too as today we are focusing on the funding aspect of this Twitter deal, which is an important piece of the puzzle. Where would he get that type of funding so quickly? His net worth is close to $300 billion, but that’s just a value of his assets, and not all of those are cash equivalents.
As Tesla investors feared, Musk is using Tesla shares in some very unique ways that shows his extreme risk tolerance and the confidence he has on his Twitter bet. Musk is borrowing $12.5 billion from banks as part of his funding plan, and when you take out a loan you need to have collateral, which provides security for the lender if the borrower were to default. In this situation, Musk is placing $62.5 billion worth of Tesla shares as his collateral, or 40 percent of his stake in the company. Furthermore, Musk would have to provide further collateral if Tesla were to fall to $504 per share, which is about a 40 percent decrease from the current price, and this new set would be valued at around $14 billion in Tesla shares. This has ruffled the feathers of many as Tesla is a stock that could easily have wild downswings, and Tesla has accepted that Musk might have to sell shares if it comes to it. As bizarre as it is, this can be seen as a possible barrier for Tesla’s stock. Let’s be honest, do you really think Reddit would allow Tesla to get that low if it came to that situation?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.