Tesla shares plunge after Twitter deal

Tesla Inc.

TSLA -12.18%

stock records biggest one-day drop in more than a year after founder

Elon Musk

said he would buy

Twitter Inc.

TWTR -3.91%

in a $44 billion deal.

Shares fell 12% to $876.42 and were the worst performer in the tech-heavy Nasdaq-100 index on Tuesday. The stock had its worst day since September 2020, when it fell 21% afterwards was approved for inclusion in the S&P 500 index.

Shares are now down about 23% since April 4, when Musk first revealed his position in the social media company. Mr. Musk’s takeover quickly ended and surprised shareholders and market watchers. It also fueled volatility in the shares of both Twitter and Tesla.

The takeover adds to the list of high-profile projects which Mr. Musk juggled In the century. For more than a decade, he has led Tesla and rocket and satellite company SpaceX in addition to launching startups.

Twitter will now account for about one-sixth of his net worth, about the same as his Tesla stock. About $60 billion of his Tesla shares – about a third of his holdings – are collateral for bank loans. Musk also needs $21 billion in cash, which means selling some of his Tesla stock, to close the deal.

Mr. Musk appears to have had a sizable stepping stone before having to post more collateral for a $12.5 billion bank loan used to buy Twitter. His agreement with lenders dictated that he must post $100 of Tesla stock as collateral for every $20 borrowed, resulting in a so-called loan-to-value ratio of 20%. . Tesla shares are worth about $62 billion to support loans.

Musk’s agreement with the lenders states that if on any given day the value of his loan takes up more than 35% of the collateral he has posted on the loans, he will face with a margin call. He’ll have to sell some of his stock, prepay loans, or post more collateral. He will hit that threshold if the value of the shares posted falls to about $36 billion, which is similar to a drop of about 43%.

That means if the value of those Tesla shares fell about 43%, he would face a margin call.

On Monday, Elon Musk signed a deal to buy Twitter for about $44 billion, bringing the world’s richest man closer to taking control of the social media platform. Photo: Ryan Lash / TED Conference, LLC / AFP via Getty Images

Tesla stock is notoriously volatile and known for its huge single-day moves, fluctuations that have made the company a favorite bet for options traders looking to profit from chaos. Tesla stock call options were widely traded on Tuesday: Traders who spent more money on put options would typically be paid out if the stock falls deeper than orders involved in a step leapfrogging, according to Vesica Technologies’ Shift Search.

Tesla shares were outperforming the broader market before Musk revealed his holdings on Twitter. Shares are up about 2% year-to-date through the end of March, while the S&P 500 has fallen about 5% and other hot tech stocks have fallen even more sharply. Stocks also rallied last week when Tesla Report record quarterly profitmanaged to surprise investors despite the bottlenecks and supply chain disruptions in China.

Recently, everything has changed. Tuesday’s loss dragged the stock down about 17% for the year, compared with a drop of about 12% for the broader market.

Tesla also faces increasing competition.

Ford Motor Co.

The first all-electric F-150 pickup truck rolling off the assembly line on Tuesday, pushing the company toward electrification. Shares of other electric vehicle makers also fell. Shares of Rivian Automotive Inc. lost almost 10%, while

Lucid’s group

down 8.7%.

Write letter for Gunjan Banerji at [email protected]com

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