How Intertwined Are Tesla and Twitter?
A piece on Autoblog asks a question about the fate of Tesla if Twitter collapses in some way. The implication in the article is that Musk could risk wrecking Tesla in his attempt to salvage the mess he has made at Twitter. The problem I see with this line of thinking is it assumes a level of influence on Tesla’s stock and operations that doesn’t really exist.
Twitter Today
Twitter’s current state is disastrous. Yes, it was a dumpster fire before Musk bought it, and yes, the company was going to have to downsize some. While the company was extraordinarily profitable in 2018 and 2019, they swung back to losses in 2020 and 2021. Revenue was still growing at a healthy rate, but the user base growth had largely stalled, and they were dealing with keeping up with moderation of content. But the company was still solvent, still had cash on hand, and was moving back towards a profitable state.
Musk’s adding $13 billion in debt to the balance sheet (with no cash to show for it, since it was used to buy out the other shareholders) and over $1 billion a year in interest payments took a potentially promising business and has put it on a likely path to insolvency. Losing 80% of the staff, including key groups like sales, HR, finance, legal, and the entire AI/ML team has crippled the company. That Twitter may be near bankruptcy is entirely the result of taking it private. It wasn’t anywhere near that bad prior to that event.
Musk sold a chunk of Tesla shares back in the spring 2022 to help finance the deal to take Twitter private. He sold more back in October, and is apparently using that cash to keep Twitter going. In both cases, those sales were big enough to put downward price pressure on Tesla stock. The stock was already on a significant decline, with or without those sales. Musk selling big chunks just makes a bad situation worse when it comes to Tesla’s stock price.
Tesla and It’s Overvalued Stock
Tesla shares themselves are massively overvalued. Tesla’s capacity to make cars is a fraction of the bigger brands in the business, and while they are adding capacity, it takes a year or more before it can come online.
In the mean time, more and more electric cars are arriving at dealerships from other brands, and Tesla’s once-vaunted lead has diminished. In China, Tesla is now the 3rd largest electric car make, not the first. Their lead in western Europe is slipping, and their sales in California dropped (albeit by a tiny number). Musk’s Twitter antics may start to harm sales as more and more people take Tesla off their list of electric cars to consider.
Limits On Musk’s Management Impact
But Musk’s impact on Tesla is muted by a couple of factors. First, the company runs its day to day operations just fine without him. Musk splits his time between five different companies now (Tesla, Twitter, Boring, Neuralink, SpaceX). His actual importance in those companies has been rightfully questioned. Stories out of SpaceX indicate they’ve put things in place to give him the illusion he’s in charge, and they reportedly don’t let him anywhere near mission-critical design and engineering.
Tesla and SpaceX each have a full-time management team in place. Frankly, if Musk were to retire to an island and disappear from public view (okay, stop laughing, that will never happen), these companies would keep going with little or no issue. This isn’t to say Elon didn’t have an important role in their development. He did, if only because of his notoriety which helped bring in money. But he is no longer central to the current or future operations of most of the these ventures.
The Boundaries on the Stock
The second element damping Musk’s impact on Tesla is specifically around the stock, it’s price, and shareholder decisions. At his post-IPO peak, Musk owned just over 20% of Tesla’s issued and outstanding shares. That, combined with a price that was about 50x what it should be, made him the world’s richest person on paper. But he has been a cash-poor billionaire for some time, and has either had to sell stock, or borrow against it. Depending on the price triggers, a margin call is likely, which means more Tesla stock being sold, which pushes the price down more.
That 20+%, along with the stock his family and some friends/colleagues hold, were enough to prevent any change in control, or from removing Musk from the company. Tesla has followed a common approach in their shareholder agreement, one that features in a number of tech ventures. Virtually anything that needs shareholder approval requires 80%+1 approval. Even routine decisions, like board membership, requires it. Outside of the tech world, 50%+1 for routine decisions is more conventional, and either 2/3 or 3/4 is reserved for bigger decisions.
But Elon has been selling stock, and even with the grants he’s received, he was down to around 12% of Tesla’s stock back in the summer. That was before he sold another block in October. Elon and his circle still hold enough to block something like a merger, or removing him from any key positions, but only just. If he continues to sell to prop up Twitter, or is forced to sell to satisfy a margin call, it is likely that his control over Tesla will disappear.
Sufficient Separation
There is enough “distance” between Twitter and Tesla that Elon’s absence won’t have an appreciable effect on Tesla. During a recent trial for a Tesla shareholder lawsuit, board members and senior management were looking to get Elon to focus on Tesla again. I suspect, personally, that it was to get the rollercoaster of Twitter to stop, or at least slow down, to damp the impact on Tesla stock. I don’t think it was for any burning requirement that required Elon’s attention.
Tesla’s stock will see downward pressure due partly to Twitter’s implosion. But the stock was going to come down to earth anyways. There simply wasn’t a way for Tesla to sustain a stock that was 50x more than industry multiples say it should be (no, it isn’t a tech stock, it’s an automotive stock). Further sales of large blocks of Tesla by Musk (to support Twitter or to satisfy margin calls) will push the price down faster. But it’s going down, one way or another.
But even with that, Tesla’s share price doesn’t affect it’s viability as a company. It could go to zero, and Tesla would still be making and selling cars. The business of selling cars isn’t going to collapse overnight, and may not collapse at all. Share price and company viability are usually interrelated. But right now, Tesla’s share price isn’t really indicative of the company’s actual state or place in the industry. It is disconnected from reality.
Tesla, the company, is in reasonably good shape. They make money, they make a profit, and they make and sell cars. Musk could sell all his shares in Tesla, and it wouldn’t have any impact on their day-to-day business operations. He could stop all his interaction with Tesla, and again, the company would soldier on. A decade ago, this would have been a problem. Today, it’s not nearly as big a deal as some might think. Tesla has it’s own challenges. Twitter and Musk’s absence aren’t near the top of that list.