The world’s richest person is all set to acquire one of the most potent social media platforms in the world, heralding substantial near-term pain for Tesla (NASDAQ:TSLA) investors but paving the way for geometric growth in the EV giant’s marketing reach. As most of our readers would know by now, the CEO of Tesla has reached an agreement with Twitter’s board to take the social media platform private at $54.20 per share, equating to a price tag of around $44 billion. Of course, Musk was only able to steer Twitter’s board toward a conducive agreement after he had managed to line up $46.5 billion in financing for the buyout offer, divided between a $21 billion equity financing commitment from Musk himself and $25.5 billion in loans. Of course, with no other liquid assets that approach the quantum of funding required, Musk will only be able to cough up $21 billion by liquidating a part of his sizable Tesla stake. Back in early November 2021, Elon Musk had commissioned a Twitter poll on whether he should liquidate 10 percent of his Tesla stake to finance over $11 billion in tax liability for the year. With the result of the poll heavily tilting in favor of liquidation, Musk then proceeded to sell in excess of 13.5 million Tesla shares over the next two months, netting around $14.1 billion in the process. Interestingly, despite this liquidation spree, Musk still ended 2021 with a Tesla stake that was higher than that toward the end of 2020. As an illustration, Musk had a voting power equivalent to 227.131 million shares on the 31st of December 2020, divided between 170.492 million common shares and options related to 56.638 million additional shares that remained exercisable within 60 days of the end of 2020. In contrast, toward the end of 2021, Musk had a voting power equivalent to 231.715 million shares, again divided between 172.608 million common shares and options related to 59.106 million additional shares that remained exercisable within 60 days of the end of 2021. Although Musk’s overall voting power on Tesla’s board remained unaffected by this liquidation exercise, the stock price was an entirely different matter. As an illustration, between early November and late December 2021, the stock registered a loss of over 26 percent. This brings us to the crux of the matter. With Musk expected to embark on a much more potent liquidation spree this time around to fund his buyout of Twitter, Tesla shareholders should brace for a prolonged swoon in the stock price. Crucially, unlike the relatively benign macroeconomic outlook in late 2021, today’s panorama is beset by a hawkish Federal Reserve bent on taming soaring inflationary impulse by hammering risk assets to reduce the wealth-effect pervading throughout the US economy. This, at least theoretically, should help to curb the US consumers’ spending, thereby setting the stage for gradual moderation in the ongoing inflationary impulse. Consequently, given the backdrop of macroeconomic headwinds, the precipice for Tesla’s stock price is likely to be much higher and the fall much more painful. On the bright side, Tesla is one of only a handful of companies that is supply-constraint and not demand-deprived. With the company continuing to expect to grow its annual deliveries by at least 50 percent for the foreseeable future, Tesla shares retain a powerful secular growth tailwind as a crucial bulwark against the coming flood of volatility.
— Paul Kedrosky (@pkedrosky) April 25, 2022 The following observation in the Twitter thread above caught our attention:
— Paul Kedrosky (@pkedrosky) April 25, 2022 As another manifestation of the upside potential emanating from Musk’s Twitter takeover, Tesla is now likely to expand its marketing outreach exponentially at a relatively low cost. As described in the tweet above, General Motors currently has an annual marketing budget of around $4 billion. If we adopt this metric as a benchmark for annual marketing expenditure in the auto sector and assume that Tesla would now be able to extract at least $4 billion of marketing tailwind per annum from Musk’s acquisition of Twitter, the payback period from this measure alone computes at less than 12 years. This is, of course, a huge windfall. Do you think Tesla shareholders will benefit in the long run from Musk’s takeover of Twitter? Let us know your thoughts in the comments section below.
