Since October 5, Tesla's stock performance has been significantly weaker than the Nasdaq index, that is, after Tesla fell below $240 per share, it has been weak all the way. During the same period, the Nasdaq index fell 5.4%, while Tesla fell 37.7%.

 

The reason why Tesla's performance is weaker than the index can be traced back to the financing structure of Musk's acquisition of Twitter.

1. Funding structure for the acquisition of Twitter

Let’s first look at the funding structure for the acquisition of Twitter:

The total amount of funds is 46.5 billion, of which 13 billion is acquisition loans, 12.5 billion is margin loans, and 21 billion is personal equity funds. Currently, the problem lies in the 12.5 billion margin loans.

2. Margin Loan

Details of the 12.5 billion margin loan:

Loan details table:

LTV staking rules:

From Figure 2, we can see that the number of shares to be pledged was 73.5 million shares, with a pledge value of 62.5 billion. After Tesla's 3-for-1 stock split in August, the number of shares to be pledged was 259.5 million shares.

The LTV (net debt divided by total mortgage share value) ratio is 20%. If it is higher than 20%, additional margin will be required.

Let's calculate the stock price corresponding to the margin call: total pledged share value = net debt / 0.2, the total pledged share value is 62.5 billion, the pledged shares are 259.5 million shares, and the corresponding stock price is 240 US dollars.

That is, if Tesla's stock price falls below $240, it will require margin. Musk can only sell Tesla stock to obtain liquidity to replenish the margin. Of course, there is a vicious cycle here. After selling stocks, the stock price will be suppressed. When the stock price falls, more margin will be needed.

It can be seen that after Tesla's stock price broke $240, the trend is as follows:

3. Selling stocks to supplement margin

  • Sold nearly 22 million Tesla shares in three days from December 12 to 14;

  • Sold at least 19.5 million Tesla shares between November 4 and 8;

It can be seen that these two sales brought Musk about $7.33 billion in liquidity;

In summary: Tesla's recent stock price plunge is due to the financing structure and margin loan of Musk's acquisition of Twitter, which caused the cash flow problem. Musk has been selling Tesla shares, which has also caused the stock price to fall all the way. If you want to invest, you should avoid this time point and wait until the new loan agreement is finalized before making a move.