Why did the Tesla share price tank?

Posted: 27 April 2022 1:09 pm

Shares in the electric car maker are down 27% so far in 2022.

Shares in electric car giant Tesla Inc. (NASDAQ: TSLA) have plunged more than 12% to US$876.42 in overnight trading on Wall Street, matching their biggest daily loss in the last 20 months and wiping out more than US$114 billion from the company's market value.

By comparison, major US carmakers such as Ford (NYSE.F) and General Motors (NYSE: GM) were down a more sedate 3% and 4% respectively.

What prompted the drop in the Tesla stock price?

The latest rout in Tesla shares comes a day after the company's controversial CEO Elon Musk signed a deal to buy out all the shares of social networking giant Twitter (NYSE: TWTR) and take it private.

Investors seem to be concerned that Musk, the world's richest person with a net worth of US$240 billion largely made up of Tesla stock, may sell some of his shares to complete the US$44 billion takeover.

Musk has secured US$46.5 billion in financing for the Twitter deal, which includes about US$20 billion in loans from Morgan Stanley and another US$21 billion in equity financing personally guaranteed by him, meaning he may need to sell or pledge some Tesla shares as collateral to complete the deal.

Investors have previously reacted negatively to Musk divesting shares in the iconic electric car maker.

Late last year, Tesla shares plunged when Musk flagged he would sell 10% of his stake in the company to avoid a big tax bill on his stock options, stabilising only after he announced he was "almost done" with the sale in December.

The share slide comes despite Tesla reporting its most profitable quarter last week, after posting US$3.3 billion in first-quarter profit on the back of record deliveries.

Growing concerns

Tesla's stock price has sunk amid a broader sell-off in equity markets amid slower economic expansion and rising inflation. Investors have fled high-growth companies as central banks around the world prepare to embark on a series of interest rate hikes.

Shareholders are also worried that Musk will be distracted by taking on a new challenge with Twitter. The EV maker's market value is now down by nearly a quarter since the start of April, when Musk disclosed his 9.2% stake in Twitter.

Musk already has a full plate at Tesla as he oversees 2 recently opened factories in Berlin and Austin, Texas that are designed to double the company's global manufacturing capacity.

Added to this are renewed concerns that Tesla's key Shanghai manufacturing facility will face the growing impact from strict lockdowns being implemented in China to address the spread of the coronavirus. Production was already suspended at the end of March due to lockdowns but reports of rising virus cases and potentially new lockdowns in Beijing have rattled investors.

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