Tesla stocks plummeted, wiping off more than $125 billion in market value one day after Twitter said it had accepted Elon Musk's $44 billion buyout bid.
According to one expert, the dip in Tesla's value could cause complications for a $12.5 billion loan secured against Musk's ownership in the company. The problems reflect the difficulties he endures in attempting to run five companies.
Tesla's stock has taken a beating, with some investors questioning whether Musk's purchase of Twitter is harmful to Tesla. Shares fell 12.2 % to $906 billion, down from well over $1 trillion, as per a BBC report.
What is not evident is how he plans to raise funds: whether he'll sell part of his Tesla share, loan against it, bring in new investors, or a combination of the three.
There is also growing concern that owning Twitter could put him in conflict with the Chinese government over free speech, a vital market for Tesla where the carmaker also manufactures considerable amounts of cars.
What Happens Next After Tesla Shares Drop?
If Musk sells some of his assets, Tesla's stock price might fall much more. This is something the firm cautioned investors of in its most recent annual report filed with the US Securities and Exchange Commission in February.
Tesla said that if Elon Musk gets forced to sell shares of the company's "common stock that he has pledged to secure certain personal loan obligations," such shares could result in Tesla's stock price dropping.
Musk, who sold billions of dollars worth of Tesla stock last year, could face a significant tax burden as a result of the move since he engaged in a tense back-and-forth with Democratic lawmakers about how billionaires should be taxed according to a report from NPR.
According to the Bloomberg Billionaires Index, Musk is the world's richest man, with a net worth of $257 billion. However, two-thirds of his fortune is invested in Telsa stock.
Musk is the founder and CEO of Tesla, SpaceX, and other businesses such as Neuralink, which develops brain implant technology, and The Boring Company, which constructs tunnels.
Even if Mr. Musk sold a large amount of his Tesla shares, the firm's stock price would not be affected for long.
Mr. Musk is Tesla's largest shareholder, owning over 175 million shares, or nearly 17 percent of the company.
The Impact of Tesla Stocks Crash on the Market
To make $21 billion in cash, he'd have to sell about 24 million shares at Tuesday's price. That's about the amount of Tesla shares traded on a normal day - a lot, but not enough to overload the market. Per The New York Times, a total of 45 million shares were acquired and sold on Tuesday.
Tesla is included in the S&P 500 and the Nasdaq composite indexes. Both indexes are mirrored by various mutual funds that are commonly invested, in addition to being barometers of how stocks in the United States are performing.
The S&P 500 index, which is regarded as the benchmark in the United States, weighs firms based on their market worth. Tesla, with a market capitalization of $900 billion, is one of the index's most powerful stocks.
According to Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices, for every dollar that Tesla's shares dropped on Tuesday, the S&P 500 declined 0.099 points. That implies Tesla's shares dropped about a tenth of the S&P 500's slump on Tuesday.
"So it did have a very large impact," said Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices.
