Musk’s Twitter takeover wipes £100bn off Tesla

Billionaire promises to protect freedom of speech and restore trust in the platform

ALMOST £100bn was wiped off the value of Tesla after its boss Elon Musk struck a deal to buy Twitter.

Amid mounting fears the audacious takeover of the social media platform would prove a distraction for the 50-year-old tycoon, the electric car maker’s shares tumbled 12pc in New York.

That sliced $125bn, or £99bn, off the value of Tesla.

It also reduced the value of Musk’s 16.7pc stake by £17bn – though it was still worth £120bn.

The slump came as the £35bn takeover of Twitter continued to send shockwaves through Wall Street and Silicon Valley and attracted the attention of global regulators.

Musk – who is said to have a fortune of around £200bn – already runs Tesla as well as rocket company Space X.

He also founded and is heavily involved in brain-chip start-up Neuralink and tunnelling venture the Boring Company. Analysts warned the takeover could be damaging for Tesla shareholders as Musk implements his plan to unlock Twitter’s ‘tremendous potential’. There are also concerns that Musk is part-funding the takeover with a loan secured against £10bn of his shares in the electric car maker.

Edward Moya, an analyst at investment platform Oanda, said: ‘Tesla shareholders can’t be happy that Musk will have to divert even more attention away from winning the electric vehicle race.’

A fund manager with a significant holding in Tesla, who asked not to be identified, told Reuters: ‘I fear this is going to be a distraction. He’s juggling supply chains and factory delays and the expansion of the energy storage business and this doesn’t fit at all.’ Tesla has lost more than a fifth of its value since Musk first disclosed his over 9pc stake in Twitter in early April. His move to buy Twitter has raised concerns about the depth of executive talent at Tesla. ‘Tesla feels very much like a startup despite it being a trillion dollar company,’ said Tesla investor Ross Gerber, chief executive of wealth management firm Gerber Kawasaki. ‘It’s as big or bigger than the biggest companies in the world, but it doesn’t have the management infrastructure like other companies.’

Tesla is racing to boost production at new plants in Texas and Berlin amid supply-chain snarls and higher raw materials costs, as well as get work at its biggest factory in Shanghai back on track during a spike in Covid-19 cases there. Despite those problems, Tesla last week posted record quarterly results as demand for its electric cars boomed.

The company reported revenues of £14.3bn for the first three months of 2022 – up 81pc on a year earlier – while profits rose 147pc to £4.2bn.

Garrett Nelson, vice president at research firm CFRA Research, gave a vote of confidence to Musk and labelled concerns over him selling Tesla shares as ‘overblown’.

He said: ‘If anyone can juggle these companies, it’s Elon. He’s been able to successfully balance growth at both Tesla and SpaceX over the last several years and he’s surrounded by a highly capable supporting cast at each company.

‘We think concerns that Musk might have to sell Tesla shares in order to fund purchase of Twitter are overblown as we believe they are merely being pledged as collateral.’

Robert Pavlik, senior portfolio manager at Tesla investor Dakota Wealth, said Musk could install someone else to lead Twitter.

‘It seems like that would be the most logical thing,’ he said. ‘It seems like he has his hands full with Tesla and Space X.’

Elon Musk’s takeover of Twitter has many hoping for a better future for the social media giant.

Beset by a lacklustre share price performance, several major investors swung behind Musk, the world’s richest man, when he came knocking with a £35bn offer earlier this month.

The 50-year-old’s bid was priced at $54.20 per share and despite initial resistance, which sparked speculation of a hostile takeover, Twitter’s board soon folded and backed the billionaire maverick.

With total control of the site beckoning, he said he wanted to make Twitter ‘better than ever’ by adding features and restoring ‘trust’ in the platform.

How he plans to execute his strategy remains unclear, but given a stated commitment to ‘free speech’, Musk’s takeover has raised concerns about a surge in abusive content and potentially put him on a collision course with regulators. But how did it get to this point? Twitter’s shares have had a torrid time of late and more than halved in value between March last year and March this year before Musk arrived on the shareholder register with a 9pc stake – setting the scene for his audacious takeover.

The website is free and makes money from adverts in a similar manner to Google and Facebook.

However, Twitter’s user base is comparatively small, meaning it has fewer eyeballs to tempt advertisers.

In the final quarter of last year, the company reported an average of 217m daily active users, a figure dwarfed by the 1.9bn that used Facebook over the same period. Recent plunges in the value of several technology stocks, notably Facebook’s owner Meta and netflix, have added to the company’s woes.

The rapid capitulation of Twitter’s board suggested several major shareholders thought taking the company private was a better option than risking it on the public markets. Musk also secured the backing of Twitter’s co-founder Jack Dorsey.

So what exactly will Musk do once he takes full control? While a formal strategy has not been laid out, the South African-born businessman previously pushed for the company to adopt a subscription model and add extra features such as an edit button to attract users.

He has also pledged to crack down on spam bots, automated accounts that are often used to spread misinformation. Musk said he wants to ‘increase trust’ in the platform and make Twitter ‘the digital town square where matters vital to the future of humanity are debated’.

The last part has been intersides preted to mean he will relax the site’s moderation rules after it was accused of censoring conservative viewpoints, with the banning of Donald Trump held up as an example.

However, with Musk’s self-professed commitment to free speech, there is speculation Trump could return, while politicians and charities have voiced concerns such moves could cause toxic and abusive behaviour to increase. Additionally, he could find himself on a collision course with regulators on both of the Atlantic as they move to crack down on hate speech and misinformation.

EU commissioner Thierry Breton said Musk must follow the bloc’s rules on moderating harmful content.

He also faces a potential headache from the UK’s new online Safety Bill, which if it enters into law later this year will require internet platforms to police abuse such as racism or bullying, setting Musk up for a showdown with Culture Secretary nadine Dorries.