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What does Elon Musk’s Twitter deal mean for Tesla?

The day Elon Musk landed his Twitter coup worth $44 billionthe Tesla boss flew to Boca Chica, Texas, not to relax on the sandy beach, but to attend his regular 10 p.m. meeting at SpaceX, the rocket company where he is also CEO.

The billionaire, who also runs tunneling company Boring and brain-chip venture Neuralink, will put his multitasking skills to the test as Twitter becomes the latest spinning record in an already precarious collection.

The question for Tesla shareholders, still the only direct public avenue for investors looking to engage with Musk, is how much his recent curiosity will distract him.

“I’ve learned that it’s wrong to underestimate its extraordinary energy and breadth,” said James Anderson, portfolio manager at Baillie Gifford, one of the automaker’s earliest investors and a top 10 shareholder. “What we are hearing suggests that [Tesla] going so well that Musk isn’t, or doesn’t need to be, involved on a day-to-day basis.”

Once a struggling start-up that failed to mass produce its cars, the company has matured almost beyond recognition.

In the last two years alone, Tesla has opened its Shanghai factory, a record-time facility in Berlin, and its new factory in Texas, where the ribbon was cut at a rodeo-themed party hosted by Musk this month.

The brand posted a profit of $5 billion in the first quarter and is on track to sell 2 million vehicles this year. It has an ambitious goal of growing sales to 20 million a year by 2030, which would make it bigger than Toyota and Volkswagen combined.

“Does he have to be that involved? Probably not as much as a year ago and absolutely not as much as two to three years ago,” said Gary Black, a managing partner at The Future Fund and one of the many investors using Twitter as a platform to showcase the Tesla bull Case. “If there was a time for him to do Twitter, it’s now.”

According to several people who have worked for him, Musk manages his time with a forensic level of detail. His schedule used to include Monday and Tuesday at SpaceX, Wednesday and Thursday at Tesla, and Friday was spent doing product reviews at both companies, hopping between locations on his private jet and juggling emails.

“He’s been very disciplined about that rhythm — that’s impressive,” said a former Tesla executive who reports directly to Musk, adding that on days when he wasn’t traveling internationally, his schedule is “in stone.” chiseled”.

At one point, he would break up his workday into five-minute slots to maximize his output, regularly slotting in days that can last up to 20 hours.

SpaceX President and Chief Operating Officer Gwynne Shotwell with NASA astronaut Bob Behnken
SpaceX President and Chief Operating Officer Gwynne Shotwell with NASA astronaut Bob Behnken © Patrick T Fallon/Bloomberg

“I’m no more concerned about Twitter distracting from Tesla than I’m worried about Tesla distracting from SpaceX,” said one top 20 shareholder.

But Musk will inevitably have to rely on a multitude of proxies in his operations. At SpaceX, he has Gwynne Shotwell, the longtime chief operating officer, while at Tesla, Drew Baglino is the most senior executive behind Musk and CFO Zach Kirkhorn. It’s not yet clear how much Musk wants to be involved in the day-to-day management of Twitter.

A second former Tesla executive who reported to Musk said the CEO typically spreads responsibility among the automaker’s executives, rather than relying on a single traditional operations manager, as he did at SpaceX. “It’s just his way of working,” added the ex-director.

A potential issue may be the timing implications of an additional location. “He now has so many more points on the map to go to,” said the first former Tesla exec.

Twitter is based in San Francisco, while SpaceX has an office outside of Los Angeles and a launch base on the Texas coast. Tesla, once limited to its Fremont plant and a battery factory in Nevada, is now also demanding its attention from plants in Texas, Germany and China.

“He loves to travel [from] go from place to place on every factory floor and attend technical meetings,” said Walter Isaacson, who is writing a biography of the entrepreneur. “But he does some meetings virtually these days.”

Musk will need to keep an eye on Tesla’s stock price. His shares in the automaker are part of the complex, hastily arranged financing for the Twitter deal.

Musk has pledged $12.5 billion from a loan backed by his Tesla shares as part of a package that also includes $13 billion in bank debt and $21 billion in cash.

The day after the Twitter deal was announced, Tesla shares fell 12 percent, erasing the automaker’s value by more than $125 billion.

Further declines would increase the number of shares he needs to hedge as collateral for the deal.

“It’s dawning on people that if he needs to pull up a little more leverage to buy Twitter, what if Tesla stock has to keep falling?” said Jim Chanos, the hedge fund billionaire and renowned short seller who is a longtime bet against the automaker.

“There is no room for error in Tesla’s assessment, he must move on. It has to grow by 40 to 50 percent every year with a gross margin of 30 percent.”

Black said Musk’s “incentive now is to keep Tesla’s share price as high as possible.” He expects the company to announce a stock split to prop up the price and push for an upgraded credit rating to reduce interest payments.

The Tesla Fremont factory
The Tesla Fremont Factory: The day after the Twitter deal was announced, Tesla shares fell 12 percent, © Josh Edelson/AFP/Getty Images

While there’s little business overlap — Tesla eschews traditional advertising — analysts and investors warn that Musk’s Twitter ownership still has the potential to hurt the automaker.

“If something goes wrong, there is a great reputational risk . . . when Musk gets a negative image and that spills over to Tesla for a while,” said Philippe Houchois, an auto industry analyst at Jefferies, who believes it’s inevitable that Musk “will piss people off.”

In the days since the deal, Musk has fired off several humorous letters, including one in which he said his next move would be to “buy Coca-Cola to refill the cocaine.”

But he has also targeted individuals, with posts including a meme featuring Twitter’s legal boss Vijaya Gadde and promising to anger one in five users at the far ends of the political spectrum in the name of balance.

One suggestion that has surfaced since the deal is that China, which has banned the social media platform, may be able to lean on Tesla, which makes about half of its cars in the country, to sway rules at Twitter. China’s foreign ministry has rejected the idea.

Ultimately, even the company’s harshest critics admit that the impact on Tesla stock, which has risen far higher than the company’s improving fortunes, may have been muted.

“Tesla shareholders are very forgiving,” Chanos said. “Maybe they just shrug their shoulders and say, ‘If anyone can do it, Elon Musk can,’ and continue to back him up when the doubt is right.”

What does Elon Musk’s Twitter deal mean for Tesla? Source link What does Elon Musk’s Twitter deal mean for Tesla?

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