In response to a question about Tesla’s stock performance on Twitter, Tesla (Nasdaq: TSLA) CEO Elon Musk said it was “generally wise” to avoid using margin loans on any company when there are macroeconomic risks involved.
“When there are macroeconomic risks, it is generally wise to avoid using margin loans on any company, as stocks may move in ways that are decoupled from their long-term potential,” Musk tweeted.
Tesla’s share price have plunged down by around 57% year-to-date.
The tweet comes after Musk’s bank lenders are reportedly considering replacing some of the high-interest debt he piled on Twitter with fresh margin loans backed by Tesla stock that he would be personally responsible for repaying.
The margin loans are one of several options discussed by Morgan Stanley and Musk’s advisers to alleviate the burden of the $13 billion in debt Musk used to purchase the social media company in October, according to people familiar with the situation.
Banks have been unable to find purchasers for Twitter debt, leaving them with the potential of incurring significant losses. Meanwhile, Musk is facing increasing pressure to turn around the finances of a firm that was already in trouble when he and his partners purchased it.
According to the sources, the funding conversations have so far concentrated on how to replace the $3 billion in unsecured debt on which Twitter pays an interest rate of 11.75%, the maximum banks guaranteed Musk when they agreed to finance the acquisition in April. Based on the current debt structure, the company is expected to face annual interest costs of about $1.2 billion, which is more than a year’s worth of Twitter earnings.
In financing the $44-billion takeover, Musk placed slightly more than $27 billion of his own cash in the acquisition. In addition, the chief executive had to sell 19.5 million Tesla shares over the three market days, generating cumulative gross proceeds of $3.9 billion.
Around $5.2 billion comes from bank loans including from Morgan Stanley, Bank of America, Japanese banks Mitsubishi UFJ Financial Group and Mizuho, Barclays and the French banks Societe Generale and BNP Paribas. Morgan Stanley alone has contributed $3.5 billion.
These loans are guaranteed by Twitter, and it is the firm, not Musk himself, which will carry the financial burden to pay them back.
But the other part of the financing involves $5.2 billion from investment organizations and other significant entities, including $1 billion from Larry Ellison, co-founder of software company Oracle.
Other members of this consortium include foreign investors like Prince Alwaleed bin Talal of Saudi Arabia, Chinese native-run Binance Holdings Ltd., and Qatar’s sovereign wealth fund. The presence of these non-American investors is causing a stir in the White House for fear of foreign intervention and surveillance.
READ: Foreign Investors In Elon Musk’s Twitter Buyout Can Potentially Access User Data
Meanwhile, the automaker continues to face production hurdles–specifically at its Texas gigafactory–due to recruitment hurdles and problematic employer image. When the Berlin gigafactory first launched in March, the goal was to build 5,000 vehicles per week by the end of the year–even stretching this out to construct half a million Teslas in Berlin in 2022, as Musk told a German media. However, it is far from meeting its objectives due to serious recruitment issues—the company has only hired 7,000 individuals out of a planned 12,000.
READ: Tesla Misses Berlin Gigafactory Production Target As Hiring Continues To Be A Problem
Musk is currently in a legal battle to defend why he’s worth the massive $50-billion Tesla pay package that helped make him the world’s wealthiest person.
Tesla last traded at $173.44 on the Nasdaq.
Information for this briefing was found via Bloomberg, Reuters, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
