Is Tesla Stock Vulnerable to the ‘Key-Man’ Risk? The Meaning of Musk in the Long Term.
It’s not easy riding with Elon Musk on one of his adventures. Tesla stock has been jumpy since he took his Twitter stake. On Thursday, after he made his takeover bid, Tesla shares fell 3.7%, shedding $38.6 billion in market value.
Shareholders are nervous. Many investors see the unpredictable Musk as irreplaceable—the so-called key-man risk. “Tesla is Elon Musk,” says Roth Capital analyst Craig Irwin, likening him to Apple ’s Steve Jobs. “He’ll be the most important person at Tesla for the next 20 years.”
Last year, Tesla shares (ticker: TSLA) fell 16% in two days following a Twitter poll Musk ran asking if he should sell 10% of his stake to pay taxes. The Twitterverse voted “yes,” Musk sold $16 billion in shares—and the stock hasn’t closed above $1,200 a share since. It’s now just under $1,000.
Accounting for what Musk already owns, buying Twitter could mean selling some 40 million Tesla shares. Of course, Musk could borrow against his Twitter stake, with a loan secured by his Tesla position, or, says Future Fund Active exchange-traded fund founder Gary Black, “line up a private equity backer or lenders who can provide leverage. He can sell some SpaceX shares. He doesn’t necessarily have to sell more [Tesla] stock.”
Bottom line: Most Tesla shareholders are used to Musk’s non-Tesla activities. In the long run, the stock moves on making and selling electric cars.