Why Tesla Stock Crashed Today
What happened
Tesla (NASDAQ: TSLA) stock crashed hard on Thursday, down 6.2% at 10:35 a.m. ET, breaking a three-day winning streak of rising stock prices for the leader in electric cars.
So what
The most likely culprit for Tesla's decline today? That's still "volatility." And case in point, Tesla stock was down yesterday morning, too, before ending up sharply higher by the close of trading.
But there's actual news concerning Tesla today, too. For one thing, Elon Musk has confirmed that he plans to serve as CEO of Twitter (NYSE: TWTR) after he completes his buyout of the company. Tesla investors today might be concerned that taking over full managerial control of a social network will distract Musk from what they consider his primary job: running Tesla.
There's also word today that Musk has decided to bring in outside investors to help pony up some of the cash he will need to buy Twitter in the first place. As Bloomberg reports, a total of 19 investors, including everyone from billionaire Larry Ellison to Sequoia Capital to "a Saudi Prince," have been enlisted to provide $7.1 billion of Twitter's $44 billion purchase price.
Image source: Getty Images.
Now what
But you know what? That's actually good news for Tesla investors!
Up till now, one of the big worries dogging Tesla stock has been that, in addition to being potentially distracted by having to run Twitter, Musk was also taking on undue financial risk by both selling nearly 10 million of his Tesla shares to raise cash for the deal and pledging $62.5 billion worth of Tesla stock as collateral for a $12.5 billion loan to come up with the rest of the cash he needs.
Taking on too much debt is rarely a good idea, whether you're buying a car, a college education, or a social media conglomerate. By inviting other investors to share the risk with him, though, Musk is reducing his own risk. He's reducing the risk that something bad will happen -- a recession, say -- that might damage the value of his collateral (i.e., Tesla) and force him to sell or pledge more shares, which could in turn hurt the value of other Tesla investors' shares.
In this particular instance, what's good for Elon Musk is good for Tesla shareholders as well -- and it's definitely not a good reason to be selling Tesla stock today.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Twitter. The Motley Fool has a disclosure policy.
