On Thursday Barron’s reported that Elon Musk, the CEO of Tesla, had to meet a margin call from creditors who were holding the stock as collateral for loans that paid for his purchase of Twitter.
A “margin call” is triggered when the Tesla stock price falls and the lenders call Elon to maintain the margin by adding more cash or more Tesla stocks as collateral to maintain the account balance. Elon has three options: pay off some of the loans, put up more Tesla shares, or a mix.
The Margin campaign seeks to protect investors from the risks of loan default. Elon Musk bought Twitter; the reason behind free speech Musk may come to regret his purchase of Twitter because the method of financing it, similar to Tesla stock on collateral, is bad for Elon.
Based on the agreement Musk signed with bankers to help fund his Twitter purchase, he has already experienced his first margin call, an obligation to cough up cash or provide more collateral.
On April 14, 2022, Elon Musk started the process of buying the American social media company Twitter, Inc. It was finished on October 27, 2022. Elon Musk’s interest in acquiring Twitter in April resulted in a 68% drop in Tesla stock price and a market capitalization of more than $1 trillion, which is now around $381 billion USD.
In just 7 months, the TSLA shares lost $619 billion in value, implying that Elon’s purchase of Twitter was a bad decision because it cost more than $44 billion.
TSLA paid huge losses after Elon acquired a social media company.
Tesla executives are allowed to borrow up to 25% of the value of their Tesla stock, using their shares as collateral for the loan. The initial Loan-to-value ratio for the $12.5 billion facilityThat was part of Musk’s Twitter financing. However, it had an initial loan-to-value ratio of 20%.
Musk owns 13% of his electric cars company shares the major wealth is largely represented by the stock.
Elon Musk has sold an additional $3.6 billion (£2.9 billion) in Tesla stock since losing the title of world’s richest man to France’s Bernard Arnault in the middle of December.
The previous month, crypto exchange company FTX collapsed because they also used the exchange token (FTT) as collateral, causing the price of FTT to crash and his $16 billion wealth to vanish overnight.