On 27 March, Elon Musk tweeted what is perhaps his clearest statement of intent for Twitter: “Seize the memes of production!” Musk knew at the time that he was the platform’s biggest shareholder, but the rest of the world didn’t. Since this information became public he has increased his efforts to take control of Twitter, securing $46.5bn (including a margin loan secured by most of his Tesla stock) to launch a takeover bid.
This is a lot to spend on Musk’s stated aim of protecting freedom of speech on one social media website. It’s not clear why someone who has used Twitter to call someone a “pedo”, to advocate overthrowing a government for profit, and to threaten adverse consequences for unionised employees, all with apparently little or no consequences, thinks there is any risk to free speech on the platform. It’s even possible that the CEO of a company that has accused the BBC and the New York Times of fabricating critical reviews of its products doesn’t care about free speech quite as much as he’d have us believe.
But Elon Musk certainly does care about money, and Twitter is where – and how – he makes most of his income.
Tesla’s market value (and with it, Musk’s personal wealth) is unusually sensitive to public opinion. Most companies are mostly owned by asset managers, such as BlackRock and Vanguard, which invest other people’s money (your pension) in large bundles of securities. This “institutional ownership” makes up more than 80 per cent of the S&P 500 index. Tesla’s institutional ownership is less than 42 per cent. Of this, more than half is Musk’s own 23 per cent stake. A significant chunk is “retail” ownership – individual investors.
Data from Nasdaq’s Retail Trading Activity Tracker confirms that Tesla was the most popular stock among retail investors in 2021. The live data (at time of writing) shows it’s now in second place, after Twitter.
There was a time when Musk’s controversies could harm Tesla’s prospects. When he smoked cannabis on the Joe Rogan podcast (in California, where the drug is legal), the price of Tesla stock fell by 9 per cent. The day Musk was charged with securities fraud for tweeting that he had “funding secured” to buy Tesla at $420 (a cannabis joke) per share, it fell by 13 per cent.
This changed, however, when the pandemic hit and governments began injecting unprecedented sums into capital markets, pushing up the value of shares across the board. The S&P 500 (an index of America’s 500 biggest companies) returned more than 16 per cent in 2020 and almost 27 per cent in 2021 – more than double the historical average.
For tens of millions of people – at home, bored, on the internet – the booming capital markets were just the place for the cash they’d saved by doing nothing. Instant, fee-free online investing became a game the central banks wouldn’t let them lose. By 2021 the investing app Robinhood had 22.5 million active users, while the yearly trading volume of another app, eToro, quintupled in a single year, reaching $1.5 trillion.
These retail investors had little interest in buying lots of securities and waiting decades for their gains, losses, dividends and interest to balance out into a stable return, like a pension fund does. They wanted volatility – and this was rational, because the returns from a relatively tiny amount of money invested in a patient and cautious manner will be relatively tiny, whereas putting everything on a fast-moving tech company can be very lucrative. They wanted unstable, fervent hope, and Elon Musk was there to sell it to them.
This led to a big difference in the two ways Tesla makes money. The first is by selling electric cars. The company’s net earnings (its revenue minus all of its costs) from this business have been positive since 2020. However, its total net income since 2009 is still negative; 13 years of selling electric cars has so far netted Tesla a loss of $352m. That’s not to say it’s a bad business – it’s a company that is making a lot of money, but also spending a lot of money, aggressively expanding to take over a global market.
The second way is by selling Tesla, the company – in the form of stocks and bonds. It’s hard to say exactly how much Tesla has raised from capital markets since 2009, but Seth Goldman, Tesla analyst at Morningstar, told me that “a good proxy” for this number can be arrived at by adding up the total debt and paid-in capital on its balance sheet. Tesla’s most recent quarterly filing records $2.157bn in total debt and $29.803bn in additional paid-in capital, which means the company has raised “just under $32 billion”.
This isn’t wildly unusual – companies use capital markets to fund their growth, investors give money to the companies they think are most likely to grow, and Tesla is fast-moving company that plans to take over the world (of cars). But the business of selling Tesla itself is currently so much more lucrative than the business of selling its products that it’s not unreasonable to ask which is the real object of the enterprise.
The problem for Tesla is that it needs this state of affairs to persist, because it is trying to take over a market from the likes of Ford, which has $36bn in cash on hand. Tesla needs Elon Musk to be a market-moving presence, and his primary means of doing this is through Twitter. The problem for Musk, as he recently tweeted, is that Twitter is “dying”; its user growth has slowed and there are concerns it may follow Facebook into decline.
Musk’s most recent tweets suggest that he is putting together a tender offer – that is, to circumvent Twitter’s board and offer to buy the company directly from its shareholders – and if he can find the money to do this, he might be able to use it to turn supporting his business into a political movement, as has happened with companies such as GameStop and AMC.
The days of free money – and the days of cheap debt – are over, however. Interest rates are rising, monetary policy is tightening and investors are moving from risky, fast-growing tech companies towards safer havens. Seizing the means of promotion may not be enough.