By Introduction
Allegations against Musk
According to the report, Musk is alleged to have used a range of illegal drugs including LSD, cocaine, ecstasy, ketamine, and psychedelic mushrooms.
No response from Tesla
Tesla did not provide any comment or response to the allegations when approached for a statement.
Musk’s attorney’s statement
Silence from Tesla, Musk, and Spiro
Impact on stock
Key-person risk for Tesla shareholders
For Tesla shareholders, any news related to Musk inevitably raises concerns about key-person risk. This refers to the risk associated with something happening to a crucial member of an organization. In Tesla’s case, Musk is not only the CEO but also a driving force behind the electric vehicle revolution and substantial investments in self-driving technology. Consequently, his prominent role makes him a vital figure for the company’s success.
Previous considerations
This is not the first time investors have had to contemplate key-person risk surrounding Musk. His acquisition of Twitter, now known as X, in 2022 prompted Roth Capital analyst Craig Irwin to state that “Tesla is Elon Musk.” This remark illustrates how events affecting Musk’s public image or diverting his attention from Tesla could potentially impact the company’s shares.
The Impact of the X Purchase on Tesla Stock
The purchase of X had a noticeable effect on the performance of Tesla stock. Not only were investors concerned about the potential distraction it could cause for management, but they also had to contend with Elon Musk’s selling off of billions in Tesla stock to finance the deal. It is common knowledge that when large blocks of stock are known to be sold, it can have a depressing effect on share prices, discouraging potential buyers.
During the period from mid-April 2022, when Musk made an offer for X, until the end of the year, Tesla stock plummeted by approximately 62%. While some of this decline can be attributed to X-related concerns, it was also a challenging year for tech stocks overall. The Nasdaq Composite, for instance, saw a decline of around 22% during the same timeframe. However, as of Monday trading, Tesla stock has actually risen by an impressive 110% over the past 12 months. In comparison, the S&P 500 and Nasdaq Composite have experienced gains of about 21% and 37%, respectively.
It is difficult to predict how reports about Musk or the drug-use story will impact Tesla stock, as there is no established rule of thumb. Musk has faced various controversies in the past, such as his response to a tweet with anti-Semitic content on November 15. During the following 10 days, Tesla stock dropped by approximately 1%, while the Nasdaq saw a modest increase of about 1%. In an interview on November 29, Musk vehemently denied holding any anti-Semitic beliefs.
Considering these past experiences, investors should anticipate some degree of stock volatility. It is possible that Tesla stock may underperform major indexes by a few percentage points in the coming days. However, Wedbush analyst Dan Ives suggests that despite any negative headlines surrounding Musk, Tesla investors have become somewhat immune to their impact—at least for now.
In conclusion, the X purchase had a significant impact on Tesla stock. Musk’s sale of Tesla shares to fund the deal, combined with concerns over management distraction, undoubtedly contributed to the decline in stock performance. Investors should remain prepared for potential volatility in the days ahead, although it is worth noting that Tesla investors have shown resilience in the face of negative headlines surrounding Musk.
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