Why Elon Musk Is $12 Billion Poorer Wednesday

Tesla CEO Elon Musk.

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Shares of Tesla fell nearly 7%, making the world’s richest person a little bit less rich.

Tesla and SpaceX chief Elon Musk saw $12.4 billion of his fortune evaporate Wednesday, as shares of the electric vehicle maker fell 6.8%. According to Wedbush analyst Dan Ives, who covers Tesla, the reason for the company’s falling stock price is clear.

“The ESG [environmental, social, and corporate governance] issue is weighing on the stock combined with the market doldrums.”

While the tech heavy Nasdaq fell 4.7% Wednesday amid a broader market sell-off, Tesla’s stock fell further, after the S&P’s Head of North American ESG Indices Margaret Dorn released a blog post explaining Tesla’s removal from the S&P’s ESG Index earlier this month. Among the reasons cited: “Tesla’s (lack of) low carbon strategy and codes of business conduct,” “two separate events centered around claims of racial discrimination and poor working conditions at Tesla’s Fremont factory, as well as its handling of the NHTSA investigation after multiple deaths and injuries were linked to its autopilot vehicles.”

Musk did not respond favorably to the move, which could limit the inclusion of Tesla’s shares in ESG focused mutual funds and ETFs and hurt its stock price. “Exxon is rated top ten best in [the] world for environment, social & governance (ESG) by S&P 500, while Tesla didn’t make the list! ESG is a scam,” he tweeted on Wednesday. “It has been weaponized by phony social justice warriors.”

According to Wedbush’s Ives, Tesla’s removal from the ESG index wasn’t the only thing weighing on its stock Wednesday. Investors were also spooked by a statement by Twitter’s board to the New York Times late Tuesday, indicating that it intends to “close the transaction and enforce the merger agreement,” despite Musk tweeting on Friday that his $44 billion takeover of the social media company was on hold.

Some market observers have speculated that Musk was looking for a way out of the increasingly expensive deal, as the tech heavy Nasdaq has fallen by 16% since he made his initial offer, with his losses potentially limited to a $1 billion breakup fee spelled out in the deal’s agreement. Tesla shareholders rejoiced at the prospect of a less distracted CEO, sending shares soaring 5.7% last Friday.

According to Columbia Law School professor John Coffee, that may have been premature, as Musk may not have sufficient basis to walk away with a $1 billion termination fee (he cited concerns in his tweet early Friday that Twitter may have understated the 5% of its users that are spam or fake accounts).

“There is a specific enforcement clause and Twitter could seek to enforce it by suing for an injunction (probably in Delaware),” he says. “If Musk did not comply with that injunction, Twitter could seek contempt penalties, which could conceivably include jail until he complied.”

In other words, Twitter’s board could sue Musk to force him to complete his $44 billion takeover (or more likely settle for an amount between $1 billion and $44 billion). While that possibility has always been there, many have wondered whether expensive and drawn out litigation with the world’s wealthiest person would be worth the already struggling social media company’s trouble. The Twitter board’s statement suggests they may think it might be.

Whatever the fallout of this ordeal is, it’s sure to be expensive for Musk. So far, the net worth of the world’s richest person (worth an estimated $218.1 billion as of Wednesday’s market close) has fallen by $74.5 billion since April 13, the day before he announced his Twitter takeover.