Elon Musk’s Finances Complicated by Declining Wealth, Twitter Pressures

Historically, Mr. Musk has been a cash-strapped billionaire, relying on so-called margin loans (his stock-backed borrowings) for personal spending and business investments. while holding his Tesla stock and benefiting from its appreciation.

But Tesla’s market capitalization has fallen by about $700 billion this year, eroding his personal fortune in the process. Tesla’s declining valuation comes after years of growth made it easy to borrow money without cashing out the stock.

Tesla stock is down about 65% in 2022., Due to the high interest rate environment. Another problem he has is related to why he needs cash. It’s Twitter. Tesla investors are concerned that Mr. Musk’s interests are fragmented after Tesla’s acquisition in October.

Late last year, just as Tesla’s stock peaked, he began selling Tesla shares for a total of over $39 billion, including $3.5 billion last week. It’s unclear what his liquidity will be like after he said he’ll be injecting about $25 billion in cash as part of the Twitter acquisition, with more than $11 billion in taxes in 2021.

Excluding exercisable options, Musk currently owns 424 million Tesla shares worth about $52. $1 billion at Friday’s closing price of $123.15 per share.

Simply put, if all those shares were available as collateral under Tesla’s rules, it would allow about $13 billion in borrowing. That was just a little over the amount he planned to borrow in April as part of the first Twitter deal, which used just 40% of his stock as collateral, and he was forced to pay for it as the car company’s share price collapsed. He has since scrapped a proposed margin loan to fund the deal amid investor concerns over risk.

Musk and Tesla did not respond to requests for comment.

Tesla stock isn’t his only asset, nor his only means of raising money. He also owns shares in Space Exploration and Technologies Corp. (SpaceX) and has ownership interests in startups such as Boring Co. His personal debt level is not clear.

Musk faces questions about whether Tesla, where he is CEO, is ready for a recession. Musk is laying off thousands of employees from his newly acquired social media platform in an attempt to stem losses at Twitter. Late Tuesday, he said a drastic cut in spending on Twitter was necessary as the company is on track to bleed billions of dollars. I was looking for it.

In a public speech on his Twitter space, Musk said he was “having an emergency evacuation drill.” After making these drastic efforts, he said Twitter could go bankrupt again next year.

Over the past decade, Twitter has rarely been profitable. Finances have been made more difficult by the debt Musk owed to finance the acquisition and reduced spending by advertisers worried about erratic changes taking place under his leadership. The analyst estimates that debt costs alone add more than $1 billion a year to the company, which generated $5 billion in revenue last year, mostly from advertising revenue.

Mr. Musk has been here before, plagued by debt and burning cash in a wobbly world economy, and thriving.

These successes and the enthusiasm of investors for his ventures made him briefly ranked as the richest person in the world. Tesla’s decline in value this year has pushed Musk’s ranking to number two in the world behind Bernard Arnault, chairman and chief executive of luxury conglomerate LVMH Moët Hennessy Louis Vuitton. Musk’s fortune fell to an estimated $140 billion as of Thursday, from a high of $340 billion just over a year ago, according to the Bloomberg Billionaires Index.

If he needs the cash, he can always sell Tesla stock, as he did recently. But Musk, Tesla’s largest individual shareholder, has been reluctant to sell. At Tesla, Musk lacks the dual-class ownership rights afforded to the founders of Meta Platforms. Ltd.

or alphabet Ltd.

control power. Instead, Tesla shares that Mr. Musk held in the past, Thanks to the company’s supermajority voting requirements, it effectively gave him veto power over shareholder proposals.

On Thursday, Musk said he had sold some shares to ensure he was “powder-dry for the worst-case scenario,” and said he would probably finish the sale until 2025, although he said he would likely do so this year just to sell. I’m making a statement of…more.

“I’m a little paranoid after experiencing two very hard recessions,” Musk said.

He has used margin loans before, but the idea of ​​borrowing billions from the back of Tesla stock to help Twitter carries risks.

Tesla’s board of directors basically limits Tesla’s borrowing power to 25 cents for every dollar of stock value, according to regulatory filings. Now that the stock has fallen in value, he has to stick to his 25% limit. As the company explains in its regulatory filings, the risk for Tesla shareholders is that they may have to sell many shares at once to generate cash. He never disclosed the price needed to pony up more collateral.

In recent days, Musk has dismissed the idea of ​​a margin loan outright. In a tweet, Musk warned that such a move would be unwise in this market. “If there is macroeconomic risk, stocks can move in ways that are decoupled from their long-term potential, so it is generally wise not to use margin loans for any company,” he said. I wrote on the 8th of May.

As of the most recent public filing, Musk had pledged more than half of Tesla stock as collateral, excluding options he could exercise.

Pledges do not necessarily indicate that actual borrowings have been made for those shares, the filing said.

Write to Tim Higgins at [email protected].