Complicating Elon Musk’s finances due to declining wealth and Twitter pressures

Historically, it was Mr. Musk The billionaire is cash poorrelying on so-called margin loans – borrowing backed by his equity – to cover his personal expenses and business investments. while keeping his Tesla shares and taking advantage of their increasing value.

But Tesla’s market value is down about $700 billion this year, dumping his personal fortune along the way. The big drop in Tesla’s valuation comes after years of growth that allowed him to borrow money easily without having to cash in his shares.

Shares in Tesla have fallen nearly 65% ​​in 2022, surprising in partAnd the Through a higher interest rate environment. There’s another issue with why he might need criticism: Twitter. Tesla investors were worried that Mr. Musk’s interest would split after his October takeover of the social media company.

Late last year, once Tesla’s stock price peaked, he began selling Tesla stock, totaling more than $39 billion. Including $3.5 billion last week. It’s unclear what his liquidity looks like after what he said would be more than $11 billion tax bill for 2021 and put up nearly $25 billion in cash as part of the Twitter buyout.

Musk’s current Tesla holdings, excluding exercisable options, total 424 million shares worth about $52. $1 billion at Friday’s closing price of $123.15 per share.

Simply put, if he can utilize all of these shares as collateral under Tesla’s rules, he will be allowed to borrow about $13 billion. That’s just a little more than it planned to borrow in April as part of Twitter’s original use-only deal 40% of his shares are securities, underlining how his ability to borrow has shrunk with the car company’s share price crashing. He later canceled those proposed margin loans to fund the deal amid investor concerns about the risks.

Mr. Musk and Tesla did not respond to a request for comment.

Tesla shares are not his only assets or his only means of raising money. he is too Owns shares in space exploration and technology Corp. Or SpaceX, and has ownership in startups like boring company The level of his personal indebtedness is not clear.

Mr. Musk faces questions about whether Tesla, where he is also CEO, is ready for a recession as he separately tries to stem losses at Twitter, cutting thousands of workers from its newly acquired social media platform. He said late Tuesday There was a need for a significant cut in spending on Twitter The company was on its way to draining billions of dollars. was his team Pursuit Additional investment dollars for Twitter.

“We have an emergency fire drill,” Mr. Musk said during a public conversation on Twitter Spaces. After making such drastic efforts, he said, Twitter could crash next year.

While Twitter has rarely been profitable in the past decade, The financials have been made more difficult by the debt Mr. Musk took on to fund his acquisition and by lower spending by advertisers Worried about irregular changes under him. Analysts estimate that debt expenses alone added more than $1 billion to the annual cost of a company that generated $5 billion in sales last year, mostly from advertising.

Mr. Musk has been here before — deep in debt and burning cash as the global economy teeters — and has emerged successfully.

These successes and the enthusiasm of investors for his projects made him ranked as the richest person in the world for some time. The drop in Tesla’s value this year has moved Musk’s ranking as the world’s second richest man behind Bernard Arnault, chairman and chief executive of the luxury conglomerate. LVMH Moët Hennessy Louis Vuitton. Mr. Musk’s wealth has fallen to an estimated $140 billion as of Thursday from $340 billion just above a year ago, according to the Bloomberg Billionaires Index.

If Mr. Musk needs the cash, he can always sell more Tesla stock, as he has done recently. But in the past, Musk, Tesla’s largest individual shareholder, has been reluctant to sell. At Tesla, Mr. Musk lacks the kind of dual layer of stock ownership that gives founders in the future

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Power control. Instead, Mr. Musk’s large stake in Tesla, in the past, Giving him veto power over shareholder proposals thanks to the company’s absolute majority vote requirement.

On Thursday, Mr. Musk said he sold some shares to make sure he had “dry powder… for the worst-case scenario” and said he was done selling through probably 2025, though he made similar statements like this this year only to sell more.

“I feel a little bit paranoid after going through a really bad recession,” Musk said.

While he had used margin loans before, the idea of ​​borrowing billions from Tesla stock backs to help Twitter carried risks.

Tesla’s board has limited its borrowing capacity to 25 cents on every dollar of share value, according to regulatory filings. As the value of shares decreases, he must comply with the 25% limit. The risk to Tesla shareholders, as the company describes in its regulatory filings, is that it may have to dump a lot of shares at once to generate cash. He never disclosed the price he would need to collect more collateral.

In recent days, Mr. Musk has fully embraced the idea of ​​margin loans. In a tweet, Mr. Musk warned that such a move was not wise in this market.

“When there are macroeconomic risks, it is generally wise to avoid using margin loans on any company, as the shares may move in ways disconnected from their long-term potential,” he wrote on Dec. 8.

As of the most recent public filing, Mr. Musk pledged as security more than half of his Tesla property, excluding options that he can exercise.

The filing said the undertaking did not necessarily indicate that actual borrowing against those shares would take place.

Write to Tim Higgins at [email protected]