Elon Musk’s luck finally ran out

2018 was a year of hardship

If you want to understand why Musk has been acting erratically lately, understand the reasons for his past outbursts. Let’s go back to 2018, a year of hardship.

At the time, Musk was betting Tesla’s future on the Model 3. The starting price was expected to be $30,000 (approximately 4.2 million yen), making EVs affordable even for drivers who cannot afford luxury cars. But as the model fell into what Musk called “production hell,” Tesla investors became increasingly concerned.

It was clear that Musk was under pressure to bring the Model 3 to market, but he didn’t try to hide it.

At Tesla’s first-quarter 2018 earnings call, he interrupted basic financial questions from analysts, saying, “I don’t like boring, stupid questions.” In his frustration, Musk completely ignored the analysts and began answering questions from fans posted on YouTube. In the end, he ended up begging investors who were skeptical of Tesla to sell their shares. Musk is more likely to bite investors’ hands when he is starved for cash.

Around this time, Musk became more active on Twitter, often causing a stir. Musk harassed a professional diver on Twitter, calling him a “pedo” after he accused him of interfering with his efforts to rescue a youth soccer team trapped in a cave in Thailand.

He also took to Twitter to complain about the media and attack investors betting that Tesla’s stock price would fall. He even tweeted that he would take Tesla private for $420 a share, even though no such deal actually took place.

As Musk later admitted, Tesla was “on the verge of death” at the time, about to go from summer’s “production hell” to fall’s “logistics hell.”

At that time, a savior named the Chinese Communist Party appeared. In 2019, Musk signed a deal to build a factory in Shanghai as Tesla executives fled and funds continued to flow. From permitting to construction and opening, the Shanghai Gigafactory was built in just 168 working days.

Those who have followed Tesla skeptically, including myself, were caught off guard. What we have overlooked is the incredible power with which the Chinese Communist Party moves toward a single goal. When the party allowed Tesla to build a factory in China, it meant immediately.

In Musk’s own words, without China, Tesla ultimately wouldn’t have become a “real car company.” Musk avoided ruin, sat down, and began focusing on other projects such as Starlink.

He was still going wild on Twitter, but at least he wasn’t complaining to Rolling Stone about finding a girlfriend and being happy. At last, the world of masks seemed to have reached a balance, albeit one that remained frenzied.

Generally speaking, there are two types of lessons learned by survivors of crisis situations. One is to be more careful. The other thing is to believe that you are immortal and continue to cross dangerous bridges. It goes without saying which path Musk chose.

The world of masks is all connected

No matter what people say, Musk has big dreams. In early 2022, Musk was on top of the world, and he declared that he had the power to single-handedly “fix” the very concept of free speech. Musk, who was completely dependent on the praise he received from Twitter, thought he’d start there.

You know what happened after that. Musk began acquiring shares in Twitter in early 2022 and later proposed an outright acquisition. The board of directors could not say no to the exorbitant offer, and a group of banks led by Morgan Stanley financed the bulk of the offer. Musk ultimately completed his acquisition of Twitter after unsuccessful attempts to back out of the deal.

But not long after signing the deal, Musk was running out of ideas to rebuild the platform. What was left behind was disgruntled former employees, skeptical advertisers, a terrible new company name, and a huge debt owed to benevolent investors on Wall Street.

Recently, some analysts, such as Vicki Bryan, CEO of the research firm Bond Angle, have questioned whether X is spending far more than it earns or is creditworthy. In a note to his clients, Brian wrote:

“As of 2022, Twitter is still burning cash, and with interest costs of between $1.3 and $1.5 billion over the past year, we don’t expect the company to have much time ahead. Was”

Even though X could close on financing in the first half of 2023, Brian believes there will be few options left.

“As the year goes on, Twitter’s cash may run out, along with Elon Musk’s options.” (Brian’s notes)

Because of Musk’s style, X’s problems could spill over into his entire business empire. Despite being the second richest person in the world, Musk has curiously little cash.

Musk does not receive a salary from Tesla, and according to public documents filed in March 2023, about 63% of his Tesla stock holdings (representing about 20% of the company’s total) are due to “certain personal debts. The funds have been used as collateral for the purchase of private jets, etc.

Therefore, it is a risky move for Musk to rely on Tesla stock to raise all his cash. If Tesla’s stock price falls below a certain level, banks can demand repayment of personal debts, and Musk must comply. And if investors pick on the signs that Musk will sell his stock in large numbers, Tesla stock could plummet in no time.

Needless to say, Musk will have to be careful that the Tesla shares he has pledged to banks won’t be seized. Ironically, the easiest way for Musk to fill the gaping hole in X’s balance sheet is to sell Tesla stock. You can see how problematic this situation is.

Desperate for money, Musk borrows money from SpaceX. SpaceX is a privately held company with losses totaling $1.5 billion (approximately 210 billion yen) in 2021 and 2022. Musk borrowed $1 billion from Twitter when he bought it. He paid it off within a month, but he had to sell $4 billion worth of Tesla stock to do so.

With his wealth and power, Musk has created an alternate reality where he doesn’t have to take responsibility for the risks he takes, but his ability to keep the light of X running is reaching its limits.

1st day of life on earth

From the beginning of his relationship with Twitter until now, Musk has always burned his cash at the worst possible times.

For decades, Musk has operated in a benign economic climate with interest rates near zero. But Musk moved to buy Twitter just as central banks around the world began raising interest rates to combat inflation. That means it’s becoming more expensive to repay debt and it’s harder to get new loans. This dramatic change could cause a rift in space, causing Musk’s real world to cascade into ours.

The future of Tesla’s business won’t help Musk much either. The company’s share in the EV market has declined due to the entry of competitors. New entrants have forced Musk to lower prices on the cars it sells starting in early 2023. As a result, Tesla’s profitability is under severe pressure.

The company plans to expand production capacity, but has no plans to revamp its aging lineup. Of course, it’s a different story if you consider Cyberbird Trucks, but it’s something that most people don’t see.

In November 2023, Tesla held a presentation to celebrate the delivery of 10 Cybertrucks. There are only 10 of them. There is also a plan to release the cheapest model with a selling price of $60,000 (approximately 8.4 million yen), but the company has announced that it will be released in 2025.

Brian told me in an interview that he thinks Musk will continue to siphon money from Tesla in opaque ways. However, the question is, even if there were funds that could be diverted, how much would that amount be? And how long should it continue?

“We’re just waiting for Elon to admit defeat,” Brian said.

Based on his 30 years of experience in distressed investing (editor’s note: an investment method in which stocks and bonds of companies in financial distress are purchased and sold when the company’s value increases), Brian’s opinion is that The company’s net worth has long been depleted due to Musk’s reckless behavior.

Banks, for their part, can’t even sell their loans for 85 cents on the dollar; in Brian’s view, they’d be better off selling them for 40 cents.

By all accounts, X has credit problems, and according to Brian, a mundane restructuring plan is required: bankruptcy. If Musk loses his grip on cycling, he’ll likely default on the debt he owed when acquiring Twitter. By doing so, banks can speed up debt collection. A standard debt contract includes a clause that allows the lender to force the borrower to repay the loan balance in full if certain requirements (such as payment) are not met. In that case, X is allowed to file for personal bankruptcy.

“There’s money that’s already on fire and will never come back. We’re working on a rescue project for They can hope that we can pretend that the incident never happened and take prompt remedial measures.” (Brian)

Is it possible to keep X alive with just that? That may not be the case, but that is the company’s single biggest hope.

Wall Street should be very ashamed. According to reports, the banks that hold X’s debt are already anticipating a loss of $2 billion (approximately 280 billion yen) even if they ultimately manage to sell the company.

It’s not difficult to understand why. I’ve pointed out from the beginning that this venture of acquiring Twitter has no money or philosophy.

Musk has always sought to reshape Twitter into a place that reflects his own narrow worldview. It’s his “Earth,” to borrow a phrase from his radical remarks at the Dealbook conference. Not a place for the average user.

I never thought that Musk fans would understand that, but I thought bankers would understand. They should know who pays for what in the media business. It’s very possible that Wall Street investors will end up with a messed-up X.

However, even after this fiasco has been played out, there is still salvation. That means at least they’ll know what not to do when the possibility becomes a reality.