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How much debt does Elon Musk have?

ValueArb

By ValueArb
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ValueArb Mentor

ValueArb

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So Elon is borrowing $25.5B to buy Twitter, and putting in $24B in "equity", but I suspect that most of his "equity" is borrowed against his Tesla stock. I've read somewhere he's increasing his Tesla margin loan by $12B. And all of this money to buy a "business" that's never been profitable and has negative cash flow of roughly half a billion a year.

 

I've also heard the Tesla board restricts how much margin debt Elon is allowed to have, but since Elon controls the board I'm a little skeptical how rigorous those limits are. This all has me thinking what happens if Tesla's stock price drops below $600, where it was a year ago. Or below $500 where it was in 2020.

 

ARKK owns 1.5M shares of $TSLA, and it's at a two year low today. Its had nothing but inflows even as it dived from $156 down to $53, but that can change in a heartbeat forcing her to again start selling her most liquid holdings.

 

I'm not rooting for his failure here. I wish he would just focus his energies on Tesla and SpaceX. But I'm getting strong house of cards vibes.

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Gamecock-YT Proficient

Gamecock-YT

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I'm sure he'll exercise some more tomfoolery and have SpaceX or Tesla out right purchase Twitter before he seriously starts blowing up. He's already executed something similar to bailout himself and his cousins with that solar roof disaster. We need a good AOL/Time Warner-like merger to officially call a top on this bubble.

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aws Community Regular

aws

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Since the loans are at such low LTVs he is unlikely to be in serious trouble even if the shares drop below that $570 threshold. He's got something like 200 million Tesla shares, and even at 500 that's 100b vs. 12.5b in loans for Twitter + whatever else he's borrowed. He could presumably just borrow more against other pledged shares and post the shortfall collateral in cash. I think you would need to see something like an 80% fall before he gets in real trouble. That's unlikely, but still an unnecessary risk.

 

At best the purchase is a distraction from his core business. At worst it opens up some more ways for things to go catastrophically wrong. And after all the spats he has had with the 'tax the rich' caucus, to go ahead and fund the purchase with a margin loan is just going to provoke them further. How long until someone proposes a new law treating any shares pledged for margin loans above $1 billion as deemed sales? They probably couldn't push through a true wealth tax or one on all unrealized gains, but there would probably be more support for the most egregious types of tax dodges like this.

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ValueArb Mentor

ValueArb

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3 hours ago, aws said:

Since the loans are at such low LTVs he is unlikely to be in serious trouble even if the shares drop below that $570 threshold. He's got something like 200 million Tesla shares, and even at 500 that's 100b vs. 12.5b in loans for Twitter + whatever else he's borrowed. He could presumably just borrow more against other pledged shares and post the shortfall collateral in cash. I think you would need to see something like an 80% fall before he gets in real trouble. That's unlikely, but still an unnecessary risk.

 

At best the purchase is a distraction from his core business. At worst it opens up some more ways for things to go catastrophically wrong. And after all the spats he has had with the 'tax the rich' caucus, to go ahead and fund the purchase with a margin loan is just going to provoke them further. How long until someone proposes a new law treating any shares pledged for margin loans above $1 billion as deemed sales? They probably couldn't push through a true wealth tax or one on all unrealized gains, but there would probably be more support for the most egregious types of tax dodges like this.

 

He allegedly has $60B in loans. That's the only way a margin call at $560 would make sense.

 

Edit: According to Matt Levine: " He has pledged about 88 million Tesla shares to secure other loans, he is pledging perhaps another 64 million shares to secure this margin loan, so that leaves about 20 million shares — worth about $20 billion — free and clear that he could sell to raise more money."

 

And I think they should tax any margin loan above your basis as a sale (and credit you back when you actually sell). It's not just Billionaires doing it, so make fair by applying to everyone.

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aws Community Regular

aws

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I don't think the loan values are that high, but that the margin call figure is calculated specifically for this loan and not overall. I skimmed the linked document and I think it triggers additional collateral to be posted at 15% LTV, so I'm guessing that's what they are calling a margin call at 570, when it crosses that LTV. He likely pledged the shares for the other loans when they were much lower in value, so they probably have a LTV of 1% or something. I imagine he has a lot of room to draw additional against those share, or could refinance. 

 

I do generally agree that the margin loan to avoid paying tax is a loophole that could be closed, but that's the kind of thing that is often difficult to trace. Personally I go from margin credit to margin debt many times each year, maybe sometimes for just a couple of days, and determining what stock I was avoiding a gain on by doing so is basically impossible. In Elon's case it's pretty clear what shares he is pledging, but for me, not so much. I would imagine there would have to be some type of floor on when you would be subject to reporting rules if they did start to tax margin loans as otherwise it would be a massive burden for small accounts.

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Parsad Grand Master

Parsad

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On 4/26/2022 at 10:22 AM, ValueArb said:

So Elon is borrowing $25.5B to buy Twitter, and putting in $24B in "equity", but I suspect that most of his "equity" is borrowed against his Tesla stock. I've read somewhere he's increasing his Tesla margin loan by $12B. And all of this money to buy a "business" that's never been profitable and has negative cash flow of roughly half a billion a year.

 

I've also heard the Tesla board restricts how much margin debt Elon is allowed to have, but since Elon controls the board I'm a little skeptical how rigorous those limits are. This all has me thinking what happens if Tesla's stock price drops below $600, where it was a year ago. Or below $500 where it was in 2020.

 

ARKK owns 1.5M shares of $TSLA, and it's at a two year low today. Its had nothing but inflows even as it dived from $156 down to $53, but that can change in a heartbeat forcing her to again start selling her most liquid holdings.

 

I'm not rooting for his failure here. I wish he would just focus his energies on Tesla and SpaceX. But I'm getting strong house of cards vibes.

 

I've seen stranger things happen.  Leverage can be dangerous...it killed Lehman Bros., it killed New Century.  Even the smartest man in the world is capable of doing something incredibly stupid.  What if we see a 1929 again...margin call doesn't seem so unlikely then!  Cheers! 

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fareastwarriors Mentor

fareastwarriors

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He might own 48%-50% of SpaceX. Valuation reported last round was at $100 billion. That's a lot of coin. 

 

 

https://www.forbes.com/sites/jonathanponciano/2021/10/08/elon-musks-spacex-reportedly-lands-100-billion-valuation-in-private-investor-transactions/?sh=bba5f9d44161

 

How much of SpaceX does Elon Musk own?

According to Barron’s, Musk owns about 50 percent of SpaceX. Forbes places his ownership more specifically in the 48 percent range. Despite his owning less than half of the company, Musk retains absolute control over SpaceX and its business operations. This is because Musk controls a whopping 78 percent of voting shares in the company, giving him more significantly more leverage than any of SpaceX’s other shareholders.

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