Elon Musk's Fortunes Fade: Exploring Luck What Lies in 2023

Elon Musk’s Fortunes Fade: Exploring the Shift in Luck and What Lies Ahead in 2023

Elon Musk’s Rise and Fall

Elon Musk, from 2019 to 2022, felt like he was playing a high-stakes game, and the value of his moves was constantly being assessed. Tesla was consistently delivering profits for the first time in its history, and its stock soared as the new Shanghai plant contributed to increased production. SpaceX’s rockets captured public attention to the extent that when they exploded, applause still echoed.

Accusations of rudeness and self-immolation seemed to slide off Musk’s back. He could do whatever he wanted, say whatever he pleased, and success followed: he was even named Time’s Person of the Year for 2021.

Then Elon Musk did what every risk-taking blackjack player invariably does: pushed his luck too far. The chain of bad decisions began due to excessive confidence, confirmation bias, and the illusion of control—leading to BOOM—Elon’s dominion was once again in jeopardy.

Elon Musk’s Recent Struggles

A shift in fortune was evident last week at the DealBook Conference. During an interview with host Andrew Ross Sorkin, Elon Musk appeared cool, present, and everywhere. He expressed frustration with those who pass judgment on Twitter, seemed taken aback by important questions about the future of his companies, and offered an apology for his anti-social online behavior. Sorkin suggested that Musk’s mind is like a storm, but his voice sounded as if it were fighting to break free from a drum bag.

Ladies and gentlemen, it seems like Elon Musk is in the same zone he’s in when he feels completely in tune with his creation. I know because we’ve seen it before, including in 2018 when he launched Tesla to almost a mountainous height. Perhaps he can find a way to avoid disasters, as he did then, but this cup is harder to lift than the last.

Musk is dealing with debts exceeding $13 billion, rapidly declining Twitter shares, reduced profits from Tesla due to the demand for new products, and a world that is generally sick of his antics. In the land of the giants, everything is interconnected—problems in one business bleed into another. This is why Elon is resisting in an extraordinary way. It’s not just your imagination—his fate has changed.

Elon Musk’s 2018 Turmoil at Tesla

If you want to understand Musk’s latest unconventional behavior, it helps to understand the reasons he targeted in the past. Let me take you back to the wild ride that was 2018: Elon Musk had staked the future of Tesla on the Model 3. With an initial price of $30,000, the car was supposed to make EVs accessible to drivers who couldn’t afford luxury prices. But Tesla’s investors quickly lost patience as Model 3 production got stuck in what was called “production hell.”

The pressure to release the Model 3 was clearly on Musk, and he wasn’t okay with it. On Tesla’s first quarterly earnings call, he dismissed a financial analyst’s fundamental financial question by saying, “Boring, bonehead questions are not cool.” He became so disheartened that he completely dropped financial analysts, started taking questions from adoring fans posting on YouTube, and eventually pleaded with skeptical Tesla shareholders to “please sell our stock.” When Elon Musk is hungry for cash, he cuts the hand that feeds him.

Elon Musk's 2018 Tesla Turmoil
Elon Musk’s 2018 Tesla Turmoil

Elon Musk also became more active on Twitter at that time, often with misguided results. When a professional diver complained that Musk’s efforts to rescue a children’s soccer team trapped in a Thai cave were diverting attention, Elon Musk called the diver a “pedo guy” and harassed him on Twitter. He used the platform to stir up controversy in the media, attacked investors betting against Tesla’s stock, and even tweeted that when there is no such deal, he would take Tesla private at $420 per share. Tesla, as Musk later confessed, was “near death,” and the season of heat was transforming into the “production hell” of autumn.

Tesla’s rescue came in the form of the Communist Party of China. In 2019, as executives fled Tesla and the company kept the cash flow going, Elon Musk signed a deal to build a factory in Shanghai. From approval to opening, the Shanghai Gigafactory was built in just 168 working days.

Skeptical observers, including myself, were astonished. The powerful force of the Chinese Communist Party was when we failed to define what was so extraordinary about praising a “real car company” in Musk’s own words. He saved from destruction and began to thrive, focusing on other projects such as Starlink. Certainly, he was still making waves on Twitter, but at least he wasn’t talking about how much he needed a girlfriend to be happy. Finally, it seemed that the cosmic dice had found some sort of mad equilibrium.

In general, there are two lessons that can be learned when a person narrowly escapes the edge of the abyss. They can learn to be more cautious, or they can decide that they are indestructible and test fate. I don’t think I need to tell you which path Elon Musk has chosen.

Musk’s Twitter Splash: High Bid, Heavy Debt

Ask what you want about it, but Elon Musk desires it. In early 2022, Musk, being at the top of the world, decided he has the power to single-handedly “fix” the entire concept of free speech. Seeing that he regularly receives praise from Twitter with a dose of criticism, he thought, ‘Why not start from here?’

We all know this part of the story. Elon Musk began making his presence felt on Twitter in early 2022, then made a direct offer to buy it. The bid was so outrageously high that the board couldn’t refuse. Under the leadership of Morgan Stanley, a consortium of banks lent him a significant amount. After attempts, and then failing to acquire through a deal, he finally bought Twitter. Shortly after finalizing the deal, Musk put an end to all speculations about the direction of the platform, leaving disgruntled former employees, suspicious celebrities, a terrifying new name, and a hefty pile of debt on Wall Street Scouts.

Nowadays, some analysts, like Vicky Bryant, CEO of Research Firm Bond Angle, suspect that Twitter is spending more than it should, considering its ability to generate profits or take loans.

Bryant wrote in a note to clients, “The company is still burning cash and is on fire with $1.3-1.5 billion in annual losses during the past year. I expected Twitter to stay alive at the time of the Elon Musk acquisition.” She said that if Twitter had tipped its hand to lenders early in the year for loans, the company could be almost out of options now.

Musk’s Risky Business: Twitter’s Toll on the Empire

Due to Musk’s way of doing things, the social media company’s troubles are a threat to his entire business empire. Despite being the second richest person in the world, Elon Musk is surprisingly modest. He doesn’t take a salary from Tesla, and although he owns nearly 20% of the company that makes EVs, documents filed with the SEC in March reveal that about 63% of those shares are “pledged as security to maintain some personal indebtedness.” Private jets, you know.

That’s why the use of Tesla stock as collateral becomes a hairy situation. If Tesla shares fall below a certain level, banks can call those personal loans – leaving Musk in a bind. And the quickest way to bring down the Tesla stock from a mountain is to give Musk’s big stock sales to investors. And certainly, he has to ensure that he still holds all Tesla stock promised as collateral to the banks. Unfortunately, for Elon Musk, selling Tesla stock is the easiest way to fill the hole in Twitter’s balance sheet. You see how this can be a problem.

Sometimes, when he’s really in trouble, Elon Musk borrows money from SpaceX – a private company that suffered a joint loss of $1.5 billion in 2021 and 2022. He borrowed $1 billion from the company when he bought Twitter and repaid the loan within a month — but not without selling $4 billion worth of Tesla shares. Using his wealth and power, Musk has created a separate reality for himself where the risks he takes have no real consequences, but keeping a light on Twitter — excuse me, X — is constantly testing its limits.

Twitter Struggles Amidst Tesla’s Turmoil

All this activity burning money, from the start of the Twitter deal until this moment, couldn’t have come at a worse time. Elon Musk has worked in a calm economy for decades where interest rates were close to zero. But Musk started buying Twitter because central banks around the world began trying to increase interest rates to curb inflation. This means that the cost of servicing his debt is becoming more expensive, making it difficult for him to obtain new loans. It’s such a dramatic change that it can poke a hole in the universe through which Musk’s reality seeps into ours.

The perspective of Tesla’s business doesn’t help either. The company’s share in the EV market has dropped as competitors have arrived. The new entrants made Musk ready to start lowering the prices of his cars in early 2023, and as a result, Tesla is under severe profit pressure. The company has initiated a project to increase its manufacturing capabilities, but there is no plan to refresh its old models.

Until, of course, you don’t count the Cybertruck, which mostly doesn’t count. Last month, Tesla held a launch event to celebrate the delivery of 10 Cyber Trucks. According to the company, the cheapest model, priced at $60,000, won’t be available until 2025. Bryant told me that she expects Elon Musk to continue extracting money from Tesla in unclear ways — but the question is: how much will be in the safe? And when will he have to do this?

Brian basically said, “All we’re waiting for is Elon’s uncle to shed a tear.” In his view – built on 30 years of diving into challenging investments – any stake in the company got wiped out even before Musk made his moves. When it comes to debts, banks are struggling to bring it down to 85 cents on the dollar, and they’re crossing their fingers to get a lucky 40 cents.

Twitter’s Trouble: Musk’s Mission and Wall Street’s Woes

Now, let’s talk about Twitter trouble. Brian suggests a classic fix for the company: Chapter Eleven, a bit of a financial makeover. He predicts that when Musk juggles finances to keep things afloat, Twitter might end up defaulting on its loans. That opens the door for the banks, the loan owners, to speed up the process. Common loan agreements allow lenders to ask for the full debt back if certain conditions (like missed payments) aren’t met. If that happens, Twitter might have to declare bankruptcy.

In Brian’s words, “There’s money burnt here that we can’t recover.” He sees it as a mission to save Twitter. After Elon’s era, people might turn to it again. Brian believes Elon Musk hasn’t done anything irreversible, and quick relief could be on the way.

Will this be enough to rescue Twitter/X? Well, it might not be a guaranteed fix, but it’s the company’s best shot.

Now, about Wall Street. Brian thinks they should feel a bit sheepish. Word on the street is that banks holding Twitter’s loans are expecting a whopping $2 billion loss when they eventually sell it. Ouch! Why? Because, as Brian boldly puts it, there was no real financial backing to Twitter’s project, no guiding principles. Musk sort of molded Twitter to fit his limited theory, changing it according to his “artistic” vision – much like during his wild DealBook escapade. It wasn’t exactly a place for the average user.

Brian didn’t expect this from Musk’s fans, but he did from the bankers. They should know who foots the bill in the media business. At the end of the day, being the proud owner of Twitter/X’s symbolic mess of May’s Mail is a true opportunity for Wall Street investors. One silver lining from this mess is that, when it all goes down, they’ll hopefully figure out what not to do with it.

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