Will Elon Musk Be the Next CEO to Face A Margin Call Death-Spiral?

Submitted by Mark B. Spiegel of Stanphyl Capital Management

In the annals of CEO margin-call history, among the most infamous are Worldcom’s Bernie Ebbers, Chesapeake’s Aubrey McLendon and Steinhoff's Christo Wiese.  Is Tesla CEO Elon Musk on the path to joining them?

Although it’s been known for years that Musk borrows hundreds of millions of dollars against his Tesla shares to support his expensive jet-setting lifestyle of spectacular homes, actresses and planes (not to mention child support), there was a new development buried in Thursday’s release of the annual Tesla proxy statement:

…directors and executive officers may pledge their Company stock…as collateral for loans and investments, provided that the maximum aggregate loan or investment amount collateralized by such pledged stock does not exceed twenty-five percent (25%) of the total value of the pledged stock.

Yes, Musk’s loans are now limited to 25% of the value of the pledged stock, a policy that seemingly did not exist when last year’s proxy was issued.

So how much money are we talking about here? The most recent figure we have for the value of Musk’s margin loans comes from the registration statement for Tesla’s March 2017 stock sale, in which on p. S-9 it notes that he (at that time) owed a total of $624.3 million to various financial institutions, with the largest amount ($344.4 million) owed to Morgan Stanley whose Tesla analyst Adam Jonas has—coincidently or not—lately been desperately conceiving of increasingly fantastical reasons to maintain a TSLA price target of $376 despite steadily slashing his estimates as one “justification” after another for that target evaporates into the realities of Tesla’s massive cash burn and technological backsliding.

So if Musk owed $624.3 million over a year ago and subsequently paid interest on that loan while drawing a minimal salary ($49,920) and continuing his aforementioned luxurious lifestyle while pouring $100 million into his latest distraction, the Boring Company, it seems reasonable to guess that his current loans total approximately $800 million, which means—according to the new proxy—they’d need to be collateralized by $3.2 billion in Tesla shares. As the proxy notes Musk has currently pledged 13,774,897 of his 37,853,041 shares to support those loans, it implies that at a share price below $232.30 (assuming a current balance of $800 million), he’d face either a margin call or the need to post additional shares as collateral. (For some perspective, earlier this month the stock dipped as low as the $244s.)

Also note that as Musk’s expensive lifestyle continues, the number of shares pledged to maintain it escalates on an annual basis, as noted in this table posted today on Seeking Alpha:

Of course, Musk does have millions more TSLA shares he can (and undoubtedly will) pledge to meet margin calls, so an outright liquidation of his stock is unlikely to occur until the price of Tesla shares dips into the $90s. However, the closer the stock gets to that figure (and considering the financial disaster Tesla is, that time may be closer than one might think), the more likely it is that the ensuing “death spiral liquidation” will be front-run (and thus accelerated) by observant market participants, perhaps at prices well into the $100s. Let’s hope that Mr. Musk—despite having the “advantage” of Autopilot—doesn’t wind up as Mr. McClendon did.


SloMoe Sat, 04/28/2018 - 12:13 Permalink

Bernie Ebbers/WorldCom redux?

The more Nortel equip Ebbers bought (greater cap ex), the more more Wall Street loved him, thinking that showed greater growth potential. Little did they know, he was playing their game and simply warehousing the excess Nortel gear, feinting actual growth. I believe both WorldCom and Nortel were liquidated. Ebbers went to prison...

Alien dreadnought/machine that builds the machine/tunnel boring/space-ship to Mars/neural network. Anyone?

With his new hair plugs, Musk is going to make Bubba proud, as his new prison wife.















wmbz Sat, 04/28/2018 - 12:18 Permalink

No matter, when Tesla goes tits up, Musky will walk away with all the marbles and everyone else will get severed a nice big steaming shit sandwich. He will be hailed as genius with great vision.

His worshipers will follow dutifully along on to his next taxpayer shakedown.  

rosiescenario Sat, 04/28/2018 - 12:43 Permalink

" it seems reasonable to guess that his current loans total approximately $800 million, which means—according to the new proxy—they’d need to be collateralized by $3.2 billion in Tesla shares.



NVTRIC Sat, 04/28/2018 - 12:59 Permalink

Panasonic owns the Gigafactory.  Tesla was just to get the 100% 20 year government tax abatement.


The factory is a monstrosity.  Sickeningly large.  Robots can build other things besides cars and batteries...

Paul E. Math Sat, 04/28/2018 - 13:25 Permalink

So Musk still has 20M more shares to pledge.  Which he will do.

While the company's financials are an absolute abortion with no potential for long-term profitability, I don't see this blowing up for a couple years yet.

PrivetHedge Sat, 04/28/2018 - 13:35 Permalink

Another pharisee scheme is circling the bowl.

All he had to do was source a car body from a company that knew how to build them (like Lotus and Tesla did before Musk gatecrashed the firm) and stick in a battery, controller and motor: then sell them.

Wasting time with immediately making the whole car, bizarre and irrelevant self-driving tricks and a push to automation before he had anything to automate smacks of an actor who wanted to look like a serious player but had no idea about either engineering or manufacture.

wains Sat, 04/28/2018 - 14:04 Permalink

The problem Musk and Tesla has had is not so much in not having sales (a bunch of tards have put down deposits), it's been in fulfilling the product.  I do not think he can do it.  I do think he can lie about it and boast of "questionable" production numbers that will absolutely crush shorts when they report in May.

Let it Go Sat, 04/28/2018 - 17:11 Permalink

Elon Musk reminds me of the silver-tongued defense lawyer Billy Flynn from the movie musical Chicago. The cynic in me makes me dubious of his ability to pull off or complete several of his recent projects but regardless of the fact I'm skeptical he has definitely proven he can razzle dazzle us. The media seems to be in love with Musk and many people think he can do no wrong.

Whenever Musk is in trouble he goes into a dance, anything to distract or take eyes off the past promises he has failed to carry out. Like the proverbial snake oil salesman hyping the miraculous powers of his product and making outlandish claims accompanied by a tremendous amount of razzle-dazzle Musk tends to over promise.More on this subject in the article below.

 http://Elon Musk Continues to Razzle Dazzle The Masses html

slvrizgold Sun, 04/29/2018 - 06:36 Permalink

I am going to go out on a limb and predict that he ends up similar to Aubrey McClendon of Cheasapeake Energy in the next year or three... I swear to fucking GOD I had an old boss many years ago that was a DOPPLEGANGER for Elon Musk. He was a Germanic guy named Heiko. He was a white trash guy who lived on the wrong side of town and rode a shitty motorcycle who dated strippers, lived with his mom and got fired for being an abusive drunk. No joke.

Disclosure: I have no position and never have, in overpriced no-profit, cash burning, soon to be BK Tesla Fagboy Space Motors.

Central Ohio Sun, 04/29/2018 - 08:32 Permalink

Often wondered how this guy got the money for his lifestyle when his company performs so poorly.  A fashionable product and stock with government loan support.  What a Swamp creature.  Fashions change, government nipple drys up, competition and technology advance, then what?  Reminds me of Orson Welles or Marlon Brando type.