Musk's Expensive Problems

It seems Elon is in serious trouble, and it’s not just because of politics. In 2022, Elon acquired Twitter (rebranded as “X”) for $44 billion. No one, not even the richest man in the world, has that kind of money as a liquid asset. Musk had to take a massive loan, using Tesla stock as collateral to make the deal.

The acquisition of X is one of many bold moves Musk has made, and they are directly tied to Tesla's financial health.

These days, Tesla’s stock is under great pressure. Its Cybertruck was such a sales flop, competition in the EV market is heating up, politically motivated boycotts are spreading, and Musk himself is locked in an increasingly public feud with President Trump.

Suppose Tesla’s stock value continues to drop and investor confidence weakens due to political distractions. In that case, the investors may demand either (1) more collateral or (2) start selling off Tesla shares, which would further depress the stock. It’s a vicious cycle that could put an end to Tesla and Musk’s entire empire.

Do I sound too extreme? Being a billionaire does not mean they are sitting on billions of cash. Billionaires are those who own high-value assets that can be leveraged. Most of Musk’s wealth is tied up in Tesla shares, SpaceX, and other non-liquid assets. It is built on trust in Tesla’s value.

When the value of a business determines your net worth, leverage, and even ability to keep your other businesses afloat, any hit to that value can pose an existential risk. For a company like Tesla, things can be even more catastrophic because its valuation is largely speculative rather than objective or fundamental. In 2024, Toyoda’s net income was nearly $30 billion while Tesla recorded around $10 billion. But thanks to Musk’s popularity and his forward-looking vision, Tesla is valued approximately three times more than the world’s largest automobile company by revenue.

However, there are many concerning signals. The Cybercab is too dangerous to pass regulations and even if it did, we now know that it wouldn’t make any money – especially if the President tries to reduce the US focus on electric vehicles.

Throughout his life, Musk has proved that he is an exceptionally resilient person. It wouldn’t be the first time he bounced back from a near-death. But it won’t be easy to fight the weight of political tension and heat up the cooled-down Tesla shares, even for Elon Musk.

Rich people don’t just have problems. They have expensive problems. It seems like Musk is about to face the most expensive problem he ever faced.