Fund Manager: Just How Indebted Is Elon Musk?

Potential problems mount, including something this Friday, and the fact that Musk is possibly, personally keeping Tesla afloat. Dave Kranzler explains…

by Dave Kranzler of Investment Research Dynamics

Tesla continues to head south since hitting its post-earnings high of $321. It’s down nearly $100 from the $380 post “funding secured” tweet all-time high close on August 7th. The stock has diverged negatively from the SPX since mid-January. By all accounts the order-rate and delivery rate of Tesla’s 3 models is dropping quickly. While there may be a brief boost in sales from  Model 3 deliveries into Europe and China in Q1, it looks like Model 3 orders and deliveries in North America have slowed to a trickle. Complaints about the poor quality of the Model and poor service from Tesla are already populating European automobile forums.

There have been wide-spread reports from people who are having trouble getting canceled $1,000 reservation deposits on Model 3’s refunded. Several have reported receiving the refund only to have the check bounce after it’s deposited. Consumer Reports removed its highly sought recommendation rating from the Model 3 after citing poor quality control and reliabity. This past Wednesday Tesla’s General Counsel, who left his Washington, DC law practice and took the job two months ago, announced he was leaving the Company. The stream of high-level c-suite departures has been nearly continuous over the last year.

Tesla is staring at the $920 million convertible bond maturity due next Friday (March 1st). I have no idea how Tesla will address this, as it seems by many indicators that the $3.9 billion in cash Tesla posted on its year-end balance sheet may not be accurate, in addition to showing negative working capital of $1.7 billion. That said, I would not bet that Tesla will default this soon on its debt.

On Friday it was reported that Elon Musk took out $61 million in mortgages on his five California mansions, $50 million of which was new funding and $11 million was refinancing (note:  rumor of this deal was in the market a week earlier). Morgan Stanley underwrote the mortgages. I would suggest that Musk possibly needed the money to meet margin calls on his stock-holdings, against which Musk has borrowed heavily. Otherwise it makes no sense to me why an alleged billionaire would need to trifle with $61 million in mortgages. Morgan Stanley is one of Musk’s primary stock custodians. In that regard, I’m wondering if Morgan Stanley forced the issue.  It’s a good bet that Musk has pledged and hypothecated most of his assets as collateral against indebtedness. I have no doubt that when Tesla hits the wall, Musk’s wealth will largely vanish.