Elon Musk, the “Chief Twit” and Tesla “Technoking,” might never reclaim the title of the world’s richest person. Just how far he has to fall is anyone’s guess.

It’s not just that he became the first person in history to have $200 billion erased from their personal fortune. And it’s not only about how he’s spending more time on Twitter these days, striking a conspiratorial tone about everything from politics to vaccines to the very social-media company he purchased for $44 billion in a debt-fueled buyout.

To understand the dramatic rise and precipitous fall of Musk’s net worth requires a reckoning: With the centuries-old trap of equating wealth with brilliance, and with the great monetary experiment of the pandemic era, which made a whole host of business leaders and investors look like visionaries — if only for a moment.

But, more concretely, it begins with Musk’s pay. First came awards in 2009 and 2012 that bolstered his Tesla stake, then an unprecedented moonshot package in 2018, which, combined with his use of margin loans, laid the foundation for one of the most explosive wealth creations in history.

The 2018 pay plan, the largest executive compensation deal in history, drew pointed criticism from shareholder-advisory firms, but was approved by an overwhelming majority of Tesla investors. The goals seemed ambitious and a long way away. One target was for the electric-car maker to grow its market value to $650 billion — around the same level as tech giants Amazon.com Inc., Alphabet Inc. and Microsoft Corp. at the time.

It was, in the biggest, boldest, Muskiest way, meant to keep him focused on Tesla for the long haul.

Instead, thanks in no small part to his showmanship, the stock price soared. By the end of 2020, it earned a coveted spot in the benchmark S&P 500 Index. He made his “moonshot” — 304 million Tesla options with an exercise price of $23.34 — look easy.

The award was structured to vest in 12 tranches and was dependent on the carmaker hitting various financial and market capitalization milestones. All but one of the tranches has vested — making the award a smash success, but not without flaws.

“The 2018 compensation package clearly wasn’t enough to keep Elon focused on Tesla,” said Kristin Hull, founder of Nia Impact Capital, a social-impact fund based in Oakland, California. “I’d like to get a more clear definition of his role at Tesla. What is the actual role of Tesla’s CEO? It’s too nebulous right now.”

The pay package is now part of a shareholder lawsuit in Delaware, which claims it was excessive and should be returned to Tesla because the incentives didn’t do what they were meant to.

Musk, 51, flew on a red eye — albeit by private jet — to appear on the witness stand at the mid-November trial, just weeks after closing his leveraged buyout of Twitter. The judge in the pay case, Kathaleen St. J. McCormick, also oversaw months of legal wrangling between Musk and Twitter over the deal. A subdued Musk portrayed himself as a reluctant CEO and workaholic who had no role in setting his pay.

While Judge McCormick has yet to rule on the lawsuit, the market has already reached a verdict.

Fractured Fortune

Tesla stock is down 39% since Dec. 1, quintupling the loss of the tech-heavy Nasdaq 100, as the carmaker faces heightened competition and missed expectations for deliveries even after offering discounts. Musk, who for years has used the shares as a way to raise cash for himself through margin loans, is no longer the world’s richest person, with his net worth standing at $129.4 billion, down more than $210 billion from its peak, according to the Bloomberg Billionaires Index.

Musk’s Money

Tesla still makes up the bulk of his fortune, but SpaceX is a growing share

Fidelity Investments, an investor in Twitter, already values the social-media company at less than half of what Musk paid for it as advertising revenue has tumbled and borrowing costs have surged. That means Musk’s estimated 79% stake, which required him to repeatedly dump Tesla shares to help raise more than $22 billion, is now worth $11.6 billion.

Musk was given an option on Tesla stock and did everything he could to drive up its value, said Stephen Diamond, a law professor at Santa Clara University who teaches securities law and advises institutional investors on corporate governance. What directors didn’t see coming was their unpredictable CEO cashing in some $40 billion worth of shares, much of which went to overpaying for another company.

“The board has made millions, and he has made billions,” Diamond said of Musk. “But there was always a risk that he would exploit this in the short term and leave the company hanging.”

At this point, the bedrock of Musk’s fortune is his 42% ownership of Space Exploration Technologies Corp., the rocket launch company he founded in 2002, before he got involved at Tesla. The value of the closely held company continues to climb, most recently raising $750 million at a $137 billion valuation.

But, crucially, Musk likely can’t leverage SpaceX, nor his Boring Co. and Neuralink, as aggressively as he can publicly traded Tesla. His margin loans turbocharged his ascent up the wealth rankings by helping him raise cash to fund his other expensive ventures. His initial plan to buy Twitter involved using the debt too, but he restructured the financing package in May after market volatility sent Tesla shares falling.

Margin Question

The natural question after Tesla’s recent tumble: At what point could the Technoking be margin called?

There’s no clear answer, and any estimate relies on scenarios that are difficult to know through price swings or securities filings alone. (Musk and Jared Birchall, the managing director of his family office, didn’t respond to questions for this story.)

Tesla’s 2022 proxy filing shows Musk had about 52% of his shares pledged to secure debt as of the end of March, but it doesn’t specify how much he had actually borrowed against the pledged stock, or the terms of what could be one, two or several margin loans.

However, the margin-loan agreement that was originally part of the Twitter financing package provides some clues.

Under those terms, he could have borrowed $12.5 billion at a 20% loan-to-value ratio, with a margin call kicking in if that figure reached 35%, requiring him to either pledge more Tesla shares as collateral or reduce the size of the loan, or a combination of both.

Assuming the same parameters, and using the $359.20 stock price from March 31, Musk could have borrowed $19.2 billion against shares worth about $96 billion, according to Bloomberg calculations.

‘Generally Wise’

As Tesla shares extended their decline, the 35% ratio threshold would have been hit on Oct. 14, when the stock closed below $205. To return to 25%, he would have had to post Tesla shares worth $22 billion or pay down the loan by $5.5 billion.

A few weeks later, Musk offloaded shares worth $3.95 billion — even though he said in April and August that his sales were done. It’s unclear whether he needed more money for his Twitter purchase, or if margin loans played a part.

After he began those sales, Tesla declined another 19% through Dec. 12, when he started selling another $3.6 billion of shares. Days earlier he’d tweeted it was “generally wise” to avoid using margin debt on any company when there are macroeconomic risks involved.

If the roughly $7.6 billion in combined sales in November and December wasn’t enough to completely eliminate any margin debt, the math could be getting tricky.

The theoretical loan would still have $11.7 billion outstanding. Subsequent share price declines would have meant Musk would have to post more Tesla shares, if he didn’t have other sources of cash to repay the loan.

If Musk posted all his remaining Tesla shares, he’d have enough to secure the debt unless the share price fell below $79. The stock fell to as low as $101.81 earlier this month — an almost 50% decline in the span of five weeks.

After that, Musk’s options from his 2018 award might be difficult to use as collateral for a margin loan because the shares can’t be sold for five years after their exercise.

Path Forward

Of course, even with Tesla in sharp decline, Musk has a path to overtake France’s Bernard Arnault, now the world’s richest person, and stave off competition from Indian energy magnate Gautam Adani.

It starts with SpaceX, which is a dominant force in a still-nascent industry, much like Tesla had been in the electric vehicle arena.

Just last week, Chamath Palihapitiya, known as the “SPAC King,” predicted SpaceX’s internet-from-space initiative Starlink will go public in 2023, far sooner than planned, in part so Musk could “create breathing room for himself.” Starlink played an important role in the war in Ukraine with Russia’s military seeking to destroy communications.

Such a move would give Musk another publicly traded company to attract investors of all stripes.

Musk has said his grand plan for Twitter is to use it as a springboard for an everything app called X. Judging by his past comments, it could be akin to Chinese super-app WeChat, which is the bedrock of Tencent Holdings co-founder Pony Ma’s $40.9 billion fortune, the world’s 30th-largest.

For now, though, those ambitions look far, far away. Musk still needs to find a new CEO for Twitter — someone who, in his words, is “foolish enough to take the job!” He openly floated the idea of bankruptcy in his first address to employees after buying the company.

Meanwhile, over at Tesla, the board of directors is being pressured to prove whether they’re sufficiently prepared for the potential loss of Musk as CEO. A shareholder in Iceland submitted a resolution for investors to vote in May on whether the eight-member board should prepare and maintain a key-person risk report.

More importantly, some of Musk’s most dedicated supporters have had enough of his antics. Leo KoGuan, a billionaire entrepreneur who built one of the biggest positions in Tesla, has said that the “board is missing in action.”

Carmaker Comparison

Tesla’s market value is tumbling toward the level of other automobile manufacturers

Though the company acknowledges its key-man risk with Musk, Tesla’s growth was fueled in no small part by low interest rates and the tepidness of the world’s leading automakers to enter the era of electrification.

But the wide open playing field that Tesla enjoyed for a full decade is now crowded with legacy automakers and new entrants like Lucid and Rivian. In signs of the times, Tesla, which reports earnings on Jan. 25, has been cutting prices and offering discounts — a practice Musk has railed against — most notably in China’s increasingly competitive EV market.

“Is Elon Musk really going to allow this iconic American company to self destruct?” Diamond, the law professor, asked about Tesla. “It boggles the mind to see what he’s doing right now. With Twitter, he bit off more than he could chew. He’s now trapped himself financially.”

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