Despite his substantial fortune of $330 billion, Elon Musk still encounters financial challenges.
The wealthiest individual globally indeed derivated substantial gains from his gamble on Donald Trump's presidency. Nevertheless, the issue at hand is the urgency of converting these earnings into cash. Elon Musk, the CEO of Tesla, finds himself in a precarious financial situation. Maybe Musk has another hidden advantage in store.
Musk's portrait as a brilliant and shrewd entrepreneur is not debatable: With a net worth approaching $330 billion, he unsurprisingly assumes the title of the world's richest person. His investment in Trump's election victory, totaling nearly $120 million, played a significant role in this financial growth. Musk's reward: he is now Trump's closeted counselor and "First Buddy," while Tesla's stocks experience an unprecedented surge.
It becomes increasingly evident that Musk's seemingly disastrous investments and loyalty to Trump have been meticulously calculated maneuvers. Some of these deals in isolation may have failed. However, considering Musk's empire (Tesla, SpaceX, and Starlink), these business transactions may be the most successful strategy ever.
Despite his monetary successes and considerable fortune, Musk's business ventures face a significant cash issue. The culprit: the 2020 acquisition of Twitter that cost him a staggering $44 billion, roughly 1/7th of his current worth. In the coming years, he must settle the loans from his own resources. Musk's Trump gamble offers an excellent starting point for this financial challenge.
Loans for the "dud deal" pose challenges for Musk
At first glance, the Twitter acquisition appears to be an unsuccessful financial endeavor. The outrageous buying price seemed ludicrous when Musk took possession of the platform in October 2022. Furthermore, the company dropped nearly 80% of its value within just two years, according to Fidelity's estimates. As of July, the platform, now known as X, was only valued at around $9.4 billion.
X continues to grapple with the mass exodus of advertisers that began shortly after Musk's takeover due to the absence of rules, turning the platform into a hub for racists, conspiracy theorists, and anti-Semites.
The press has branded the Twitter acquisition as the "dud deal." The majority of the buying price required Musk to sell Tesla stocks. He also relied on funding from seven banks, such as Morgan Stanley and Bank of America. Musk used his Tesla shares as security and X's assets as collateral for these loans. According to "Wirtschaftswoche," Musk personally pledged around 60% of his 411 million Tesla shares as collateral for the loans, while X took on additional debt totaling $13 billion.
These loans from the financial consortium are due in 2027 and 2029. The banks' inability to distribute the loans to investors as normal, owing to X's dwindling value, leaves them with no choice but to hope that Musk will somehow make good on his obligations. Until then, they settle for the high interest rates.
Musk is in dire need of cash in the near future. Fortunately for the workaholic, who we've always wondered how he manages all his ventures, he missed out on a $56 billion compensation package from Tesla due to a legal decision in court. The compensation would have been much welcomed.
What would have broken other entrepreneurs is just another hurdle for Musk. Upon closer examination, the X acquisition was his largest venture. By utilizing the platform as Trump's primary propaganda tool during the campaign, he made all his Trump bets possible. Musk bet on the future president's favor and succeeded. X was not solely a financial gamble but an investment in the future - and that future unfolds now.
SpaceX and Starlink are their own source of income.
For instance, the lucrative professional relationships Musk has sustained with the U.S. government for years should help with the X loan repayment. U.S. expert Julius Van de Laar estimates in an ntv interview that Musk receives up to $15 billion annually from Washington for SpaceX's services - the space company is growing rapidly.
As reported by Bloomberg News, the company, which is still not publicly traded and is over 50% owned by Musk, appears on the verge of a $350 billion valuation. The skyrocketing increase in value by approximately 40% within just a few weeks is projected. The new valuation is said to be established in connection with an upcoming transaction that would enable Musk and his employees to sell their shares to accredited investors.
If the deal goes through, the sale of SpaceX shares would also grant Musk an additional financial safety net. It is reported that Musk holds 54% of the company through a trust and maintains 78% of the voting rights.
SpaceX's most significant achievement, their wildcard move, could potentially lead to an IPO: Although a SpaceX IPO isn't imminent, there's been whispers for years about an IPO for the group's subsidiary, Starlink. SpaceX's CEO, Gwynne Shotwell,first hinted at this possibility in 2020, and Elon Musk has since continually stoked these flames. Musk mentioned that the SpaceX division supplying satellite-based broadband internet needs to establish "somewhat consistent income streams," as he stated in 2021.
With Trump's involvement, this could occur soon. The potential of Starlink is immense - its impact noticeable even without an IPO. It's Starlink satellites that have been supplying the Ukrainians with internet since the Russian invasion in 2022. Reports also suggest that Russian troops are allegedly utilizing this technology - a claim Musk has dismissed as preposterous. American airline United Airlines recently sealed a deal with SpaceX to furnish reliable and free internet via Starlink satellites on more than 1,000 of its upcoming planes. Passengers would have access to streaming, social media, shopping, and gaming on board both on aircraft monitors and their personal devices. The service is slated to commence in 2025. An IPO for Starlink would serve as the cherry on top. If the funding continues, Musk will continue to flourish in the coming years.
Musk's investments in SpaceX and Starlink could provide a much-needed source of income to help repay the loans acquired for the Twitter acquisition. The growing success of SpaceX, with a potential $350 billion valuation on the horizon, could provide Musk with additional financial security.
The prospect of an IPO for SpaceX's subsidiary, Starlink, could further bolster Musk's financial position, particularly if the service becomes widely adopted by airlines and other industries. The potential impact of Starlink, already seen in providing internet to Ukraine during the Russian invasion, is immense and could significantly enhance Musk's financial position in the coming years.
