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.