Elon Musk is cracking under the pressure of the biggest gamble he's ever taken in his life

Elon Musk was on a hot streak.

From 2019 to 2022, it seemed as if every gamble that Musk took was paying off. Tesla was consistently profitable for the first time in its history and its stock soared as its massive new Shanghai plant ramped up production. SpaceX rockets captivated the public’s attention — even when they blew up, everyone still clapped. Accusations of corruption and self-dealing slid right off Musk’s back. Musk could do and say anything he wanted and success followed: He was even named Time’s 2021 Person of the Year.

Then Musk did what every risk-addicted blackjack player inevitably does: pushed his luck too far. Overconfidence, confirmation bias, and delusions of control led to a string of bad decisions — and BOOM — Elon’s empire is in trouble again.

The change of fortune was apparent at The New York Times Dealbook Conference last week. During an interview with host Andrew Ross Sorkin, the recognizable tells that Musk’s hand had gone cold were everywhere. He raged at the very people who will dictate Twitter’s fate, seemed baffled by key questions about the future of his companies, and offered non-apologies for his unhinged, antisocial behavior online. Sorkin suggested Musk’s brain is like a storm, but it sounded more like two cats fighting to get out of a duffle bag.

This, ladies and gentlemen, is what it looks like when Musk realizes he’s in a jam entirely of his own making. I know, because we’ve seen it before, including back in 2018, when he nearly flew Tesla into a mountain. He may find a way to ward off calamity, as he did then, but this jam is much tighter than the last one. Musk has to contend with over $13 billion of debt still weighing down a swiftly sinking Twitter, Tesla’s profits shrinking because of a lack of demand and new products, and a world that is generally sick of his schtick. In Muskland, everything is connected by money — problems at one business bleed into the others. That’s why Elon is being exceptionally obstinate. It’s not just your imagination — his luck has changed.

2018, the first annus horribilis

If you want to understand Musk’s latest unhinged behavior, it’s helpful to understand the reasons he’s lashed out in the past. So let me take you back to the wild ride that was 2018: Musk had bet Tesla’s future on the Model 3. With an intended starting price of $30,000, the car was supposed to make EVs accessible to drivers who couldn’t afford luxury prices. But Tesla’s investors got increasingly restless as the model became trapped in what Musk called “production hell.”

The pressure to get the Model 3 out clearly weighed on Musk, and he was not subtle about it. On Tesla’s first-quarter earnings call, he cut off one analyst’s basic financial question, saying that “boring, bonehead questions are not cool.” He got so frustrated that he ditched the analysts entirely and started taking questions from fans posting on YouTube. Eventually, he even begged skeptical Tesla investors to “please, sell our stock.” When Musk is at his most hungry for cash, he tends to bite the hand that feeds.

Musk also became more active on Twitter around this time, often with erratic results. When a professional diver complained that Musk was distracting from efforts to rescue a children’s soccer team that had been trapped in a cave in Thailand, Musk called the diver a “pedo guy” and harassed him on Twitter. He used the platform to whine about the media, attack investors betting against Tesla’s stock, and even tweeted that he would be taking Tesla private at the price of $420 a share when there was no such deal in place. Tesla was — as Musk later admitted — “near death,” and summer’s “production hell” was about to turn into autumn’s “logistics hell.”

Tesla’s salvation came in the form of the Chinese Communist Party. In 2019, as executives were fleeing Tesla and the company continued to bleed cash, Musk struck a deal to build a factory in Shanghai. From permitting to construction to opening, the Shanghai Gigafactory was built in just 168 working days. Skeptical observers — myself included — were blindsided. What we failed to appreciate was the staggering power of the CCP when it’s aggressively pushing to meet a single goal. When the party said Tesla could build the factory there, that meant immediately.

Generally, there are two different lessons a person can take from surviving a brush with near ruin. They can learn to be more cautious, or they can decide that they are indestructible and tempt fate.

Without China, Tesla would not have finally turned into a “real car company,” in Musk’s own words. He dodged destruction and started to settle down and focus on other projects, like Starlink. Sure, he was still wilding out on Twitter, but at least he wasn’t bawling to Rolling Stone about how badly he needs a girlfriend to be happy. At last, it seemed the Musk universe had found some kind of frenzied equilibrium.

Generally, there are two different lessons a person can take from surviving a brush with near ruin. They can learn to be more cautious, or they can decide that they are indestructible and tempt fate. I don’t think I need to tell you which path Musk chose.

All of Elon world is connected

Say what you want about him, but Elon Musk has ambition. On top of the world in early 2022, Musk decided that he had the power to single-handedly “fix” the entire concept of free speech. And given that he is hopelessly addicted to the adulation he gets from Twitter, that’s where he figured he would start.

We all know this part of the story. Musk started building a stake in Twitter in early 2022, then offered to buy it outright. He offered such a ridiculously high price that the board couldn’t say no. A consortium of banks — led by Morgan Stanley — loaned him a large portion of the money. And finally, after trying and then failing to renege on the deal, he bought Twitter. Not long after completing the deal, Musk exhausted all the ideas to turn around the platform and was left with angry former employees, skeptical advertisers, a terrible new name, and a massive pile of debt owed to the Boy Scouts over on Wall Street.

Nowadays, some analysts, like Vicki Bryan, the CEO of the research firm Bond Angle, suspect that Twitter is spending much more than it’s able to generate or borrow.

“With the company still burning cash and $1.3-1.5 billion in annual interest due over the past year, I had expected Twitter to live on borrowed time,” Bryan wrote in a note to clients. She said that even if Twitter tapped the loans available to it at the beginning of the year, the company may be almost out of options. “The year is over, so Twitter’s cash may be nearly if not already dried up — along with Elon Musk’s options,” Bryan wrote.

Because of the way that Musk operates, the social-media company’s troubles pose a threat to his whole business empire. Despite being the second-wealthiest person in the world, Musk is curiously cash poor. He doesn’t take a salary from Tesla, and while he owns about 20% of the EV maker, public documents filed in March show that about 63% of those shares are “pledged as collateral to secure certain personal indebtedness.” You know, like the private jets.

The year is over, so Twitter’s cash may be nearly if not already dried up—along with Elon Musk’s options Vicki Bryan, CEO of research firm Bond Angle

This is why using Tesla stock to source cash all the time gets hairy. If Tesla shares fall below a certain level, the banks can call in those personal loans — leaving Musk on the hook. And the quickest way for Tesla’s stock to drop off a cliff is for investors to get wind of a big Musk sale. And of course, he needs to make sure that he still holds on to all the Tesla stock he’s pledged as collateral to the banks. Unfortunately, though, the easiest way for Musk to fill the gaping hole in Twitter’s balance sheet is to sell Tesla shares. You see how this could be a problem.

Sometimes, when he’s really hard up, Musk borrows money from SpaceX — a private company that lost a combined $1.5 billion in 2021 and 2022. He borrowed $1 billion from the company when he bought Twitter and paid the loan back within a month — but he had to sell $4 billion worth of Tesla shares to do it. Using his wealth and power, Musk has built himself a separate reality where there are no real consequences for the risks he takes, but keeping the lights on at Twitter — sorry, X — is testing its limits more and more by the day.

Life on Earth 1

All of this money-incinerating activity, from the beginning of the Twitter deal to this very moment, could not have come at a worse time. For decades, Musk has operated in a placid economy where interest rates were near zero. But Musk started buying Twitter right as central banks around the world began hiking rates in an effort to combat inflation. That means the cost of servicing his debt is getting more expensive, making it harder for him to get new loans. It’s a shift so dramatic that it could rip a hole in the universe through which Musk’s reality collapses into our own.

The outlook for Tesla’s business doesn’t help him much either. The company’s share of the EV market has fallen as competitors have swarmed in. The new entrants prompted Musk to start cutting prices for his cars at the beginning of 2023, and as a result, Tesla’s profitability is under serious pressure. The company has plans to expand its manufacturing capability, but no plans to refresh its aging fleet of vehicles. Unless, of course, you count the Cybertuck, which most do not. Last month, Tesla threw a launch event to celebrate the delivery of 10 Cybertrucks. Ten. The least expensive model, priced at $60,000, will not be available until 2025, according to the company. Bryan told me that she expects Musk to continue to siphon money from Tesla in obscure ways — but the question is: How much money will there be to siphon, exactly? And for how long will he need to do that?

There is money that has been set on fire that is never coming back Vicki Bryan

“The only thing we’re waiting on is for Elon to cry uncle,” said Bryan. In her view — which is based on 30 years of investing in distressed assets — any equity in the company has already been erased by Musk’s antics. As for the debt, the banks have been unable to unload it at 85 cents on the dollar, and she thinks they’ll be lucky to get 40 cents. By all accounts, Twitter has a credit problem, and Bryan said that calls for a run-of-the-mill restructuring solution: bankruptcy. When Musk tires of robbing Peter to pay Paul, he will default on his Twitter loans. Then the consortium of banks that own the debt can accelerate it — standard debt agreements come with clauses that allow lenders to force a borrower to pay all of an outstanding loan back if certain requirements (like payment) are not met. Once that wire is tripped, Twitter can declare bankruptcy.

“There is money that has been set on fire that is never coming back,” Bryan said. “We’re in the salvage business with Twitter. In a restructuring, with Elon gone, you can have people looking at it. They can foresee that Elon didn’t do anything that can’t be reversed and offer instant relief.”

Will it be enough to save Twitter/X? Maybe not, but it’s the company’s only and best hope.

Wall Street should be thoroughly embarrassed. According to reports, the banks holding Twitter’s debt are already expecting to take a $2 billion hit when they can finally sell it off. It’s not hard to see why. I’ve said from the jump that there was no money in this Twitter venture, and no principles either. Musk was always going to turn Twitter into a reflection of his limited view, his “Earth” — as he put it during his manic rambling at Dealbook — not a place for the average user. I never expected Musk’s fanboys to understand that, but I did expect bankers who are supposed to understand who pays for what in a media business to get it. In the end, there’s a real chance Wall Street investors will wind up owning the shambolic mess that is Twitter/X. One of the few blessings to come from this fiasco is that when that happens, at least they’ll know what not to do with it.

Linette Lopez is a senior correspondent at Business Insider.