Could Elon Musk Go Bankrupt This Year?

An assessment in the wake of Tesla's Q1 deliveries

This morning, Tesla reported delivering only 336K vehicles in the first quarter, a decline of 13% vs. the previous year’s first quarter. That is a shockingly low number, far below virtually any analyst estimates, especially given that the Tesla protests and boycotts really only got rolling for half the quarter.

As I’ve written elsewhere, I see the removal of economic support for Tesla as a moral and strategic imperative now for anyone working to stop Trump. That work is clearly succeeding and only promises to gain momentum. Which leads me to explore a provocative question.

Could Elon Musk actually go bankrupt this year?

On the surface, it sounds like an absurd question since he is currently the world's richest man with a very diverse set of businesses. However, I have seen that claim many times on social media posts so I wanted to analyze myself whether it could be true. This is a long article but I found the exercise illuminating.

If it were true, it could offer a key pathway to undermining Trump’s power as well.

My conclusion is that it can actually happen and I will share why in three potential scenarios, all of which could drive Tesla stock prices to $20 or less and trigger automatic repayment on big debts he has against his Tesla stock. What's interesting about such a decline is that a billionaire hedge funder Christer Gardell from Europe said on Feb. 28, "Tesla, especially now with the whole Musk circus going on everywhere, is probably the most expensive stock on the global stock exchanges right now. It could go down 95% – and maybe it should go down 95%." On that date, the stock price was $292, so a 95% decline from there would be $14.60.

In the first scenario, the US stock market goes much further down (30-50% from peak) as a result of the trade wars Trump has unleashed and the crisis of democracy he is creating. The S & P 500 is down approximately 9% since its February 19 peak. Tesla stock is down 30% in that same period. Basically, Tesla has been dropping 3.3x as fast as the broader market because of all the negative market sentiment about Musk and DOGE. Anti-Trump anger is focused squarely against Tesla.

Musk's latest approval poll numbers are rough: 35% approve and 53% disapprove. According to a Newsweek article, “Musk ‘used to be beloved by Democrats,’ Enten said, noting that his favorability rating among the group was +35 in 2017. But now, Musk's favorability rating among Democrats is -91. ‘That is a movement of over 120 points in the negative direction, falling through the floor,’”

Basically, Musk is rapidly declining in popularity overall and especially in his core buyer market. Tesla's brand is tethered to Musk. With a major economic decline into full recession, Musk will take a good portion of the blame. If the same 3.3x pattern holds and the stock market goes down an additional 29% in the next few months from its peak, that could well lead to a 95% drop in Tesla stock price just by extending the current pattern. Tesla was at $360 on February 19 and a 95% drop would put the price at $18.

In the second scenario, which could parallel the first, Tesla stock is hit by an increasing recognition that it's not going to lead in EITHER autonomous driving OR robotics. Right now, Tesla trades at one of the highest P/E ratios in the market because it has a lot of "future" built into it. Investors see it dominating or playing a leading role in autonomous driving and robotics vs. its core business fundamentals as a car company. Even now after its recent drops, it has a P/E ratio of 126 vs. the S&P average is 27, and the auto industry average is 11.5.

What happens if it becomes clear that Tesla is not likely to become a top leader in either of those fields? There is a major launch on the docket for June in Austin for autonomous robotaxis and given Musk's history of launch misses, it's possible that Tesla misses that by 3-6 months, which undermines confidence in them at the same moment that BYD and Waymo are surging into dominance. Or the launch makes it clear that Tesla is far behind in the race. In addition, there's also a real risk that the next wave of protests and boycotts leads to people pledging never to buy an Optimus robot OR use Tesla robotaxis as an extension of the car boycotts. There are hundreds of major companies in robotics. Tesla could easily lose that race badly if they are weighed down by Musk's reputational damage.

So let's just say there's a non-zero chance that the oxygen comes out of those two futures and Tesla realigns with an average multiple for car companies, which leads to somewhere in the neighborhood of a 90% drop in stock price. If we add in even a minor drop in profitability, which seems highly likely based on the already major drop in sales, we could easily be in the 95% drop range, or a stock price around $18.

In the third scenario, the economy holds up better and Tesla is still seen as a likely leader in autonomous driving and robots BUT the global protesting and boycotting of the Tesla brand actually keeps increasing in strength and depressing car sales more. What happens if global deliveries drop by an additional 20% in Q2? That could be caused if Trump acts even more belligerently with Canada, Greenland, or Panama. The calls for a full global boycott of Tesla and other Musk businesses would increase because it's the single easiest way to show displeasure with the Trump administration.

In the coming months, we may well see nations launch tariffs just on Tesla products as well as outright bans. In this third scenario, Tesla sales for the second quarter drop 40% year over year (from 443K to 268K, which would be an additional 20% drop over first quarter). So instead of $97B in revenue, Tesla starts to be looking at more like $60B for 2025 as the boycotts do more damage and it is also outcompeted by BYD in China. Last year it had $17B in gross profit. If it drops $27B in gross revenue, it is most likely going to be losing serious money. So we end up with a company that has dropped 40% in gross revenues and is no longer profitable, with a brand that has sustained long-term damage. And it has dwindling cash reserves. That could lead investors to drop the stock 95% as well, even if the broader market holds up.

So there are at least 3 plausible scenarios (serious recession, failure to lead in new markets and deepening brand damage) in which Tesla's stock price declines by 95% this year. Personally, I think that together they add up to a substantial chance of one happening. And that’s not even taking into account some potential fraudulent activity involving the $1.4 billion missing from their books or the supposed 8600 sales in 4 days that Canada is now investigating, which gave them $30M in government incentives.

Why might a Tesla stock price below $20 create a crisis leading to something akin to personal bankruptcy for Musk?

Musk owes a lot of money on his Tesla stock: he has borrowed massive amounts against it for other purposes, like starting or buying other companies ($12.5 billion for Twitter alone). Read this article for a detailed analysis but it basically concludes that, conservatively, a lot of these debts would be called (forced to pay) at the latest by the time the stock drops into the $20-$30 price range. It appears that 58% of his stock is leveraged in this way (238 million shares vs. 410 million owned).

Basically, in any of the 3 scenarios where the stock goes to $18 this year, massive debts would be called, and Musk may have to sell most or all of his shares to pay - and it’s noteworthy than when mass sales of his stock are required that can rapidly depress the price on the shares. In such a situation, he could be forced to sell some of those shares at a much lower price to cover the debts.

A 2020 Wall Street Journal article was entitled "Elon Musk, Tech's Cash Poor Billionaire," and he has referred to himself as cash poor a number of times. He took out massive loans to buy Twitter, which apparently the xAI company is now on the hook for rather than him personally but since he's the majority owner, that could get him in trouble. Forbes said he has up to $3.4 billion in personal loans secured against his stock but that could underestimate things substantially. He took a $1 billion short-term loan from SpaceX in the month he bought Twitter, for example, which means he needed more cash for that deal.

Basically, if Musk’s leveraged Tesla stock gets called, he may even need to sell off pieces of his other private companies to keep his empire afloat. But if his brand and/or the economy is in trouble, it may be hard to get the cash he needs in short order. It could be a house of cards.

We could dismiss the risk of all this as idle speculation but there is evidence that Musk has been sweating this potential.

The first was the White House Tesla sales event with Trump, which was clearly orchestrated to stop the stock slide underway. It had the feeling of a desperation measure for a few reasons. First, it went against all expectations and Presidential protocols to have Trump hawking cars in front of the White House. It looked tacky and demeaned the office. Musk must have had to put real pressure on Trump to do it and it's no coincidence he put $100M more into Trump's political coffers right after. Basically, he bought himself a $100M infomercial.

But the problem is that tethering Trump even more explicitly to the Tesla brand associates it even more with right wing policies the majority of its customer base doesn’t align with. There are fewer people on the right wing who are are even open to purchase electric cars. So he's alienating anti-Trump customers even more with the move to go after a much smaller group of potential new buyers. That's a desperation move: pivoting to a smaller market from a bigger one. The only reason to do so is if the bigger market is cratering faster than the public yet realizes and he’s trying to shore things up.

The second is a 0% financing deal that went out from Tesla for new cars delivered in March. A $54K car financed for 60 months at just 4% interest would cost the buyer $5700 in interest. Either they were using their own cash for that financing (they appear to have $16B in the bank) OR they have to subsidize it elsewhere (the best I see online are 5% right now from third parties) In either case, that's effectively a 10% or more discount on the price that is eating into their gross profit margins.

This 2022 article said they have a 29% gross profit margin on the model 3 in terms of the price versus the cost of goods to build it. Cutting 10% off the price by underwriting the financing means that they cut their gross profit by 33%. That gross profit has to pay for a whole lot of company overhead, marketing, showrooms, etc. Basically, they were squeezing their profitability dramatically with that financing deal. From an outside perspective, this looks like desperation to make up sales lost elsewhere just before the reporting window of Q1 closed. Given how bad the Q1 numbers were, it’s easy to imagine that without that financing deal, they would have been far worse.

The challenge with that approach?

Sweetheart financing deals like these are going to further depress the used car market, where many drivers are underwater on their loans and wanting to get out because of anti-Musk sentiment. With used car prices plummeting, it's going to exert continued downward pricing pressure on the new car pricing. And because the cars last a long time, it's going to be harder to sell the new cars with more used cars for sale each month at increasingly lower prices.

What is already evident is that the brand damage for Tesla is very serious, and the pressure to sell more new cars is going to push the prices down further in Q2 so that each car sold is less profitable. The Q1 results are also a rewarding sign for the global grassroots effort that is targeting Musk through Tesla, which encourages more protests.

All of this combined could cause a further spiraling in Tesla stock price from April to June, which in turn could see another big drop after Q2 closes and the results show even more extensive damage. When you've already made the move to 0% financing, Tesla’s going to have to cut list prices to gin up sales in Q2 and that will further erode profitability. I think a 40% year over year decline in sales is possible for Q2.

An interesting way to test my thesis would be to see if someone is willing to do a 10 to 1 bet against it. So if I were to bet $1000 on the stock price of Tesla going below $20 by the end of the August and they agreed to the bet, they would pay $10,000 if it did. And if it doesn't, they get my $1000.

My guess is that after reading the above scenarios and thinking about it, not a lot of people would make that bet (unless $10K is simply trivial for them or they are invested in Tesla and have a stake in keeping the price up).

Personally, I think the scenarios I outlined have a greater than 50% chance of one of them happening. But even if you disagree, you might not be willing to make a 10 to 1 bet against it.

Which means the actual odds are not likely lower than 10%. To be reasonably conservative, let's say there's a 20% chance.

What I would maintain is that there is still a lot of irrational exuberance and unfounded faith in Tesla's stock price if there's a 20% chance of it dropping 95% in value in the next four months. How many people would invest in a stock that is 20% likely to lose almost all its value?

That's not a blue chip stock. It's a risky one that gets riskier every day that Musk is enthusiastically wielding a chainsaw on American democracy.

So what else might happen if one of the scenarios I outlined happens and the stock does drop below $20?

First, I think Tesla shareholders and team would unite in removing Musk from the company entirely after he is forced to sell much of his holdings to pay his debts. He'd be out as CEO and the Board would be restructured to have more independence. There may be a way to force the sale of the remainder of his shares back to the company as a result of ethics, perhaps. That will be the only way for the company to recover long term without going out of business. He's already an absentee CEO, and he's single-handedly destroying the brand reputation now. Major stockholders would get fierce about getting him out.

Second, the "glow" will be off some of his other companies as well. Starlink could increasingly be replaced by Eurotelsat (up 3x in its stock price) or other players for satellite internet. There may be bipartisan sentiment that the US government should stop paying SpaceX for as many space launches in a time of economic tumult. So SpaceX (which has also had two launches blow up this year) might go into a time of financial struggle as well. With ongoing reputational damage to Musk, I can see xAI hemorraging talent to other well-funded competitors in the AI space and see further declines in Twitter/X as a business. Already X is toxic to many and if the above scenarios come to pass, companies will be less likely to advertise and more credible voices will leave, as 320,000 European journalists did in January. So Musk then has ongoing costs there to underwrite, which could impact his available cash still further. That may actually be why he folded X into xAI, to absorb those debts in something that has more cash in it.

I'm not saying Musk would be out on the streets but he could effectively be out of cash and needing to sell shares in his various companies at undermarket prices to stay afloat and cover his considerable monthly burn. For someone that wealthy, it's akin to bankruptcy.

I would watch for the following few things that could advance the downward spiral: an escalation in global campaigns against Musk companies, especially nations getting involved, further declines in his approval ratings, a missed or unimpressive robotaxi launch in June, and further downward pressure in the pricing for used Tesla cars. And then, a further 20% decline in deliveries reported by July 2 (40% drop year over year). All of which could create the downward spiral that ends with Musk in something akin to personal bankruptcy.

I think this all is likely to play out over three to six months rather than all at once. Two quarters of substantial sales declines paired with a lackluster robotaxi launch or a spate of international Tesla bans could be enough to trigger the full collapse in stock price.

The result of Musk having a real financial crash would also send the wealthiest people of the world a message that aligning too closely with Trump can be a dangerous business, which would be a good thing. Trump’s power partially derives from those who stand with him and if the wealthiest are wary of doing so, it prevents a lot of downstream damage.

To have the world's grassroots successfully dismantle the empire of the richest man on the planet and send him into something akin to bankruptcy would make other billionaires more circumspect about being the next person in the hot seat.

I do want to reiterate that all Tesla protests should absolutely be peaceful and non-violent. I don’t support any vandalism either, which only hurts the cause. And I think divesting from the stock is imperative. This is about enacting a spiritual principle of non-participation in things that cause harm. Right now, the wealth of Tesla is fueling Musk’s campaign of harm so withdrawing all support of Tesla until the point at which Musk is no longer able to take money from it to do damage to democracy is a moral and principled stance. This could lead in the long term to a future in which Tesla is freed from Musk’s control and still able to play a positive role in our future, which would be more desirable than the company as a whole going under. I have a future article on how that scenario could unfold as a #FreeTeslaFromMusk campaign.

The overall point is: it is possible and desirable for this to be the year that Musk reveals himself as a modern-day Icarus and crashes down to earth financially.