Marketwatch has previously mentioned the Greek myth of Icarus. But to recap. Daedalus, Icarus’ father, was a skilled craftsman who had taken refuge on the island of Crete. Initially he was welcomed with open arms but that welcome soured. It was not easy to escape the island because the king, Minos, kept all ships under close guard. But Daedalus made a pair of wings for himself, and another for Icarus using quill feathers which were threaded together with the smaller ones held in place with wax.  “My son, be warned! Neither soar too high, lest the sun melt the wax, nor swoop too low, lest the feathers be wetted by the sea.” As they flew off, Daedalus instructed his son to follow him closely and not go off on his own course.

But Icarus disobeyed his father’s instructions and began soaring towards the sun, rejoiced by the lift of his great sweeping wings. After a while Daedalus looked over his shoulder but could not see Icarus. He could see scattered feathers on the waves below. The heat of the sun had melted the wax and Icarus had fallen into the sea and drowned.

In 1988, a young man left South Africa for Canada, having obtained a Canadian passport. He went because he did not support apartheid and believed there were greater opportunities in the Americas. The young man’s name? Elon Musk.

After transferring his university education to the USA, and obtaining a degree in physics and economics, Musk dropped out of a Master’s course because he saw greater potential in the internet. A company he had started in 1995, Zip2, a provider of maps and business directories, was sold to the computer company Compaq for US$307 million. Musk used the funds to form an online financial services company, X.com. After a while, the company changed its name to PayPal which was bought by eBay in 2002 for US$1.5 billion. Along the way, he had changed the face of online payments forever.

Musk had long held a belief that, in order to survive, the human race had to become a multi-planet species. Dissatisfied with the vast cost of rocket launchers, in 2002 he founded SpaceX to make more affordable rockets. As well as being CEO  of SpaceX, Musk was also chief designer for the three rockets being built by SpaceX. The company is contracted to build the lander for astronauts returning to the moon by 2025 as part of NASA’s Artemis programme.

Another deep interest for Musk is the possibilities offered by electric cars. Contrary to popular belief, Musk did not start Tesla. That accolade goes to Martin Eberhard and Marc Tarpenning who started the company in 2003 and called it Tesla Motors. Their search for funding bore fruit when Musk became their major funder. He became a major shareholder and took over as CEO in 2008. To reflect the fact that the company does not just produce cars (it also manufactures solar panels and batteries) the name was changed in 2017 to Tesla Inc.

Musk has also founded and is the CEO of Neuralink, a company which is developing ultra-high bandwidth brain-machine interfaces to connect the human brain to computers. He has also launched The Boring Company which combines fast, affordable tunnelling technology with an all-electric public transportation system. Well that’s what the website says. The reality is that this company is not doing very much, if anything.

Then, in 2022 Musk acquired a 9.2% stake in Twitter. This made him the largest shareholder and entitled him to a seat on the board. He then offered to buy the company for US$44 billion which was generally believed to be an inflated price as it represented a 38% premium to the then share price. The proposed takeover did not have a smooth path. First, he said he wanted to buy the company. Then he said he didn’t, citing issues with Twitter’s disclosure of information to him. As he had waived his right to due diligence, the Twitter board started legal action to compel him to go through with the sale. So, in the end he did.

Right. So, Elon Musk is a significantly challenged CEO who is trying to split his attention over multiple public companies. It’s probably not surprising that there are cracks appearing.

Tesla : The buyout tweet

In 2018, Musk sent a tweet about taking Tesla private. This means that he was thinking of buying back all shares in the company to ensure it was no longer listed on the NASDAQ index. He stated the share price for buyout would be US$420 per share and finished the tweet with the words “funding secured”.

Tesla shares initially climbed 11% on the day of on his tweet, but they never reached the expected $420 level, reaching a high that day of $387.46. And they soon fell far below their pre-tweet price of $344, hitting $263.24 a month later, as it became clear that the funding was far from secure.

Musk’s tweet previously prompted a civil suit by the Securities and Exchange Commission, the federal agency that protects investors. A settlement was reached in which Musk and Tesla each paid $20 million in fines and Musk gave up his chairman title. Musk was also supposed to have some tweets reviewed before publishing them, according to the agreement.

Now, a class action has been brought by investors who lost significant amounts of money from the share price reduction. At the time of writing the court hearing has not finished and it would be surprising if a judgment happened quickly.

Tesla’s share price at 30 January 2023 has deteriorated to US$166.66, back to its late-2020 levels. And, although it is still the biggest makers and seller of electric vehicles, there is now plenty of competition, and good quality at that. In an effort to boost sales, Tesla has cut prices, only to be matched by Ford and others. Tesla needs to keep being able to differentiate itself and needs a CEO to direct strategy. Pricing is not a differentiation strategy but a sales tactic. But Musk’s attention is elsewhere.

Twitter finances

When he took over Twitter, the company hadn’t shown a profit since 2019 and had posted a loss in 8 out of the last 10 years. The company had US$2 billion in cash and less than US$600 million in debt. But the cash position was down 35% on the previous year. Normally, this would be a red flag.

Musk paid for the takeover by incurring US$13 billion in debt, which is now on Twitter’s balance sheet. The balance was made up by his sale of Tesla shares, and commitments from individual investors such as Oracle co-founder Larry Ellison, a venture capital firm Sequoia Capital and cryptocurrency exchange Binance.

Musk has taken to the mission of cost reduction with a zeal worthy of a Mongolian warlord. Staffing has been reduced by about 50%, and more staff left after Musk’s demand that they commit to working “long hours at high intensity”. However, the lack of direct has caused many major advertisers to pause using Twitter for their advertising campaigns. The departure of several top executives from Twitter’s ad department has not helped. The exodus of these advertisers poses a threat for a company so reliant on that revenue stream.

Added to that, the company will have to pay at least $9 billion in interest to lenders over the next 7 to 8 years when the total matures and must be re-paid or re-financed. Given that operating cash flow for the past 8 years was $6.3 billion, it would seem problems are looming. This is compounded by the fact that the company’s debt includes floating-rate debt, meaning that interest costs are set to rise as interest rates increase. Twitters credit rating has been reduced significantly by rating agencies.

Musk has mused that bankruptcy is an option if Twitter can’t increase revenues or decrease costs, stating that the company was losing US$4 million a pay. That would be highly unpopular with lenders and investors and would have an impact on Musk’s reputation, potentially affecting his other business dealings.

There are some alternatives, including negotiating to buy back debt at a deep discount, or raising additional investment funds from Musk himself, and others. But Musk’s source of funds, his Tesla shares are not giving the value they used to.

So if Marketwatch looks over his shoulder, does he expect to see a pile of feathers. No, its too soon, and a safe landing is still possible. But, gosh, that wax must be getting pretty hot.

Its been a pretty warm few weeks, as befits a WA summer. And thoughts turn to a chilled white, or cold beer or cider. But drinking a red is still possible in this weather. Marketwatch was fortunate recently to unearth a case of Pinot Noir in his cellar. It was a 2015 Pinot from 3 Drops, an excellent vineyard and winery in the Great Southern. As a light red it does not have the heaviness and “chewiness” of its darker brethren. But it is perfect for the fridge and is a very pleasant drop on a warm day. Go on, try it.