Tesla bulls are worried that Company X’s Elon Musk’s financial woes may be starting to affect him, which could spell bad news for the automaker’s investors.
Musk’s frequent rants against advertisers have dried up a major source of revenue for the money-losing company once known as Twitter, and his recent decision to sue advertisers for following his advice not to buy ads on Twitter has only made things worse. At some point, Musk will have to inject new cash to salvage the $44 billion acquisition, and that could mean selling Tesla shares to raise the cash — a blow for anyone who owns Tesla stock.
“We expect a $1 billion to $2 billion decline in the stock price,” Bradford Ferguson, president and chief investment officer at asset manager Halter Ferguson Financial, said in a YouTube commentary posted Wednesday. That alone could send the stock price down 5% to 10%. “This is a big hole the company needs to fill.”
Fortune reached out to Elon Musk for comment but was unable to get in touch.
Ferguson’s assessment is based on internal company second-quarter data recently obtained by The New York Times, which showed that X posted revenue of $114 million in the United States, its largest market to date, down 25% over the past three months and 53% from the same period last year.
That sounds bad enough, but it gets even worse: In its last publicly-disclosed data, for the second quarter of 2022, before Musk’s acquisition, the company reported revenue of $661 million. Taking inflation into account, revenue is down a whopping 84% in today’s dollars.
Company X doesn’t release financial statements, so no one knows how much longer the company can survive, but Musk himself acknowledged in November that Company X could face bankruptcy due to an advertiser boycott.
Since then, all talk of reaching cash flow breakeven, let alone turning an actual profit, has ceased, which in itself is unusual for someone like Musk, who has announced highly aggressive and unrealistic goals and is comfortable falling short time and time again.
The pledge not to sell shares until 2025 is about to expire.
The problem for Musk is that despite being the richest man on earth, he can’t simply plug X’s financial holes with his own personal fortune, which Forbes magazine estimates to be more than $236 billion.
That’s because his wealth is almost exclusively tied up in his various corporate holdings, from rocket-maker SpaceX and brain-chip maker Neuralink to his latest startup, xAI.
None of these investments are easily replaceable — only Tesla is a publicly traded company — so the easiest solution he can think of is to sell some of his remaining 12% stake.
The story continues
After all, continually selling off Tesla shares into an unwitting market, driving the stock price to a two-year low, is how Musk raised most of Twitter’s $44 billion valuation in the first place.
In December 2022, Musk, during a Twitterspace discussion, promised not to disappoint investors with any more stock sales to fund the troubled platform for at least another 18-24 months. “Definitely not next year under any circumstances, and probably not the year after,” he said. “I won’t be selling stock until 2025 or so. Trust me.”
It’s hard to sympathize with them when they tell their customers to “fuck you” but then sue you if they stop advertising on their platform. Advertisers have the right to advertise wherever they want, and if they feel it’s unsafe to advertise on X due to adjacency concerns… https://t.co/RVu7rhXnTM
— Gary Black (@garyblack00) August 14, 2024
This helped set a floor for Tesla’s stock price, but some may forget the implicit warning that there may come a time when they will have to sell their shares again.
With 2025 fast approaching and Tesla’s financial situation likely to be worse than ever, Ferguson worries that Musk may be trying to quickly cash out on his Tesla shares.
“He was probably a little more optimistic in December 2022 and didn’t expect things to get worse,” Ferguson said.
The asset managers argued, for example, that they might need to ensure that Company X honors loan covenants on $13 billion in leveraged buyout (LBO) debt that it assumed as part of the deal. Breach of the covenants could mean higher interest rates and demands from banks for repayment.
Gary Black, managing partner and co-founder of Future Fund, said he agreed that the risks of a sell-off were increasing.
“Company X will continue to bleed money and at some point Elon will have to sell more Tesla shares to plug the $1-2 billion per year hole at Company X,” the longtime and staunch Tesla supporter argued in a social media post.
This story originally appeared on Fortune.com.