Elon Musk warns against margin debt because of market volatility

Tesla chief executive put up billions of own money when he bought Twitter for $44 billion this year

Tesla's stock price has lost nearly half of its value since Elon Musk’s purchase of Twitter went through in October. AP

Billionaire Elon Musk is warning against something he himself has done — borrowing against the value of securities one owns — because of the risk of “mass panic” in the stock market.

“I would really advise people not to have margin debt in a volatile stock market and you know, from a cash standpoint, keep powder dry,” Mr Musk said in the All-In podcast released on Friday.

“You can get some pretty extreme things happening in a down market.”

The Tesla chief executive put up billions of his own money when he purchased Twitter for $44 billion earlier this year and saddled the company with $13 billion of debt.

Bloomberg News has reported that Mr Musk’s bankers are considering replacing some of the high-interest debt he layered on Twitter with new margin loans backed by Tesla stock that he’d be personally responsible for re-paying.

He’s also disposed of nearly $40 billion of Tesla’s shares, a move that contributed to driving the stock to a two-year low.

Following the latest sales, Mr Musk again said this week he will stop selling shares, adding that the pause could last for two years or so.

The warning, at least the second made by Mr Musk this month, is ironic given the billionaire has previously pledged his Tesla shares.

As of December 2020, Mr Musk had 92 million Tesla shares pledged as collateral, according to an SEC filing in April 2022.

During the podcast, Mr Musk also reiterated his belief that the US economy is overdue for a recession and that the slowdown could be similar to the scale seen in 2009.

“My best guess is that we have stormy times for a year to a year and a half, and then, dawn breaks roughly in Q2 2024, that’s my best guess,” Mr Musk said. “Booms don’t last for ever, but neither do recessions.”