Tesla’s Musk Is Selling Stock Again. We Think We Know When It Will End
Nov 25, 2021
Elon Musk, the CEO of Tesla, has resumed stock sales. All of the new deals, which were announced on Tuesday, took place on the same day.
All of Tuesday's selling was part of a pre-arranged scheme to execute management stock options that were about to expire. Even though the option-related activity isn't surprising, investors are curious as to when Musk would stop selling.
It's not easy to tell, but the best guess is that Musk has a present for investors that he'll place underneath the Christmas tree.
On Tuesday, Musk exercised another 2.15 million stock options. That suggests he paid $6.24 for 2.15 million shares at the exercise price. He then sold 934,091 shares to pay income taxes, mostly. Management stock options are taxed as ordinary income, and the income is paid when management exercises his or her options.
Musk has exercised stock options issued as part of a 2012 compensation package for the fourth time. Each time Musk accepted his option, he sold 943,091 shares and bought fresh ones.
Musk is expected to execute around 26 million stock options in 12 distinct tranches, based on his previous behavior. For the past few weeks, he has been exercising roughly two tranches each week.
Musk has sold around 3.7 million shares worth $4 billion in 247 individual transactions through scheduled options exercises and stock trades. Musk, of course, sold some shares unrelated to management stock options after polling his Twitter followers on whether he should sell 10% of his Tesla (ticker: TSLA) stockholdings to pay taxes on unrealized capital gains faster.
Musk controlled around 170 million Tesla shares when he conducted the survey. A tenth of the quantity equals 17 million shares. Musk has also sold 4.8 million shares for $5.2 billion in 254 distinct transactions, in addition to stock option sales. Musk sold a total of 8.6 million shares valued at $9.2 billion in 501 transactions.
It's unclear if Musk counts the pre-arranged stock transactions tied to options as part of the 10% he advised selling. Multiple attempts for comment on Musk's sales have gone unanswered by Tesla.
Musk's starting ownership may be closer to 185 million shares if he included stock acquired via the exercise of the options as the figure on which to base his 10% sell. Outside of option-related sales, Musk would have to sell around 18.5 million shares. In addition to any options-related sales, Musk would have another 13 or 14 million shares to sell.
That's certainly the worst-case scenario for Tesla investors, because selling a large number of shares may build uncertainty and an overhang, with investors waiting for the selling to cease before investing more funds.
Since Musk's Twitter poll, Tesla's stock has dropped roughly 9%. Over the same time period, the S&P 500 has remained unchanged. The Dow Jones Industrial Average is currently down roughly 1%. The arithmetic to get to the theoretical 10% can be done in a variety of ways. However, it is reasonable to believe that Musk intended to sell around 17 million shares in total, including all transactions tied to option execution. If that's the case, there are another 7 million or so shares to sell through options exercises, as well as another 1 million shares to sell outside of options workouts.
Investors might expect another four weeks of selling at the present rate of stock sales and option exercises. Musk's sales should be completed before the holidays. If that's the case, the halt in sales will be a gift to Tesla supporters.