Elon Musk may have already been forced to sell a significant portion of his Tesla shares even though he had not issued an unusual Twitter pledge over the weekend. Mr Musk asked Twitter users on Saturday whether he should sell 10% of his stake in his company. The poll appeared to be a response to a Democratic proposal to tax unrealized billionaire earnings.
âThere has been a lot of talk lately about unrealized gains being a means of tax evasion, so I am proposing to sell 10% of my Tesla shares,â he said. tweeted. Mr Musk said he was raising the issue because he was not getting a cash salary as Tesla’s chief executive and therefore would have no way of paying a big tax bill without selling some of its Tesla shares, which make up the vast majority. of his wealth.
Mr Musk wrote in a follow-up tweet that he “would comply with the results of this poll no matter what”. Tesla shares fell nearly 5% on Monday.
He closed the poll on Sunday, after nearly 3.5 million votes were cast, with 58% of the vote for him to sell. Mr Musk did not confirm what he would do, but after the poll closed, he tweeted: “I was prepared to accept either result.”
Either way, Mr. Musk may soon need to sell a large chunk of his stock. He holds nearly 23 million stock options which were granted in 2012. These options have since vested and will expire in August 2022. Most stock grants allow executives to avoid paying taxes for years, and maybe forever, as long as they don’t sell the stock they get by converting the option.
But Brian Foley, an executive compensation consultant, says that due to the size of Mr. Musk’s grant and the way it was structured, much of his 2012 options are unlikely to be successful. benefit from preferential tax treatment. This means that Mr. Musk would be liable for income taxes when he exercises the subsidy, which, at current prices, would be worth just under $ 30 billion. Its tax bill could reach $ 10 billion, depending on the percentage of options not eligible for preferential treatment.
âThey are a tax time bomb,â Mr. Foley said of Mr. Musk’s stock options. âI see no way for him to get around paying the tax. “
Plus, Mr. Musk may have to sell even more stock than it takes to pay his tax bill. He owns 17% of Tesla’s shares, which are currently worth around $ 200 billion. That means his weekend tweets promise to sell around $ 20 billion worth of Tesla shares.
The potential sell-off could upend Tesla shares as many analysts say they are already overvalued. The company’s market value recently surpassed $ 1,000 billion, making it one of five US publicly traded companies worth that much.
Nonetheless, James Cox, a professor at Duke University Law School and an expert in securities law, said it could be difficult for Musk to reverse his engagement on Twitter.
âIt’s a no-win situation,â Cox said. “The problem with securities law is that it could be viewed as a misrepresentation intended to mislead if another shareholder sells on Musk’s tweet.”
But Mr Cox said it would be a tough case to win, as CEOs are allowed to make statements and change their minds, as long as they mean what they said when they said it.
It wouldn’t be the first time Mr. Musk has been in trouble because of his tweets. In late 2018, he and Tesla settled a lawsuit filed by the Securities and Exchange Commission, without admitting guilt, for tweeting about a potential Tesla sale that never happened. Mr Musk was also sued for libel in 2018 after he called a diver who had helped rescue children trapped in a cave in Thailand on Twitter as a “pedo guy.” Mr. Musk won the case.
Daniel Ives, a stock analyst at Wedbush Securities who tracks Tesla, called Mr. Musk’s latest Twitter engagement “bizarre,” but said he believed the stock, which is up more than 60% this year, would continue to climb even with Mr. Musk. cash in some of its holdings, given Tesla’s prospects and investor enthusiasm for the company.
âMusk was likely to sell some of his Tesla stock before the end of the year, but no one ever imagined there would be a Twitter poll resulting in a sale of 10% of his property,â said Mr. Ives. “This weekend’s Twitter poll was odd, even for Elon.”