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Tesla is slipping after Elon Musk asked Twitter to sell shares


Elon Musk, CEO of Tesla, stands in the foundry of the Tesla Gigafactory during a press event.

Patrick Pleul | Image Alliance | Getty Images

Tesla shares fell more than 3% on Monday after CEO Elon Musk asked his Twitter followers if he should sell 10% of his shares in the electric vehicle maker.

In Monday’s pre-trading session, the stock fell more than 7%.

It comes after Musk asked his 62.5 million Twitter followers to determine the future of some of his Tesla holdings.

In a Twitter poll launched on Saturday, Musk said, “A lot has been done lately with unrealized gains being a tax avoidance tool, so I suggest selling 10% of my Tesla stock. Do you support that?”

The billionaire gave people the chance to vote “yes” or “no” and promised to stick with the poll results, however they went.

3,519,252 people answered and 57.9% of them voted “yes”.

Musk previously said he would likely sell “a huge block” of his stock in the fourth quarter.

In September, Musk said at the Code Conference in Beverly Hills, California that his marginal tax rate would be more than 50% after his stock options with Tesla expire and that he is already planning a sale soon.

“I have a number of options that expire early next year, so … a huge block of options will be sold in the fourth quarter – because I have to, or they will expire,” he said.

Jefferies raised its price target on Tesla shares from $ 950 to $ 1,400 on Monday.

Analyst Philippe Houchois wrote, “Without rejecting execution risk, Tesla is reaching a position where it can balance affordability and speed, goals that are as important to Elon Musk’s vision as profitability.”

He added, “Tesla is expected to gain stake from major OEMs” [original equipment manufacturers]which may take a disproportionate share of the industry’s profit pool in the next 3 to 5 years as the legacy issues enter the transition phase of EV margin dilution. “

Other current and former Tesla board members, including Robyn Denholm, Kimbal Musk, Ira Ehrenpreis, and Antonio Gracias, have dumped hundreds of millions of dollars in Tesla stock since October 28, when the company’s shares were listed on the Nasdaq Stock Exchange Shot up.

Shares rose after Tesla posted a record quarter and car rental company Hertz announced it was ordering 100,000 Tesla vehicles for its fleet. Musk waited a week after Hertz announced that Tesla had actually not yet signed a deal with the company. Before making this statement, he mocked investors who had Tesla shorts on Twitter and wrote, “Tesla Hertz Shorts”.

Since the Hertz announcement, Tesla shares have risen more than 30%, and so has Musk’s net worth.

Elon’s tax bill

Regardless of the Twitter poll results, Musk would likely have started selling millions of shares this quarter. That’s because he’s facing a looming tax bill of more than $ 15 billion.

His options expire in August 2022, but to exercise them he must pay income tax on profits.

Since the options are taxed as benefit or compensation to employees, they are taxed on the highest ordinary income, or 37% plus the net investment tax of 3.8%. He will also have to pay the highest California tax rate of 13.3% as the options were granted and largely earned while he was taxable in California.

The combined state and federal tax rate is 54.1%. So the total tax burden on his options would be $ 15 billion at the current price.

Musk, who is also the CEO of SpaceX and the brain-computer interface start-up Neuralink, has not confirmed the size of the tax bill. However, he tweeted, “Note that I don’t get any cash or bonus anywhere. I only have stocks, so the only way I can pay taxes in person is by selling stocks.”

In October, the Democrats proposed an annual billionaire investment income tax to fund President Joe Biden’s $ 1.75 trillion social and climate package. The so-called billionaire’s income tax would also close a loophole that has allowed the hyper-rich to postpone capital gains taxes indefinitely, a strategy known as “buy, borrow, die”.

Senate Finance Committee Chairman Ron Wyden, D, Ore., Who officially released the billionaires’ income tax proposal, wrote in a tweet this weekend: “Whether or not the richest man in the world pays taxes at all should not depend on the results of the one Twitter poll. “

Musk, who has spoken out loudly against the proposal, gave Wyden a rude reply on Sunday.

According to the Bloomberg Billionaires Index, Musk is currently the richest person in the world, ahead of Amazon founder Jeff Bezos and French retail tycoon Bernard Arnault. The index states that Musk’s net worth is $ 338 billion.

Of its sizable Tesla holdings, Musk has options on 22,862,050 shares at $ 6.24 that expire on August 13, 2022. He was granted these options in 2012.

– CNBC’s Robert Frank and Jessica Bursztynsky contributed to this report.