Tesla Inc. shares edged lower on Monday as investors prepared for its chief Elon Musk’s proposed sale of about a tenth of his holdings in the electric-car maker following his Twitter poll.
Musk, the world’s richest person, tweeted on Saturday that he would offload 10% of his stake if users of the social media network approved the proposal.
The Twitter poll asking Musk’s followers if he should sell stock garnered more than 3.5 million votes, and 57.9% of the people voted “Yes”.
Tesla’s shares were last down 3.1% at $1,184.44 after falling as low as $1,133 earlier in the session. The stock’s trading volume was more than 25 million shares by early afternoon in New York, compared with a 50-day moving average volume of 23 million.
Musk had previously said he would have to exercise a large number of stock options in the next three months, which would create a big tax bill. Selling some of his stock could free up funds to pay the taxes.
“I only have stock, thus the only way for me to pay taxes personally is to sell stock,” Musk wrote along with his poll. “I was prepared to accept either outcome.”
Market participants expected speculators would try to front-run his selling. Musk owned about 170.5 million shares as of June 30, and a 10% sale would amount to $20.8 billion based on Monday’s price, according to Reuters calculations.
Including stock options, he owns 23% stake in the world’s most valuable car company.
“Elon Musk doesn’t like to do things in a conventional way,” said Russ Mould, director at AJ Bell Investment. “Holding a poll on Twitter about whether he should sell 10% of his stake in Tesla might seem crazy, but one could say it is normal behavior for him.”
In the three months to Nov. 4, company insiders at Tesla sold $259.62 million worth of shares, excluding dispositions of indirectly held shares, according to Refinitiv data.
Musk’s poll follows a proposal by U.S. Senate Democrats to tax stocks and other tradeable assets of billionaires to help finance President Joe Biden’s social spending plan and fill a loophole that allowed the rich to indefinitely defer capital gains taxes.
SHORT INTEREST DOWN
Short interest in Tesla is down by about half since the start of the year as the electric car maker’s share price has soared, forcing some investors betting against the to cover their bets.
The number of Tesla shares shorted stood at 29.5 million, down from 60.6 million at the start of January, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. The short position in Tesla as a percentage of the company’s float is down to 3.6% from about 8% at the start of the year.
Short interest in Tesla still amounted to nearly $36.1 billion, larger than for any other stock, according to S3.
Tesla’s soaring stock price over the last month also has drawn a flood of trading in its options, with a record 1.9 million Tesla options contracts, on average, changing hands daily over the last month, according to data from options analytics firm Trade Alert.
Some strategists said the selling pressure on the stock may not last.
“Whenever the dust settles, people always step back in, given the number of times in the grand scheme of things this company has had fairly large pullbacks,” said David Madden, markets analysts at Equiti Capital.
REGULATORY SCRUTINY
Musk’s tweet once again raises questions about whether he is in compliance with a 2018 settlement he agreed with the U.S. Securities and Exchange Commission to have material tweets about the company vetted by a lawyer. The SEC, which declined to comment, found Musk violated that agreement in 2019, leading the agency to tighten up the settlement.
The billionaire, known for his Twitter banter and lively interactions with followers, was fined $20 million https://reut.rs/3bRI2eu by the U.S. SEC for tweeting in 2018 that he was considering taking Tesla private at $420 a share and had secured funding. The SEC also asked him to step down as chairman.
With his almost cult-like following, Musk has amassed considerable power to move Tesla’s stock with his comments, but murky rules make it difficult for regulators to rein him in, Reuters reported in May. [nL4N2RZ3M0]
Last month, Tesla breached a trillion dollars in market capitalization, becoming the fifth U.S. company to join a club which includes Apple, Microsoft, Amazon and Alphabet.
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