Elon Musk could have already been compelled to promote a sizable portion of his Tesla shares even when he hadn’t issued an uncommon Twitter pledge over the weekend. Mr. Musk on Saturday polled Twitter customers on whether or not he ought to promote 10 p.c of his stake in his firm. The ballot seemed to be a response to a Democratic proposal to tax the unrealized good points of billionaires.
“Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock,” he tweeted. Mr. Musk stated he was elevating the query as a result of he doesn’t take a money wage as Tesla’s chief govt, and subsequently wouldn’t have any strategy to pay a massive tax invoice with out promoting a few of his Tesla shares, which make up the overwhelming majority of his wealth.
Mr. Musk wrote in a follow-up tweet that he would “abide by the results of this poll, whichever way it goes.” Tesla’s shares fell practically 5 p.c on Monday.
He closed the ballot on Sunday, after practically 3.5 million votes had been solid, with 58 p.c voting for him to promote. Mr. Musk hasn’t confirmed what he’ll do, however after closing the ballot, he tweeted, “I was prepared to accept either outcome.”
Either manner, Mr. Musk could quickly have wanted to promote a huge chunk of his shares. He holds practically 23 million inventory choices that have been awarded in 2012. Those choices have since vested and can expire in August 2022. Most inventory grants enable executives to keep away from paying taxes for years, and maybe without end, so long as they don’t promote the shares they get from changing the choice.
But Brian Foley, an govt compensation guide, says that due to the dimensions of Mr. Musk’s grant and the best way it was structured, a lot of his 2012 choices aren’t more likely to qualify for the preferential tax therapy. That means Mr. Musk would owe earnings taxes when he exercised the grant, which at present costs can be value slightly below $30 billion. His tax invoice might high $10 billion, relying on what proportion of the choices didn’t qualify for the preferential therapy.
“They are a ticking tax time bomb,” Mr. Foley stated of Mr. Musk’s inventory choices. “Offhand I can’t think of any way for him to get around paying the tax.”
What’s extra, Mr. Musk could must promote much more shares than what it might take to pay his tax invoice. He owns 17 p.c of Tesla’s shares, that are at present value about $200 billion. That means his weekend tweets are a pledge to promote roughly $20 billion value of Tesla’s shares.
The potential sale might roil Tesla’s inventory when many analysts say it’s already overvalued. The firm’s market worth lately crossed $1 trillion, making it one in all solely 5 U.S. publicly traded corporations value that a lot.
Nonetheless, James Cox, a professor at Duke University legislation faculty and an knowledgeable in securities legal guidelines, stated it is perhaps exhausting for Mr. Musk to return on his Twitter pledge.
“It’s a no-win situation,” Mr. Cox stated. “In the securities law, the problem is this could be seen as a misrepresentation that was meant to mislead if another shareholder sold on Musk’s tweet.”
But Mr. Cox stated it might be a exhausting lawsuit to win, as a result of chief executives are allowed to make statements and alter their minds, so long as they meant what they stated once they stated it.
It wouldn’t be the primary time Mr. Musk had gotten into bother over his tweets. In late 2018, he and Tesla settled a lawsuit by the Securities and Exchange Commission, with out admitting guilt, for tweeting about a potential sale of Tesla that by no means occurred. Mr. Musk was additionally sued for defamation in 2018 after calling a diver who had helped rescue youngsters caught in a collapse Thailand a “pedo guy” on Twitter. Mr. Musk received the swimsuit.
Daniel Ives, a inventory analyst at Wedbush Securities who follows Tesla, referred to as Mr. Musk’s newest Twitter pledge “bizarre,” however stated he thought that the inventory, which is up greater than 60 p.c this yr, would preserve climbing even with Mr. Musk cashing out a portion of his holdings, given Tesla’s prospects and the investor enthusiasm for the corporate.
“Musk was likely to sell some of his Tesla stock before year end, but no one ever imagined there would be a Twitter poll translating into a 10 percent sale of his ownership,” Mr. Ives stated. “This weekend’s Twitter poll was a strange one even for Elon.”
