Why did Elon Musk tell the world that he would sell 10% of his Tesla stock based on the results of a Twitter poll? Scott Galloway says he knows the answer, and my response was "Yeah, yeah. I know the answer, not you."
But it turns out his answer is the same as mine! What a smart guy he is.
Using Twitter results as cloud cover to monetize $TSLA at prices he knows aren’t sustainable without outright telling the market he’s lost faith in its valuation https://t.co/sIaGKhk3Vt
— Scott Galloway (@profgalloway) November 6, 2021
This was my instantaneous thought when I heard about Elon's Twitter poll. But there may be a little more to it than just cover for selling off some stock at a high price. Most CEOs of large corporations sell stock on a schedule so that they avoid charges of insider trading. I don't know if Elon does that, but if he has reason to think that Tesla stock might tank in the near future, he could be in trouble if he "coincidentally" sells a $20 billion chunk of it right now to cover upcoming taxes.
Like I said, this was my guess almost instantly, so I assume that lots of other people are thinking the same thing. And Elon does have a board of directors to report to, which might look askance at a big stock sale that might get the company in trouble. Conversely, they seem to have infinite patience with Elon doing eccentric stuff, so the Twitter poll might not have bothered them.
Then again, who knows? Elon is both a very weird and a very smart guy. Maybe it was just another of his publicity stunts. Anything is possible.
Tesla's valuation is absolutely bonkers. It practically makes the valuation of Bitcoin look reasonable. So many blue chip stock funds own a ton of Tesla that it makes me worried what will happen when the "value adjustment" inevitably comes.
Elon may be trying to calm the irrational exuberance.
Well, one missed the somewhat more obvious reason.
There is wind in the air, mostly from non-tax professionals, of a tax on unrealized gains of billionaires.
I mean, Musk is obviously smarter than many people who simply think billionaires are too rich, so my take is he is subtly pointing out the effect of such a law, if it were ever passed.
A. Some tax is levied on Musk's (or Bezo's or whomevers) "worth" which in the case of nearly every billionaire, is the stock of some company.
B. Since the stock is, well, stock, and tax is, well, paid in money, what a billionaire would do is either borrow against the stock to raise money to pay the tax, or, much more likely, sell a chunk of stock.
C. And, of course, the main result of the majority owner of a company announcing that they are going to sell billions in stock is to depress the price.
D. The result of depressing the price is all the investors who like a nice high price are hurt.
Musk hates the gaming of the market, and he, among other things, thinks short selling should not exist. There is zero chance that he's doing this just to raise some cash.
Maybe billionaire owners like Musk and Bezos could regularly sell a portion of their holdings to fund their expenses rather than getting personal loans against the value of the stock that avoids taxation completely. Which is a form of gaming the system.
Tesla's valuation is nothing but a game in and of itself. There is no reasonable real-world explanation for it. Musk is a world-class charlatan so you can assume that 100% of his actions are designed it dupe others in order to profit himself in some way. In case you can't tell, I really really dislike the guy.
A wealth tax in the US has about a 0% chance of happening any time in the next 10 years. And if it did, boo hoo if Musk and those like him need to sell a little stock on a schedule. I think the market will deal with it. Not sure why the stock can only retain its value when Musk owns it. Not that it even should retain its value.
I think your last conclusion D is incorrect, unless you think that all these billionaires are going to be spending all those sale proceeds increasing their consumption ( how many yachts can you buy ).
No , they might sell their stock with unrealized gains and use the proceeds to simply Invest in other stock. Or put it in cash investments or bonds lowering interest rates which then increase stock prices by moving other money from bonds to stocks.
And even the effect on individual stocks will be muted where one investor owns a lot. If billionaire x sells 10 % of the stock over time , that might lower the price and increase price in whatever stock he buys instead. But that lower price should increase demand for the stock from others which should partially offset that . End result might be less of a price change than you think and zero net price change overall across broad market.
But depends on individual stock. How far price will drop if one investor sells 10%. It all depends on how far price needs to decline in order to attract enough other investors to buy that extra 10% being sold . If it was a stock with a demand curve very sensitive to price ( as correct market price is more determinable and agreed) like a utility, the price drop might be minimal.
On the other hand, with a stock like tesla, where I expect the demand curve is steep, might need a big price drop to get enough new buyers. Note that , although many refer to stocks like tesla as overvalued ( and I agree in many ways) in an important way it is not be definition. At current price , there are still as many buyers as sellers.
Plus , for stocks like tesla , much of the market price is based on confidence and expectations and not fundamentals. So a sale by insiders can change the demand curve downward itself more than just by moving on that curve.
And musk needs to consider that perception.
Kevin assumed that musk things his company is overvalued and is trying to disguise that . Which might be true.
Or not. Say musk has complete faith that tesla is fully or even undervalued and a good investment. But wants to sell some, not because he thinks the stock is overvalued. But simply because he has so high a percentage of personal assets in one stock, which is too risky even if the chance of it collapsing is small.
There might be many billionaires who have a huge % age of their wealth in their stock. And, even though they think it is a great stock , diversification is prudent.
But they cannot . Because selling any will be assumed to indicate a loss of confidence in the stock and not enough will believe they simply are prudently diversifying.
If this new tax proposal became law , it actually helps some billionaires by giving them an extra believable reason to diversify.
And , since likely this will not become law , some might use the opportunity to sell now using the threat of the law while it is believable.
But musk might be playing too cute here. If he had just announced that, say, he thinks this new proposed law is unfair to him personally and will sell some to avoid it , just conceding acting in his own interests might work . But ,no , he had to claim he is doing it for moral reasons.
Entirely anecdotal, but my experience with Tesla.
Bought a Tesla in 2019. Delivery was 5 weeks (typical) and right before the end of the quarter (also typical).
Tesla EV deliveries now, based on news reports: many months, inc. many missed delivery dates.
Requested a Tesla solar roof quote Feb 2021. Absolutely no response for months. Couldn't track down anyone to help. Finally got a designer engaged and a quote delivered just before Memorial Day. Within a week, Tesla updated quote with a hike of ~40%, citing higher supply expenses. Liked the product, not the price. Sat on quote. No word from Tesla for months. Late summer/fall: Tesla starts calling and texting several times a week, inc. offers to knock thousands off price. Something changed between winter/spring and summer/fall.
My guess: by summer, Tesla realized EV deliveries would be a big problem, probably tried fixing solar side of the business to help fill revenue gap. Maybe company will continue to deliver for Wall St. Or maybe bad news is yet to come.
Did you get the roof?
We got a new roof from a local contractor. We'll get solar panels soon, but no decision yet on where from.
Not that it matters, but the solar roof thing was based on the fact that Tesla had estimated it would take a week to install it, and installs were running at about a month. The adjustment, like many things in this company without a PR department, was handled poorly.
The executive in charge got fired, not sure whether it was because of the poor original pricing or the poor handling of the adjustment, or both.
There are no problems with car deliveries, other than they can't make them fast enough.
I have both a Model 3 and solar panels (not roof) and Powerwalls. Of course, Tesla does not make the panels, but the products are fantastic.
good to know
Tesla panels, FYI, are like cars, they have more business than they can handle, but they do handle it.
In the sense that they estimate it takes, say, two and a half days for an install and that's what it actually takes.
The solar roof was a problem because it was like a crew of ten guys at, say $25,000 per week (including electricians), if you took four weeks (as a poster on one of the Tesla boards pointed out) instead of one week, that meant Tesla's $100,000 bid should have been $175,000.
The same issue doesn't exist with solar panels.
With Tesla Solar and Powerwalls its a question of Tesla doing it their way, i.e., all on line v. other solar companies who have some salesperson all over you (and you pay plenty for that).
He has stock options that he has to exercise between now and August 2022, which will get taxed as regular income. Apparently he's doing it now because he thinks the tax might be higher next year.
That means Musk either needs to sell some of his stock to pay the tax bill, or borrow against it.
This is the correct answer. Unlike unrealized gains, there is no way to avoid tax on options if they’re approaching expiration. You must exercise or you lose the entire value, and exercising is an unavoidable taxable event unless you pulled some trickery like putting them in an IRA when they were worthless. Either Musk sells enough stock so he has cash to pay the bill or he has to find someone to personally loan him a few billion dollars.
The odd thing is that he didn't go for the loan. Interest rates are still pretty low, he could probably work out a deal for the loan to be converted to stock if the stock appreciates by a certain amount, and in the mean-time any interest payments on the loan amount would be tax-deductible.
Alternatively, he could donate enough of the gains from liquidating part of his stock to tax-deductible charitable purposes. Those vary in how much of your income you can offset with deductions while using them, but there's probably a mix of them that would allow him to effectively deduct the entire tax bill.
Musk may or may not be smart, but him listening to obvious financial advice on this kind of thing isn't really a sign of whether he's smart or not.
And what some seem to miss with this proposed new law, as I understand it.
It is not simply an extra tax on unrealized gains. The taxpayer then gets to count what they pay tax on for basis. So , when they sell, they pay less tax then . So really just accelerates paying the tax on the gain , does not actually increase it ( except of course the interest on the earlier payment) . Although i guess not true if they held the stock till death and took advantage of the stepped up basis .
And this accelerating the tax paid is not mentioned much , it is just discussed as a tax increase .
For someone who might have sold in 11 years without this law , the result will be increase taxes for the first ten years and lower taxes the 11th .
But even more , if it incentives some to sell now rather than later, it really is pulling even more tax revenue from later years ( outside of reconciliation window ) into early years.
So some of this has the aspect of yet another reconciliation game where actual long term extra tax revenue is not near as much as they can " score " for reconciliation.
Not as bad as the ridiculous game they are trying with SALT tax , but still not being mentioned much by anyone.
And I might mention my perspective on some issues which might surprise some who think I am a buy the book conservative.
I do support getting rid of the stepped up basis at death , although I recognize there are huge practical issues. It just makes no sense. Although, to be fair, I am somewhat inclined to the argument that capital gain tax rate should be zero , or at least based only on gains after inflation adjustment. But having capital gain taxes only when you sell whole alive just makes no sense .
And , here in CA, I oppose proposition 13 . Which is real rare for any conservative..again just makes no sense . Plus the practical reasons why some say it is needed are easily worked out to me . You do not need to force people out of their homes. An alternative to paying currently is having tax deferred with interst until you do sell ( over a fair min ).
And anyone remember the old Clinton proposal to tax people on the value of using their homes ? Theoretically I support that , although it as politically disaterous to even hint at .
Of course, part of Elon's motivation is that he just likes to the center of attention and controversy.
He's a very smart guy but like many smart guys he is unable to understand the limits of his competence. He believes that any thought he has in any domain is necessarily an expert thought because he had it. That's why he's convinced Covid is bullshit. He is totally ignorant of virology but does not know that he is.
Elon Musk is Afrikaaner Nate Silver.
I've generally thought that Musk has a lot of intelligence but it's all one kind. It does appear to be the kind that makes a lot of money though.
For those who like charts and don't know about Scott Galloway, he posts the "chart of the week" if you are signed up for his No Mercy, No Malice newsletter.
Technically, it's not Musk's fault he's as rich as he is. He built a successful electric car company employing 10's of thousands of people so he should be rewarded for it but it's other people with a lot money looking for a place to put it that's driving the insane valuation. He's not the one buying TSLA pushing the price upwards. A P/E of 20 used to be considered healthy. Tesla's is around 350. When he sells, he will be taxed.
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