Tesla (TSLA) and CEO Elon Musk manage to stay in the news most of the time. Just when markets were speculating whether Musk would split TSLA stock after the recent spike, he floated the idea of selling 10 percent of his stake in the company. Will Musk sell TSLA shares and what happens if he does?
Musk is the largest Tesla shareholder and at the end of the second quarter, he held a 17.2 percent stake in the company. He has also unlocked billions of dollars in stock options, which would take his stake in the company to around 23 percent.
Musk takes his salary in the form of stock options
Musk doesn't take any fixed salary or bonuses from Tesla. His compensation is in the form of stock options, which are linked to the company achieving different milestones.
The last two years have been nothing short of phenomenal for Tesla stock and it has risen multifold. Now, Tesla stock has a market cap of over $1 trillion. No other automaker in history has achieved the feat of a $1 trillion market cap.
That said, Tesla isn't a traditional car company but a renewable energy and tech play. Most of the company’s valuation comes from the software part of the business, even as it isn't contributing much to the revenues currently.
Why is Musk selling shares?
Musk plans to sell Tesla shares amid criticism about him avoiding his fair share of taxes. He held a Twitter poll where almost 3.2 million users participated. According to the poll, 57.9 percent of the respondents voted in favor of Musk selling 10 percent of his stake in the company, while the remaining 42.1 percent voted against it.
While billionaires like Musk avoiding taxes isn't something new, Musk’s proposal to sell shares is coming at a time when Tesla shares have been on an uptrend and are up 73 percent for the year.
Last year, the company raised $13 billion in cash by selling shares three times. The company didn't really need cash and during the earnings call for the fourth quarter of 2019, Musk denied any need to raise capital. However, the company clearly wanted to capitalize on the juicy rally in the shares. The stock continues to rally despite the share issuances and overall gained 740 percent in the year.
What would Musk selling shares mean for TSLA stock?
There could be some short-term weakness in TSLA stock if Musk decides to sell a stake in the company. The stock is incidentally trading sharply lower in pre-market price action on Nov. 8. His brother Kimbal Musk also sold some shares last week. Usually, insiders selling shares in a company are seen as negative.
Meanwhile, it isn't that Musk follows the results of every Twitter poll. Earlier in 2021, he held a Twitter poll on whether the company should start accepting Dogecoins as payment. The results were overwhelmingly in favor of Dogecoin as payment than the results for him selling the 10 percent stake in Tesla.
However, Tesla never accepted Dogecoin as payment and it also stopped accepting Bitcoin as payment. Given the massive volatility in Dogecoins, Musk might not risk Tesla’s profitability to cement his self-proclaimed title of “Dogefather.” When it comes to selling TSLA stock, Musk might sell some shares at these prices irrespective of the Twitter poll.