Tesla co-founder and CEO Elon Musk
Frederic J. Brown/AFP via Getty Images
Tesla CEO Elon Musk sold more stock as part of a prearranged plan to exercise expiring management stock options. He said he’s just about done selling. That has made investors happy. Still, he isn’t going to end up selling the 10% he proposed.
Over the past couple of days, Musk sold another 1.9 million shares. Sales on Tuesday and Wednesday bring the total number of Tesla (ticker: TSLA) shares sold to roughly 14.8 million.
On both days—once on a podcast and also on Twitter— Musk said he was just about done selling. He has another 4 million or so expiring stock options he needs to exercise. Exercising those will generate the sale of another 1.8 million or so shares. Shares are sold on exercise to pay the taxes. Gains from management stock options are taxed like ordinary income when they are exercised.
When all that is done, Musk will have sold about 16.6 million shares of Tesla. Here’s the thing: That won’t be 10% of his stake, considering three factors.
Exhibit No. 1 is his current Tesla stake. When Musk started selling stock he held about 170 million Tesla shares. When he’s done all the selling he will hold about 180 million. All the selling resulted in holding more stock. Musk’s stake has increased by about 6%, not decreased by 10%. Musk, of course, bought stock when exercising options; he only sold a portion of the purchased shares to pay taxes.
Exhibit No. 2 is basic math. Even excluding the 10-plus million shares gain, the 16.6 million shares are just short of 10% of the original 170 million figure. This is the nit-picky exhibit.
Exhibit No. 3 is other stock options. Musk has other vested stock options from a 2018 stock options award. That options package could result in another 50 million or so shares, net of taxes, added to Musk’s stake. Including all the stock options held, Musk’s Tesla stake at the time of the Twitter poll could be considered at about 230 million shares. A tenth of that figure would be roughly 23 million shares.
Here’s the other thing: None of that really matters. Musk doesn’t have to include stock options in his holdings and he can round the 9.8% of 170 million shares sold to 10% if he likes.
Investors don’t really care about the math details. But there was a little uncertainty from math reflected in Tesla stock based on Wednesday’s reaction. Shares bounced 7.5% Wednesday on the realization that the options exercise represented all the sales coming down the pike.
The S&P 500 and Dow Jones Industrial Average rose 1% and 0.7%, respectively.
Wednesday’s jump put Tesla shares above $1,000 again and put Tesla’s market capitalization north of $1 trillion again.
The end of selling simply removes one headwind for Tesla stock. Instead of worrying about Musk sales, investors can get back to worrying about deliveries and production. Tesla will release fourth-quarter production figures in the first couple of days of 2022. Analysts expect about 270,000 vehicles will be delivered.
Write to Al Root at [email protected]
