190717 Elon Musk
Elon Musk Image Credit: AFP

Tesla Inc. tumbled the most in eight months after Elon Musk’s Twitter followers voted in favor of selling 10 per cent of his stake in a poll set up by the electric-car chief.

A majority of 3.5 million Twitter users – 58 per cent – said they’d support such a sale in a poll that Musk ran during the weekend. The stake would be valued at about $21 billion based on the 170.5 million Tesla shares he holds.

“I was prepared to accept either outcome,” Musk said in a tweet after the poll closed.

Tesla shares dropped 4.7 per cent at 9.34am on Monday in New York after slumping as much as 7.3 per cent, the most intraday since March 5. The stock had climbed 73 per cent this year through November 5 while the S&P 500 rose 25 per cent.

The crowd-sourcing exercise is the latest example of Musk’s long history of using Twitter and his legions of fans on the platform to stoke interest in his company, sometimes pushing the envelope with tongue-in-cheek tweets. The world’s richest person proposed the move in a tweet citing recent discussions about the ultra-wealthy hoarding unrealised gains to avoid paying taxes. Musk doesn’t take a salary, but has to pay taxes on any stock options that he exercises.

Musk’s tweets have moved Tesla shares in the past, sometimes drawing the ire of authorities. Musk in 2018 agreed to get approval from a Tesla attorney prior to communicating material information to investors as part of a settlement with US securities regulators. It wasn’t clear whether that official previewed Musk’s Twitter poll.

Signaling intentions

While large sales by insiders are often seen as a negative signal, a sale of this size won’t alter Tesla’s story in a meaningful way, said Dan Ives, an analyst at Wedbush Securities. Demand remains high for Tesla shares among both institutional and retail investors, he said. The unorthodox step of getting buy-in from fans and investors via a poll may also ease any concerns.

“Selling 10 per cent is probably going to add 1.5 per cent to 2 per cent to the float, so it doesn’t really significantly move the needle,” Ives said in a phone interview. “I do believe that him doing it in this way definitely would soften the blow and would help the perception as well.”

The automaker’s stock has soared 73 per cent this year to $1,222.09 as of November 5, giving it a valuation of $1.2 trillion. The number of shares that Musk - its chief executive officer and largest shareholder - could be set to offload is equivalent to 80 per cent of Tesla’s average daily trading volume in the past three months. The amount of stock he may potentially sell would be even greater if his options are included.

Personal fortune

Musk’s fortune stands at $338 billion, according to the Bloomberg Billionaires Index. About one-quarter of that consists of Tesla stock options that he’s free to exercise at any time. The securities come from two big awards he received in 2012 and 2018. The older contracts expire in August next year.

If he exercised all of the options now and immediately sold the shares, they would net him $95.9 billion before taxes.

Musk may be signaling that he wants liquidity beyond the cash he’s secured by borrowing against his holdings in the EV maker. Last week, he suggested he’d sell some stock if the UN could prove $6 billion could help alleviate world hunger. For years, Musk has said he would be the last to ever sell stock, and has often added to his position when Tesla has raised money from Wall Street so that his stake is not diluted.