Tencent technology news on November 8, Elon Musk’s fans on social media said that the Tesla CEO should sell 10% of his shares. However, faced with the huge tax bill of $15 billion that is about to expire, is musk really willing to sell these shares?
On Saturday local time, musk launched a public opinion survey on social media to ask 62.7 million fans whether they should sell 10% of Tesla shares. He wrote on Twitter: “recently, many people believe that unrealized earnings are a means of tax avoidance, so I suggest selling 10% of Tesla’s shares. Do you support me?”
As of 2:15 p.m. New York time on Sunday, about 58% of the respondents supported Musk’s sale of shares and 42% opposed it, indicating that he would sell shares. According to his 170.5 million Tesla shares, the value of these shares is about $21 billion. Musk also said that he would “abide by the voting results” regardless of the result.
However, in fact, regardless of the survey results, musk may sell millions of Tesla shares this quarter because it will receive a huge tax bill of more than $15 billion.
As part of the compensation plan, musk obtained a large number of stock options in 2012. Because he doesn’t get salary or cash bonus, his wealth comes from the stock reward and the income brought by the rise of Tesla’s share price. Musk’s award in 2012 was 22.8 million shares at an executive price of $6.24 per share. On Friday, Tesla’s share price closed at $1222.09 per share, which means that his total stock income is slightly less than $28 billion.
Tesla also recently revealed that musk has obtained a loan with his shares as collateral. By selling shares, he may want to repay part of his debt. In the filing document submitted to the securities and Exchange Commission (SEC) in the third quarter of this year, Tesla pointed out: “If the price of our common stock falls sharply and musk is unable to raise funds by other means, he may be forced to sell Tesla common stock by one or more banking institutions to repay the loan. Any such sale may lead to a further decline in the price of our common stock.”
These options will expire in August next year. However, in order to exercise these shares, musk must pay income tax on the income obtained. Since the options are taxed as employee benefits or compensation, they will be taxed at the highest ordinary income level, i.e. 37% plus 3.8% net investment tax. In addition, musk must pay the highest tax rate of 13.3% in California, because these options are what he should pay Granted during the California tax period.
Taken together, the federal and California tax rates that musk would pay on the sale of shares would reach 54.1%. Therefore, at current prices, the total tax bill for his options would be $15 billion. Musk has not confirmed the size of the tax bill. But he wrote on Twitter: “Note that I don’t get any cash salary or bonus from anywhere. I only have stocks, so the only way I can personally pay tax is to sell stocks.”
Due to the limited time for CEOs to sell shares, musk hopes to interval the sales time by at least two quarters. Therefore, analysts and tax experts expect him to start selling shares in the fourth quarter of 2021. At the code conference in September, musk said: “I have a lot of options that will expire early next year, so a lot of options will be sold in the fourth quarter. Because I have to do this, otherwise they will expire.”
Of course, musk can also use his Tesla shares as collateral to borrow more money. At present, the total value of his Tesla shares exceeds $200 billion. However, musk has mortgaged 92 million shares to creditors for cash loans. When asked how to use such volatile shares as collateral at the code meeting, he said: “Stocks don’t always rise, they also fall.”
In addition to Tesla’s 2012 compensation plan, musk is also accumulating more options. In March 2018, Tesla’s board of directors granted him an unprecedented “CEO performance award”, including 101.3 million stock options (adjusted according to the 5-to-1 stock split in 2020), which are granted in 12 batches.
Dan ives, analyst at Wade Bush securities He said that although a large number of insider stock sales are usually regarded as a negative signal, such a scale of sales will not have much impact on Tesla. He said that the demand for Tesla shares by institutional and retail investors is still high. The unorthodox practice of voting for the support of fans and investors may also alleviate any concerns.
“Selling 10% Tesla shares may only increase the outstanding shares by 1.5% to 2%, so it has not had much impact. I believe his doing so will certainly reduce the impact and help change people’s views,” Ives said in a telephone interview
Since this year, Tesla’s share price has soared 73% to $1222.09 per share. As of November 5, the company’s market value has reached $1.2 trillion. As Tesla’s CEO and largest shareholder, musk may sell 80% of Tesla’s daily average trading volume in the past three months. If options are included, he may sell more shares.
Gary black, portfolio manager of the future fund, which is bullish on Tesla, said that Musk’s potential stock sale would lead to “moderate selling pressure in 1-2 days”, but he said that institutional investors would have a solid demand to rush to buy Tesla shares at a discount price.
Bryan springmeyer, a lawyer at springmeyer law, a San Francisco law firm, said: “it seems crazy to borrow so much money to pay taxes, so I have to assume that he needs to sell a large number of shares purchased from the exercise of options to pay taxes.”
Bloomberg billionaire index shows that Musk’s current personal wealth is $338 billion, about a quarter of which is Tesla’s stock options, which he can exercise at any time. If he exercised all his options now and sold them immediately, his net income before tax would reach $95.9 billion.
Musk may be hinting that he wants more liquidity in addition to the cash borrowed against his stake in Tesla. Last week, he said he would sell some shares if the United Nations could prove that $6 billion could help alleviate world hunger. Over the years, musk has always said that he will be the last person to sell shares, and when Tesla raises funds from Wall Street, he often increases his position to avoid diluting his shares.
At the end of 2020, musk moved to Texas, which does not collect state personal income tax. But with Tesla’s soaring market value and the expansion of his personal wealth, musk has become a symbol of increased inequality. He seems to be very sensitive to this. In a survey on how the super rich avoid taxes, he is one of the billionaires mentioned and has become the target of Congressmen who promote the taxation of billionaires.
Ron Wyden, a Democratic senator from Oregon, wrote on twitter on Saturday: “whether the world’s richest man pays taxes or not should not depend on the poll results on twitter. It’s time to levy a billionaire income tax!”
In the process of becoming the world’s richest man, musk has made many of his fans, employees and other investors millionaires, or even at least one billionaire. Singapore retail investor and business owner Liao Kaiyuan is one of them. He used his considerable wealth to buy Tesla shares worth more than $7 billion.
Many fans, including Liao Kaiyuan, said that it is time for musk to gain from Tesla, even if it is just to spend the money on Musk’s other projects to explore space and neural networks. Liao Kaiyuan said: “from the perspective of politics and taxation, Elon has no cash. He has no choice but to sell his shares to pay taxes and keep his cash abundant.” (reviewed by Tencent technology / Jinlu)