Tesla shares fall after Twitter users vote for Musk to sell stock

[NEW YORK] Tesla Inc shares fell 5.4 per cent in pre-market trading on Monday as investors prepared for its chief Elon Musk's proposed sale of about a 10th of his holdings in the electric-car maker following his Twitter poll.

Musk, the world's richest person, tweeted on Saturday that he would offload 10 per cent of his stock if users of the social media network approved the proposal.

The Twitter poll asking his followers if he should sell stock garnered more than 3.5 million votes, and 57.9 per cent of the people voted "Yes".

Musk had previously said he would have to exercise a large number of stock options in the next three months, which would create a big tax bill. Selling some of his stock could free up funds to pay the taxes.

"I only have stock, thus the only way for me to pay taxes personally is to sell stock," he wrote along with his poll. "I was prepared to accept either outcome." The electric-vehicle maker's shares were trading at US$1,156.3 before the bell, and if the losses hold, it would wipe off about US$66 billion.

Market participants expected speculators would try to front-run his selling. Musk's stake in Tesla was about 170.5 million shares as of June 30, and a 10 per cent sale would amount to about US$21 billion based on Friday's closing price, according to a Reuters calculations.

Including stock options, he owns 23 per cent stake in the world's most valuable car company.

In the 3 months to Nov 4, company insiders at Tesla sold US$259.62 million worth of shares, excluding dispositions of indirectly held shares, Refinitiv data indicated.

Musk's poll follows a proposal by US Senate Democrats to tax stocks and other tradeable assets of billionaires to help finance President Joe Biden's social spending plan and fill a loophole that has allowed the rich to defer capital gains taxes indefinitely.

"The last thing you do when offloading a massive exposure is to reveal your hand," said Chris Weston, head of research at broker Pepperstone in Melbourne. "The buyers tend to step away when you have an overhang like this, but this is no ordinary story and is Musk's way of getting back at the proposal to tax the elite with gains on unrealised profits."

Tesla breached a trillion dollars in market capitalization last month, becoming the fifth US company to join a club which includes Apple, Microsoft, Amazon and Alphabet.

"The dip isn't going to last too long, because Tesla has had such a phenomenal record of bouncing back from these sort of selloffs," said David Madden, markets analyst at Equiti Capital in London.

Known for his Twitter banter, announcements and lively interactions with followers, Musk has had his share of run-ins with financial regulators. The billionaire was fined US$20 million by the US Securities and Exchange Commission (SEC) for tweeting in 2018 that he was considering taking Tesla private at US$420 a share and had secured funding. The SEC also asked him to step down as chairman.

Investors will keep an eye on any response from the regulators on Musk's Twitter poll, especially because the regulator had ordered Tesla to vet any material public communications Musk made regarding the EV maker, following his 2018 tweet.

REUTERS