Tesla Inc. shares fell after CEO Elon Musk indicated he was willing to sell 10% of his holdings.
Shares of the electric-vehicle manufacturer fell 4.8 percent Monday after Mr. Musk, the company’s largest stockholder, launched a weekend poll of his 63 million Twitter followers, asking them if he should sell the stake, which was worth about $21 billion at Friday’s market close, to pay taxes. Mr. Musk tweeted that he was “prepared to accept either outcome” after approximately 58 percent of the 3.5 million participants voted in favor of the sale.
Monday’s drop cut a sliver from a rally that has seen Tesla shares rise 65 percent this year, propelling the company into a small group of companies with market values exceeding $1 trillion and making Mr. Musk the world’s richest person. Because company executives are assumed to have a better understanding of the company’s direction and prospects, investors frequently sell shares when insiders do.
Tesla’s stock is still notoriously volatile. They have a relatively small free float, or the number of shares that are regularly traded but are not held by insiders. According to FactSet, Tesla’s stock has dropped more than 5% nine times this year. According to a 2019 court decision, Mr. Musk is required to obtain internal approval before making statements about certain topics that could affect Tesla’s share price.
The carmaker’s fortunes have improved, which has contributed to Tesla’s stock surge this year. In the third quarter, the company posted its third consecutive record profit, thanks in part to its ability to navigate global supply-chain disruptions. Tesla shares rose again in late October after car rental company Hertz Global Holdings Inc. announced an order for 100,000 cars to be delivered by the end of 2022. Mr. Musk later questioned the deal, and The Wall Street Journal reported on Nov. 4 that the two companies were negotiating the speed with which Hertz would receive the vehicles.
A trading frenzy has also pushed Tesla stock higher. Last month, traders piled into call options, which provide a leveraged wager that the stock will continue to rise. Purchases of bullish contracts can result in gains for underlying stocks. For years, Tesla has been popular among individual investors, causing the stock to experience wild swings unaccounted for by fundamentals such as profits and losses long before day traders flooded into shares of GameStop Corp., AMC Entertainment Holdings Inc., and others in 2021.
Mr. Musk claims that he does not receive a salary and thus only pays taxes when he sells stock. This fall, he criticized a plan to tax billionaires on unrealized gains in publicly traded assets on an annual basis, which has since been dropped.
According to FactSet, Mr. Musk is Tesla’s largest shareholder by far, owning approximately 17 percent of the company. His stake was worth more than $200 billion as of Friday. Other significant individual shareholders in Tesla include board member, Oracle Corp. founder, and fellow billionaire Larry Ellison. According to FactSet, Vanguard Group is Tesla’s largest institutional owner, with 5.6 percent of shares outstanding, followed by units of Capital Group Cos. and BlackRock Inc.
Mr. Musk has a track record of making market-moving online statements, some of which have landed him in hot water with regulators. As part of a settlement with the Securities and Exchange Commission, he agreed to step down as Tesla’s chairman in 2018. The market regulator had filed a fraud lawsuit against Mr. Musk, alleging that he misled investors when he tweeted that he had secured funding to take Tesla private. Mr. Musk agreed to have his social-media statements reviewed by Tesla lawyers as part of the settlement. According to the Journal, in 2020, securities regulators informed the company that his use of Twitter had violated the policy twice.
According to a federal court ruling, the preapproval policy includes any tweets about Tesla’s securities, “including Musk’s acquisition or disposition of the company’s securities.” After disagreeing over an earlier version of the policy that a federal judge found to be vague, the SEC and Tesla agreed to include that item, along with eight others.
Mr. Higgins added that regulators may have difficulty demonstrating that the tweet harmed investors. According to him, the statement disclosed a potential sale, providing shareholders with more notice about an insider transaction than they would have received otherwise.