Elon Musk could have already been compelled to promote a large portion of his Tesla shares even when he hadn’t issued an uncommon Twitter pledge over the weekend. Mr. Musk on Saturday polled Twitter customers on whether or not he ought to promote 10 p.c of his stake in his firm. The ballot seemed to be a response to a Democratic proposal to tax the unrealized features of billionaires.

“Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock,” he tweeted. Mr. Musk stated he was elevating the query as a result of he doesn’t take a money wage as Tesla’s chief government, and subsequently wouldn’t have any approach to pay a big tax invoice with out promoting a few of his Tesla shares, which make up the overwhelming majority of his wealth.

Mr. Musk wrote in a follow-up tweet that he would “abide by the results of this poll, whichever way it goes.” Tesla’s inventory value fell greater than 5 p.c on the open of buying and selling on Monday morning.

He closed the ballot on Sunday, after almost 3.5 million votes had been forged, with 58 p.c voting for him to promote. Mr. Musk hasn’t confirmed what he’ll do, however after closing the ballot, he tweeted, “I was prepared to accept either outcome.”

Either method, Mr. Musk could quickly have wanted to promote an enormous chunk of his shares. He holds almost 23 million inventory choices that had been awarded in 2012. Those choices have since vested and can expire in August 2022. Most inventory grants permit executives to keep away from paying taxes for years, and maybe eternally, so long as they don’t promote the shares they get from changing the choice.

But Brian Foley, an government compensation marketing consultant, says that due to the dimensions of Mr. Musk’s grant and the way in which it was structured, it’s possible that a lot of his 2012 choices don’t qualify for the preferential tax remedy. That means Mr. Musk would owe earnings taxes when he workouts the grant, which at present costs can be price just below $30 billion. Mr. Musk’s tax invoice may prime $10 billion, relying on what share of the choices don’t qualify for the preferential remedy.

“They are a ticking tax time bomb,” Mr. Foley stated of Mr. Musk’s inventory choices. “Offhand I can’t think of any way for him to get around paying the tax.”


Nov. 8, 2021, 11:00 a.m. ET

What’s extra, Mr. Musk could must promote much more shares than what it could take to pay his tax invoice. He owns 17 p.c of Tesla’s shares, which at its present inventory value can be price about $200 billion. That means his weekend tweets are a pledge to promote roughly $20 billion price of Tesla’s shares.

The potential sale may roil Tesla’s inventory at a time when many analysts say it’s already overvalued. The firm’s market worth lately crossed $1 trillion, making it solely considered one of 5 U.S. publicly traded firms to be price that a lot.

Nonetheless, James Cox, a professor at Duke University legislation college and an professional in securities legal guidelines, stated it is perhaps laborious for Mr. Musk to return on his Twitter pledge. “It’s a no-win situation,” Mr. Cox stated. “In the securities law, the problem is this could be seen as a misrepresentation that was meant to mislead if another shareholder sold on Musk’s tweet.”

But Mr. Cox stated it could be a tough lawsuit to win, as a result of chief executives are allowed to make statements and alter their minds, so long as they meant what they stated after they stated it.

It wouldn’t be the primary time Mr. Musk has gotten into hassle over his tweets. In late 2018, he and Tesla settled a lawsuit by the Securities and Exchange Commission, with out admitting guilt, for tweeting a couple of potential sale of Tesla that by no means occurred. Mr. Musk was additionally sued for defamation in 2018 after calling a diver who had helped rescue kids caught in a collapse Thailand a “pedo guy” on Twitter. Mr. Musk received the go well with.

Daniel Ives, a inventory analyst at Wedbush Securities who follows Tesla, known as Mr. Musk’s newest Twitter pledge “bizarre,” however stated he thought that given Tesla’s prospects and the investor enthusiasm for the corporate, the inventory, which is up greater than 60 p.c this 12 months, would maintain climbing, even with Mr. Musk cashing out a portion of his holdings.

“Musk was likely to sell some of his Tesla stock before year end, but no one ever imagined there would be a Twitter poll translating into a 10 percent sale of his ownership,” Mr. Ives stated. “This weekend’s Twitter poll was a strange one even for Elon.”


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