Elon owns options worth $27.4B expiring in 9 months. He needs to come up with $15B cash to finance the exercise. Our Lord and Savior will sell 12.5M shares in the next 6 months. TSLA go down then go up. Edit: Aaaaand here comes The Tweet on selling 22M.
Papa Elon owned 170,492,985 shares as of end of 2020 and a further 56,638,950 from options expiring in the first two months of 2023. A total of 227,131,9351. Total # of shares outstanding was 1,004,000,000 as of Sep 30, 20232.
Furthermore, his 2012 and 2018 Performance Awards continue to vest options as market cap and revenue benchmarks are met. From the 2012 plan Elon has options for 22,862,050 shares exercisable at $6.24 each before Aug 13 20233. Employee options are taxed as ordinary income upon exercise. The recognized income is the difference between the market value of the stock and the strike price, approximately $1,200 per share. This puts his income at a staggering $27.4B. Elon cited a tax rate of 53%, which puts his tax bill to $14.5B. So, lest he decides to let the options expire worthless, he needs to come up with $143M for the strike price and a further $14.5B for Uncle Sam.
The Technoking exercised options before, for example in May 2016 he acquired 5,503,972 shares that were due to expire in December 2016. That transaction was worth $1.1B and Musk sold $600M worth of shares to pay for taxes (and donated $250M to charity to offset some of the taxes)4. If we apply the rule of three on his 2016 and 2023 exercise, we can estimate a sale of $14.9B worth of shares until Aug 2023. From the tax rate estimate above, we can project a $14.5B-$15B range.
Elon has two options: borrow from banks at rock-bottom rates collaterizing his existing shares or sell some shares to finance the exercise. A $15B margin loan at IBKR (blended rate of 0.75%) costs $112.5M/year. This is a pretty conservative calculation, but even so Elon is cash-poor, it is not unreasonable to assume that he does not have the cash for it. Assume he chooses to sell shares instead (and he might already be doing it, slowly), he needs to part with 12.5M shares. It is hard to gauge the effect the sale will have on the share price. As a volume it does not seem much, the daily trade volumes were hovering around 10M before the recent run-up. Also the free float is 81.31%, or 816M shares, so around 1.5% of the free float will be sold. But superficial media reports of Elon selling will cause retail panic.
All in all, a definitive downward pressure until the end of Q1, by the time Elon will probably want this to be over with.
If you just climbed out of hibernation, you have some catching up to do. After I had posted the first part of my DD on Friday and Elon had decided to get some marketing credit on Twitter, he began exercising his due options and selling shares to cover his tax bill. In Part 2 I look at his SEC filings and track his progress.
Interesting tidbit: a trading plan for an orderly sale has been in place since Sep 14, 2023(1). It puts into question the motives for the Twitter poll, or at least it should for those who still think it was not a marketing tactic.
Table 1 2012-granted and vested option exercise(1)
| Starting balance | Exercise Date | Exercised #shares | Progress | Exercise price | To be exercised |
|---|---|---|---|---|---|
| 22,862,050 | 11/08/21 | 2,154,572 | 9.42% | $13,444,529.28 | 20,707,478(2) |
Table 2 TSLA stock history
| Transaction Date | Daily volume | Closing | Daily move |
|---|---|---|---|
| 11/08/21 | 33,445,715 | $1,162.94 | -4.84% |
| 11/09/21 | 59,105,836 | $1,023.50 | -11.99% |
| 11/10/21 | 42,802,722 | $1,067.95 | 4.34% |
Table 3 Elon’s share transactions (negative denotes sell)(1(3)(4)(5)(6)(7)(8)(9)(10)(11))
| Transaction date | Sum – # of shares | Sum – Proceeds | % of daily volume | % daily move |
|---|---|---|---|---|
| 11/08/21 | -934,091 | $1,102,342,478.72 | 2.79% | -4.84% |
| 11/09/21 | -3,088,047 | $3,353,496,896.10 | 5.22% | -11.99% |
| 11/10/21 | -500,000 | $527,271,411.03 | 1.17% | 4.34% |
| Total Result | -4,522,138 | $4,983,110,785.86 | ||
| Total Twitter progress | 20.56% |
I do not have time right now nor feel very comfortable with doing a forecast, but I am now expecting:
- All 2012 award options to be exercised by the end of the year (no short-term impact, Tesla is getting ~$143M from Elon, shareholders get 2.2% dilution).
- The supposed plan calls for an orderly sale, so it would make sense to keep the current pace, never selling more than 5% of the daily volume per day. That gives us a low-bound of 6 more sell-off days like Nov 9 left with a daily moves of -12%. The high-bound is at least 4 more tranches of 3-day periods like we just experienced spread out timewise, but still completed until the end of 2023Q1.
This article was written by u/Waddayanow.
