How Elon Musk sold 10 million Tesla shares and increased his Tesla holdings

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An analysis of his filings shows that Musk is not backing down on his stake in Tesla, despite promising to follow up on a poll he sent to his Twitter followers, who asked him to sell his 10% stake. So far they have sold 10.1 million shares — about 7 million shares short of target.
This is because at the same time he is selling the stock, he is also exercising the options to buy additional stock. And it’s doing so at a bargain price of $6.24 per share, which is less than 1% of the Tesla ,TSLA,current share price. Since Musk’s Twitter poll on November 6, he has exercised options to buy 10.7 million shares of Tesla. To be clear, he would have done so with or without voting – the options were due to expire by August of 2022 if he did not exercise them.
Whenever he exercises the options, he becomes subject to a huge income tax hit because he receives those options as the primary form of compensation.

He is owed about $5 billion in federal income taxes on the new shares he has purchased since November 8. They will probably also have to pay some amount of state taxes. According to the filing, Musk sold Tesla stock specifically to cover that tax hit.

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Musk also plans to exercise additional options expiring next year. He still has 12.2 million options that are soon to expire that he hasn’t exercised yet.

If past practice is any indication, it will sell about 5.3 million of those newly acquired shares to cover its tax bill. But even then he would still have about 7 million more shares than he does today.

Musk is keeping most of the shares he is acquiring rather than selling them all, as other executives are known to do when exercising options, including Tesla’s chairman of the board Robin Denholm.

Once he’s done with these soon-to-expire options, Musk will have 22.9 million fewer options at the start of the process. But he would still have 50.7 million other options that would allow him to buy several additional shares, even if at a higher exercise price than the options he is buying now. He is unlikely to exercise them anytime soon, as neither of these options will expire until January 2028.

More options on their way

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The number of options Musk has is likely to increase significantly in the coming year.

Musk’s pay package was designed to give him 12 different block options after the company met certain financial performance and market price targets. With the company now worth $1 trillion, the market cap targets have all already been met, so it’s a matter of impacting the revenue and profit targets.

Tesla already has three additional blocks of the 8.4 million options going to Musk, for a total of 25.3 new options, more than making up for those it’s in the process of exercising. The company’s filing said it is “likely” that the required financial targets will be achieved soon.

Analysts agree. According to Wall Street’s consensus forecast, Musk could qualify for a block of 8.4 million options with fourth-quarter results, and two more with first-quarter 2022 results. And if analysts’ estimates are correct, they could get an additional 8.4 million options in the second or third quarter of 2022, and another blog in early 2023.

additional stock sales

Musk sold a block of 5.4 million Tesla shares, which he held in trust, over the course of three days shortly after completing his Twitter poll.

Most of the shares sold in those transactions were probably what they have held since the company’s 2010 initial public offering. So nearly all of the $5.8 billion he received for those sales was probably viewed as long-term capital gains, taxed at the lower 20% rate, not the higher tax rate he would pay on the exercise of the options.

To hit the target of selling 10% of the shares of Tesla owned by him as of the voting date, he may need to sell about 2 million more shares to cover the tax bill for his additional 12 million options.

But if he does, with even more options coming to him, he still has the potential to have a bigger stake in Tesla than if he started the process.


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