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Tesla Stock Falls After Musk Promises to Sell 10% of Stake
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© Michele Tantussi/REUTERSTesla Inc. shares fell after Chief Executive Elon Musk signaled he was open to selling 10% of his holdings.
Shares in the electric-vehicle maker lost 4.8% Monday after Mr. Musk, the company’s largest stockholder, launched a weekend poll of his 63 million followers on Twitter, asking them if he should sell the stake, worth around $21 billion at Friday’s market close, to pay taxes. About 58% of the 3.5 million participants voted in favor of the sale and Mr. Musk tweeted that he had been “prepared to accept either outcome.”
Monday’s slip took a sliver off a rally that has carried Tesla shares up 65% this year, propelling the company into a small group with market values topping $1 trillion and making Mr. Musk the world’s richest person. Investors often sell shares when insiders do because company executives are generally assumed to have greater awareness of the business’s direction and prospects.
Tesla’s shares remain notoriously volatile. They have a relatively small so-called free float, or the amount of shares regularly traded and not held by insiders. Tesla’s shares have fallen more than 5% nine times this year, according to FactSet. Tesla didn’t respond to a request for comment on the stock decline, Mr. Musk’s tweets and if anyone had vetted them. Mr. Musk is required under a 2019 court judgment to get internal preapproval before making statements about certain subjects that could affect Tesla’s share price.
Helping power Tesla’s stock surge this year: The car maker’s fortunes have picked up. The company posted a third consecutive record profit in the third quarter, thanks in part to its ability to navigate global supply-chain disruptions.
Tesla shares shot higher again in late October when car-rental firm Hertz Global Holdings Inc. said it had ordered 100,000 cars to be delivered by the end of 2022. Mr. Musk subsequently raised doubt over the deal, and The Wall Street Journal reported on Nov. 4 that the two companies were negotiating over how quickly Hertz would receive the vehicles.
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A trading craze also has pushed Tesla shares higher. Last month, traders piled into call options that provide a levered wager that the stock would keep climbing. Purchases of the bullish contracts can feed back into gains for underlying shares. Tesla has for years been popular among individual investors, subjecting the stock to moves unexplained by fundamentals such as profits and losses long before day traders swarmed into shares of GameStop Corp., AMC Entertainment Holdings Inc. and others in 2021.
Mr. Musk says he doesn’t receive a salary and so pays tax only when he sells stock. This fall he criticized a plan—since dropped—to make billionaires pay annual taxes on unrealized gains in publicly traded assets.
Mr. Musk is Tesla’s largest shareholder by far, with around 17% of the company, according to FactSet. His stake as of Friday was worth more than $200 billion. Other major individual owners of Tesla shares include board member, Oracle Corp. founder and fellow billionaire Larry Ellison. Vanguard Group is Tesla’s biggest institutional owner with 5.6% of shares outstanding, according to FactSet, followed by units of Capital Group Cos. and BlackRock Inc.
Mr. Musk has a history of market-moving online pronouncements, some of which have landed him in trouble with regulators. In 2018, he agreed to step down as Tesla’s chairman as part of a settlement with the Securities and Exchange Commission. The market watchdog had sued Mr. Musk for fraud, alleging he misled investors when he tweeted that he had secured funding to take Tesla private.
In the settlement, Mr. Musk agreed to have his social-media statements reviewed by Tesla lawyers. In 2020, securities regulators told the company his use of Twitter had twice violated the policy, the Journal reported in June.
Tesla told the SEC that it disagreed with the agency’s position, and the SEC didn’t go back to court to try to punish Mr. Musk for the statements.
The preapproval policy, as spelled out in a federal-court judgment, includes any tweets that relate to Tesla’s securities, “including Musk’s acquisition or disposition of the company’s securities.” The SEC and Tesla agreed to include that item, along with eight others, after they disagreed over an earlier version of the policy that a federal judge found to be vague.
“Clearly based on the plain language for the order, there is some basis for the SEC to kick the tires here to see if Musk followed the procedure before he put the tweet out,” said Keith Higgins, a former senior regulator at the SEC and retired partner at Ropes & Gray LLP.
Mr. Higgins added that regulators might have trouble showing the tweet harmed investors. The statement disclosed a potential sale, giving shareholders more notice about an insider transaction than they might otherwise get, he said.
Write to Joe Wallace at Joe.Wallace@wsj.com
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