Elon Musk was treading on thin ice. Following a string of run-ins with the financial regulator, the boss of Tesla has poked the bear again, boldly testing if he can get away unscathed.
On Saturday he took to Twitter, asking his 63 million Twitter followers: “Much is made lately of unrealised gains being a means of tax avoidance, so I propose selling 10pc of my Tesla stock. Do you support this?
“I do not take a cash salary or bonus from anywhere. I only have stock, thus the only way for me to pay taxes personally is to sell stock.”
Fans were asked to respond to a poll, with Musk vowing to “abide by the results, whichever way it goes”.
The Tesla boss has poked the bear again with his latest Twitter antics.Credit:AP
True to his word, Musk followed up with share sales worth a whopping $US5 billion ($6.9 billion) on Tuesday and Wednesday. And he will need to sell even more – around $US21 billion in total – to meet his pledge in full. It seemed like a very expensive way to make a political point against US President Joe Biden’s plans to tax the wealthy.
But the share price fall after his tweet saved Musk almost $US2 billion in tax.
And what Musk had not told his followers was that, to some extent, the outcome of the poll didn’t matter: some of his trades had actually been planned since September.
While the event adds to an entertaining political row, it could have the potential to lead to another altercation between Musk and the SEC.
Musk – who is worth an estimated $US299 billion as the wealthiest person on earth – has been taking a stand against Biden’s plans to hike taxes for America’s wealthy with the intention of helping to pay for his $US1.75 trillion social spending package.
“Eventually they run out of other people’s money, and then they come for you,” he previously tweeted, urging people to write in protest to their local representatives.
Biden’s proposed tax would have been uniquely extended to include taxing unrealised assets, such as gains on held shares, instead of just income, despite many billionaires’ fortunes remaining on paper.
Musk’s tweet this week dismayed some loyal supporters, who complained Tesla’s shares could “tank”, with one writing that “this is taking money out of the pockets of the people who have believed in you”.
It also prompted claims from one venture capitalist that he was orchestrating an obscenely expensive “coin flip”.
According to tax experts, and the 50-year-old himself, he was already preparing to sell billions of dollars’ worth of shares to settle a mammoth tax bill.
Since 2012, the Tesla boss has been awarded some 22.8 million share options, and they will expire in August 2022 unless he exercises them. This is partly because, while it is common for executives to wait before they access these types of rewards, Musk has also opted to live largely off loans secured against his Tesla holdings rather than cash generated from share sales.
His problem now is that while the options cost just $US6.24, Tesla’s shares have since rocketed north of $US1000. On the Friday before his Twitter poll, they stood at about $US1222 each.
At that price, exercising the options would have netted the billionaire almost $US28 billion in capital gains and left him facing a hefty $US15 billion bill with the US taxman. His overall rate of tax, including federal and state taxes, is expected to be 54.1 per cent, according to CNBC.
Musk had publicly discussed the matter at a conference in California in September. “I have not really bothered to take money off the table, which is a common thing that most people do. They sell some of their stock,” he said.
“I have a bunch of options that are expiring early next year, so… a huge block of options will sell in Q4 because I have to, or they’ll expire.”
The sharp drop in Tesla’s share price this week can be seen as fortuitous for the chief executive, whose liabilities will now have shrunk in cash terms.
It means the sharp drop in Tesla’s share price this week can be seen as fortuitous for the chief executive, whose liabilities will now have shrunk in cash terms.
According to analysis by the Telegraph based on Wednesday’s closing share price, the capital gains on his share options had dropped to $US24 billion and his potential tax bill to about $US13 billion.
That means he may actually be liable for $US1.9 billion less in tax following his Twitter poll antics. Musk’s brother, Kimbal, was also revealed by regulatory filings to have offloaded about $US109 million worth of shares in Tesla the day before his brother called the vote.
The tweets this week were not the first time Musk, 50, has caused a stir.
In perhaps his most infamous episode, the chief executive was reprimanded by US stock market regulators for tweeting that he had “funding secured” for a bid to take Tesla private in 2018.
His claim was found to be untrue and the authorities alleged it amounted to securities fraud.
After an investigation, the billionaire and Tesla were each forced to pay $US20 million fines and Musk was forced to give up his dual role as the company’s chairman for at least three years as part of a settlement.
Officials also demanded that future tweets were reviewed by company lawyers before they were sent.
But even after this episode, Musk carried on confounding traders with his online posts. In February 2019, he tweeted that Tesla car production rate would hit “500k in 2019” – without explaining this was actually an annualised figure – before later correcting it to 400,000.
He then wiped around $US13 billion off his company’s value in May last year by musing aloud that he thought Tesla’s stock price was “too high”.
And earlier this month he sent shares tumbling when he said of an announced deal with rental car firm Hertz: “No contract has been signed yet”.
But with Tesla now one of just five listed companies worth $US1 trillion or more globally, the chief executive is still sitting on an enormous fortune.
Now, however, his tax troubles mean Musk will finally have to convert more of it to old-fashioned money.
Despite this squeeze, the entrepreneur is already back to talking about his favourite subject: plans to help humans settle on other planets and “extend the light of consciousness beyond Earth”.
“There are many other good causes,” he tweeted, “but this is my main reason for accumulating capital.”
The Daily Telegraph, London
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
Most Viewed in Business
From our partners
Source: Read Full Article