Elon Musk sold roughly $5 billion worth of Tesla shares this week — his first such sale since 2016 — just days after conducting a Twitter poll asking his fans if he should dispose of 10% of his stake in the electric carmaker.
According to filings with US securities regulators, Musk exercised options Monday and then sold nearly half of the 2.1 million shares he received, raising about $1.1 billion in cash to pay taxes relating to the transaction.
Musk then sold another 3.6 million shares of Tesla stock on Tuesday and Wednesday, according to additional filings. At an average price of about $1,082 per share, those sales were worth about $3.9 billion. The sales he completed Monday fetched a slightly higher average price of $1,180 a share.
The motivation for Monday’s sale was “solely to satisfy [Musk’s] tax withholding obligations related to the exercise of stock options,” the filing said. The other filings did not disclose a particular reason for those sales.
The options Musk exercised were about 9% of those he needs to exercise before they expire in August 2022. But taking that 9% will result in a $1 billion federal tax bill, under the top federal income tax rate of 37%, with another 3.8% net investment tax on top of that.
While the need for Musk to sell shares to pay taxes had been known by investors, Tesla’s stock fell following the Twitter poll on concerns that he intended to offload more than had been expected. The share price also could have fallen Monday and Tuesday in part because of Musk’s sale of 4.5 million shares on those days.
If Musk truly intends to sell 10% of his take, as the Twitter poll suggested, there will be additional sales ahead, as so far he has sold just 2.6% of the shares he owned after exercising those options Monday.
Although filings detailing Musk’s stock sales on Tuesday and Wednesday didn’t mention any motivation, he does have an additional massive tax bill looming. When he exercises the additional options that are due to expire, he will have to report the value of the shares as regular income, at 40.3% federal tax rate, and likely some state tax.
The exact tax bill will be determined by the value of the shares at the time the options are exercised, but the federal tax bill is likely to be nearly $11 billion if shares stay near their current value.
He won’t have quite as high a tax bite on the sales he made this week, since those are stocks he owned outright. Musk has owned about 80% of the shares in his portfolio since the time of the 2010 initial public offering, a stake that was based mainly on his investments in the company before it went public.
That means virtually all of the money he made from selling 3.6 million shares Tuesday and Wednesday will be considered a long-term capital gain, and be taxed at 20%. That will result in an additional federal tax bill of about $776 million, in addition to any taxes he owes on the exercise of his options. But he could have avoided that capital gains by continuing to hold those shares and selling only shares he acquires through the exercise of options between now and August.
Shares of Tesla (TSLA) rose about 2% in premarket trading Thursday following the filings, .
Musk owned 170.5 million Tesla shares outright before this week’s transactions, worth $182 billion based on Wednesday’s close. In total, he also now has unexercised options on 71.4 million shares, including 20.7 million due to expire next August.
He made a nifty $2.5 billion profit on the options he exercised this week, since he only had to pay $6.24 per share under the terms of the 2012 award. And that is in addition to the nearly $3.9 billion profit on the shares he sold Tuesday and Wednesday. But even that combined $6.4 billion profit isn’t that significant to the wealthiest person on the planet.
Musk has a net worth of about $300 billion, as calculated by Bloomberg. The more than $6 billion profit from this week’s transactions was already included in that calculation, since the value of the stocks and options ix a significant part of his net worth.
Musk making $5 billion from the sale of stocks and exercise of options would be like the typical American family selling about $2,000 worth of stocks. The Federal Reserve’s most recent estimate puts the median household net worth at $121,700.
Most of Musk’s wealth is his Tesla (TSLA) shares and options to buy additional shares. Tesla (TSLA) became only the sixth company to ever be worth $1 trillion two weeks ago. But he is also the primary shareholder in privately held SpaceX.