Investors would do well to take a long, hard look at Musk’s Tesla share sales

Tesla investors begin the new year trying to escape the shadow of 2022, when more than $670bn of value was wiped out. At the centre of that, in a very real sense, is Elon Musk: Tesla’s CEO, techno-king and biggest shareholder.

Not as big as he was 14 months ago, though. Musk began heavy selling of Tesla in November 2021. Concerns about weakening demand in China — and, conversely, hopes that the worst is over — have taken centre stage of late, especially as Tesla missed delivery estimates for the fourth quarter. But that should not distract investors from taking a long, hard look at the scale and pattern of Musk’s sales.

Musk sold in four periods: late 2021, April and August of 2022, and the end of that year. In very broad terms, he cashed out some stock right at the top but then kept selling as it fell dramatically during 2022, helping to accelerate that drop. What is difficult to discern on that chart, however, is just how hard Musk chased the price down, selling more and more even as it tanked.

Data compiled from public filings by Bloomberg indicate that between November 8 2021 and December 14 2022 Musk disposed of almost 75-million shares (or a notional 141-million, adjusted for August’s stock split) via 1,279 open-market transactions spread across 27 trading days. Gross proceeds were $39.4bn. But looking at the cumulative build-up of proceeds versus shares sold, the diminishing returns become apparent. Musk disposed of 29% of the adjusted shares in just the past two months or so, yet that generated less than a fifth of the proceeds.

Musk framed the original bout of selling in late 2021 as raising funds to pay taxes, ostensibly putting it to a Twitter poll, the results of which he pledged to follow (an absurd promise if the purpose is to pay taxes). Those sales of 15.7-million shares did coincide, though, with Musk exercising options on 22.9-million (or 47.1-million sold compared with 68.6 exercised, split-adjusted). It should also be noted that, as of March 2022, Musk had pledged roughly 89-million shares as collateral for personal loans, according to Tesla’s proxy filing.

Sales picked up again as Musk began his takeover bid for Twitter and then accelerated as it became apparent that he would actually have to go through with it. Prior to November 2022, no individual transaction involved more than 1.4-million shares, split-adjusted (the average lot was about 82,000 on that basis). On November 8, more than 3-million shares went in just one sale of nine that day. The following month, on a single day, December 13, Musk disposed of almost 12-million shares, more than 8% of all sold over the past 14 months yet generating less than 5% of the proceeds.

Despite the year-end fire sale, Musk’s average realised price across the entire period is $279, more than double the current price. At a diminished net worth of just $129bn, he has lost his crown as the world’s richest person. Still, with enough fortitude, such setbacks can be borne.

For shareholders lacking such resources, and realised gains, the aftermath is different. Despite the collapse in valuation, Tesla still trades at about a 35% premium to the S&P 500 on forward price:earnings multiples. In two weeks, it will unveil earnings for a quarter in which sales growth fell far short of the sort of expectations set by Musk on the last earnings call: “We’ve got a lot of questions about demand in recent weeks. I can’t emphasise enough, we have excellent demand for Q4 and we expect to sell every car that we make for as far in the future as we can see.”

Over that period, Tesla produced 34,423 more vehicles than it delivered to customers. The dissonance is of a piece with Musk’s own sales. At various points in 2022, Musk indicated he had no further sales “planned”, told investors at the annual meeting that a falling stock price was a “buying opportunity”, said Tesla had the potential to be worth more than $4-trillion and that the company was considering a buyback programme — all ahead of him selling yet more stock. In a Twitter Spaces late in December, Musk said he would “definitely not” sell any more stock in 2023. And as we all know: if it’s on Twitter, it must be reliable.

Bloomberg
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