Tesla shares still under pressure until Musk sells rest of 10% promised, says this broker


Even though Tesla Inc (NASDAQ:TSLA) boss Elon Musk has sold some of the huge share sale he promised on Twitter, investors are still waiting for the other shoe to drop, say analysts.

On Wednesday it was revealed billionaire sold around US$5bn worth of the electric vehicle maker’s stock.

Regulatory documents show Musk had quietly set up a plan to sell US$5bn of stock back in September, he then went onto Twitter last weekend to set up a poll, asking “I propose selling 10% of my Tesla stock. Do you support this?”

After this was branded by some as ‘the world’s most expensive tweet’, broker Wedbush agreed that Tesla’s stock has been under pressure following the poll, falling 17% to scrape US$199bn of the company’s market value.

The Street is now anticipating Musk will sell 10% of his ownership before year-end, said analyst Daniel Ives at broker Wedbush.

Calling the Twitter poll a “soap opera”, Ives said: “Now all focus will be on the filing front to see if Musk ultimately goes through with these stock sales and thus has put pressure on the stock accordingly with investors awaiting the outcome.”

“While the poll was originally in response to a Democratic billionaire tax proposal on unrealized gains which did not actually make it into the Beltway bill, the poll with 3.5 million followers voted for Musk to sell his 10% ownership stake and the Street assumes this will now happen.”

Either way, the analysts noted on Monday that it was “well known” that Musk had a big tax bill coming due from his 23mln stock options awarded in 2012 that have vested and expire in August 2022, meaning it was clear he was going to sell some stock before year-end.

“With a tax bill that we calculate at north of $10 billion, selling stock over the coming months before year-end is not a surprise, although holding a Twitter poll to sell 10% of his stock is another bizarre soap opera that can only happen to one company and one CEO in the world, Musk.”

Prior to the sale, Musk owns roughly 23% of Tesla and it was viewed by many on the Street that he would sell up to 5%/6% of his ownership stake.

As 10% was higher than expected and could surprise some investors, the Wedbush analyst felt it was “a digestible number we are not overly concerned about”, although the broker said it has also “given fuel to the bears” that contributed to the share price fall.

“In a nutshell, we would rather Musk rip the band-aid off now and sell this portion of stock rather than it lingering over the next year and feeding into any non-fundamental bear thesis on the story,” Ives concluded.

Tesla shares clim,bed 4% on Wednesday and were up another 3% in pre-market trading on Thursday to US$1,103.


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