Why Elon Musk May Want To Sell 10% Of His Tesla Stock—And Why He May Have To

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As far as unrealized capital gains go, no one in America is sitting on more of them than Elon Musk. Nearly all of his estimated $271 billion fortune is tied up in stakes in his two main ventures: private spaceflight company SpaceX and electric carmaker Tesla. The richest person in history, Musk chooses not to earn a salary, doesn’t own a home and has described himself as “financially illiquid.”

At least for now. On Saturday, Musk polled his 63 million Twitter followers: “Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock. Do you support this?”

Yes, said 58% of the 3.5 million respondents, meaning Musk—who promised to “abide(n) by the results” of the poll—may be on the verge of cashing in shares of Tesla worth $15 billion, based on Tuesday’s closing share price.




That could send as much as $3.6 billion to the federal government in tax payments, Forbes estimates, eight times more than the $455 million he paid in the years 2014 through 2018 combined, according to a ProPublica investigation. But ever since Musk’s tweet, speculation has abounded that the PR-minded mogul might not really have the interests of Uncle Sam at heart. And that he may not just want to sell Tesla stock—he may have to.

That’s because Musk has a huge tax bill coming due. He owns 17% of Tesla’s shares, plus some $92 billion worth of stock options that allow him to buy more shares at a steep discount. One set of these options expires in August 2022, meaning Musk will have to exercise his right to purchase the stock before that date or the options—currently worth $23 billion—will expire and he gets nothing. The issue: cash-poor Musk will owe taxes when he exercises the options.

Some types of options can be exercised without triggering immediate taxes, while the proceeds from share sales are taxed at lower capital gains rates, but Musk’s options (in tax-speak: “nonqualified” options) will likely face the much higher ordinary income tax rate imposed on compensation, according to lawyer Bruce Brumberg, the cofounder of myStockOptions.com and a Forbes contributor. Musk could end up owing north of 50%—more than $10 billion—between state and federal taxes, if he pays the top rates. While Musk now lives in income tax-free Texas, California—where Musk lived for years until decamping in late 2020—may tax Musk on the value of options earned while he was a resident.



Selling Tesla shares now to cover the future tax hit is one explanation for why Musk wants to unload a chunk of his stock, but it’s not the only explanation. For one, he doesn’t need the cash yet, since he has until August 2022 to exercise the options. Plus, there are a number of ways he could cover his taxes without selling a single share that he already owns. One method, commonly employed by billionaires, is to exercise the options and then simply sell some of the newly acquired shares to cover the tax hit. Musk could then keep the rest of his new stock, adding to his bet on Tesla’s future, or sell all of it for cash. Either way, he’d have more than enough to cover his tax bill—and still walk away with billions in profits. He could also use a loan to pay the taxes. Musk already has Tesla stock worth more than $90 billion pledged as collateral for lines of credit, though Tesla requires that he cap his borrowing at 25% of the pledged amount.

If Musk really is selling 10% of his stock, he might just want some cash. His portfolio—virtually 100% invested in two moonshot companies—is the stuff of nightmares for financial advisors, given the enormous risk and lack of diversification. Now might seem like a good time for Musk to move some money around: Musk has repeatedly suggested Tesla shares are overvalued. “Tesla stock price is too high imo,” he tweeted in May 2020. Since then, the stock has risen 630%.

Musk could be hoping to free up some cash for other ventures, to pay down debt or to get ahead of future taxes. Billionaires are in Congress’ crosshairs these days. A recent proposal to tax the unrealized gains of the richest people in America could have cost Musk tens of billions of dollars. That plan has been significantly dialed back, though lawmakers are still proposing adding an eight percentage point surtax on adjusted gross income above $25 million, which could add billions to Musk’s tax bills on future options exercises and stock sales.




No matter the reason—and despite his claim that he was “prepared to accept either outcome”—it seems likely that Musk was planning on selling some of his Tesla holdings regardless of what Twitter had to say. At a September conference, Musk 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.”

Elon Musk did not respond to a request for comment.

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