Elon, Tesla, Washington – and The Law of Unintended Consequences

Justin Freeman

Elon Musk Twitter Profile

Not for the first time in his life Elon Musk has taken to ‘oversharing’ personal thoughts on Twitter. This time his actions could be seriously impacting the net wealth of many around the world. When the markets opened on Monday morning, Tesla (Nastaq:TSLA) stock on the Frankfurt exchange was down 9%. That is a big deal for Tesla shareholders and the wider markets.

Tesla Motors Chart

Source: IG

The car firm which Musk founded and which he is still CEO is a significant bellwether of the market mood. In October, it joined an elite club when it reported a market capitalisation of $1trn, which only Apple, Microsoft, Amazon and Alphabet have achieved.

Elon Musk Twitter

Source: Twitter

Musk’s Saturday Tweet was a post asking his followers if he should sell 10% of his stock position in the firm, which at the time equated to approximately $26bn of TSLA stock. By Monday’s opening time, 3.5m people had responded, and 57.9% had voted “yes”. It’s not clear how binding a Twitter vote is but given the interest in his question, it’s unclear how Musk could back down. The underlying reality is that he probably wants to, and possibly needs to, sell some of his position to resolve two different situations.

Elon’s Options

The first is that Musk holds call options in Tesla, which are thought to expire in the next three months. He isn’t obliged to exercise the options and convert them into stock, but the eye-watering price rise shown in the Tesla share price chart suggests the strike price, the level at which he’ll buy the stock, will be some way below current price levels. The options give him the right to purchase the options, but he’ll still need to find the cash to process the transaction. Profit will be built in, but only if he can seal the deal.

Billionaires’ Tax

The second issue is longer running in nature and could have far greater consequences for the stock markets. The “billionaires’ tax” proposed by Democrats in the Senate is intended to increase the tax take on ultra-high-net-worth individuals who hold their wealth in the form of company stock. As Musk doesn’t draw down a cash salary or any cash bonuses for his work at Tesla, his remuneration package is primarily stock-based. Washington based plans to tax unrealised profits would again leave Musk with cash flow issues, and that tax bill would likely be paid by him liquidating some of his stock position.

Twitter Stock Market Tesla Musk

Source: Twitter

Final Thoughts

Musk’s weekend move might look like Saturday brunch musings, but it could be a smart one. By providing an advanced warning of the sale, he’ll be less likely to damage the euphoria surrounding the stock. It would be more a case of letting some air out of the bubble. It also helps him rotate his position from the existing stock into in-the-money options.

The repercussions for the broader market could be more interesting, with the billionaires’ tax issue likely to play a significant role for many more US firms.

Crowdsourcing information about scam brokers can help others avoid falling into the traps set by disreputable brokers and you can share your experiences here. Find out more about this area, or if you have been scammed by a fraudulent broker, you can also contact [email protected]

Justin Freeman

Latest news

Forex vs Crypto: What’s Better For Beginner Traders?
The crypto and forex markets are two of the world’s most popular among investors and traders. Read more
Three Great Technical Analysis Tools for Forex Trading
You don’t have to be very technical minded to make use of technical analysis in your forex trading. Read more

Safest Forex Brokers 2024

Broker Info Best In Customer Satisfaction Score
#1 73% of retail CFD accounts lose money. Founded: 2014 Global Forex & CFD Broker
Number One Broker
Best Trading Conditions Visit broker
#2 Blackbull LogoYour capital is at risk Founded: 2014 Global Forex Broker
Number One Broker
BEST SPREADS Visit broker
#3 AvaTrade LogoYour capital is at risk Founded: 2006 Globally regulated broker
Number One Broker
#4 * 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money Founded: 2008 Global CFD Provider
Number One Broker
Best Trading App Visit broker
#5 Between 74-89 % of retail investor accounts lose money when trading CFDs Founded: 2010 Global Forex Broker
Number One Broker
Low minimum deposit Visit broker
#6 Forex Broker eToro Logo76% of CFD traders lose money Founded: 2007 Global CFD & FX Broker
Number One Broker
#7 XM LogoYour capital is at risk Founded: 2009, 2015 and 2017 Global Forex Broker
Number One Broker
Low minimum deposit Visit broker
#8 FxPro LogoYour capital is at risk Founded: 2006 CFD and Cryptocurrency Broker
Number One Broker
CFD and Cryptocurrency Visit broker

    Forex Fraud Certified Brokers

    BlackBull Logo Small
    eToro Logo
    FXTM Logo
    XM Logo
    FxPro logo
    AvaTrade logo
    CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.