CEO Elon Musk Sells $5B Worth of Tesla (TSLA) Stock

Tesla, Inc. (TSLA) CEO Elon Musk is making good on his promise to sell company stock. Musk, who conducted a Twitter poll last weekend to determine whether he should make the sale, has already sold $5 billion worth of Tesla stock this week, according to filings. He is expected to sell between $12 billion to $13 billion worth of additional stock in the coming days.

Coming off a $1 trillion market capitalization and fresh price highs, Tesla's stock swerved and crashed by more than 16% in two days at the beginning of this week after Musk announced his intentions. It recovered briefly before commencing another downward slide and is currently trading at $1,028.14, down 3.31% as of this writing. That figure is well below its all-time high of $1,243.49 reached on Nov. 4, 2021.

A Sale in Multiple Transactions 

Musk holds about 170 million shares in Tesla and had sold 4.5 million shares by Thursday, Nov. 12, 2021, according to filings. Based on current estimates, he will sell 2.5 million more. 

Investor fears about Musk’s intentions have mostly focused around the possibility of a block sale, which might trigger a steep decline in the stock's price. Musk seems to have eschewed that tactic. Apart from Monday, when he sold more than 900,000 shares totaling $1.1 billion, he is selling his considerable holdings in hundreds of small transactions that have not moved the needle much in Tesla's share price. The stock has lost roughly 3% of its value since Tuesday, when news of Musk's sales first began coming out. 

"I don't think the volume of Musk's transactions will create volatility. I think volatility comes from the interpretation of his actions and his own words," Ben Silverman, director of trading at Insider-Score, told The Wall Street Journal. The recent tranche of shares is part of options granted to Musk in 2012. They expire in August next year.

A Regulatory Problem for Tesla? 

In the past, Musk's tweets have come under the Securities and Exchange Commission (SEC) scanner, and he has been fined for his actions. His latest actions—holding a Twitter poll to advertise a potential stock sale—could also cause problems.

According to Tesla's filings, Musk's Monday sale of 900,000 shares was done as part of a pre-arranged plan, also known as Rule 10b5-1 plans. He arranged the trade back on Sept. 14, almost two months before he broached the idea on Twitter. This means that he had already decided to sell at least some of his holdings in September and made a material disclosure of sorts to his Twitter audience last week. That disclosure sent Tesla stock crashing.

The SEC penalized Musk for making such disclosures in 2018 and asked him to get tweets pre-approved from his legal and counsel department. It is unclear whether his recent tweets violate that settlement. 

Another problem relates to Musk's trading plan. Rule 10b5-1 plans, which help executive management sell substantial portions of their holdings without affecting the market adversely, are already controversial.

According to research by Daniel Taylor, professor of accounting at the Wharton School in Pennsylvania, when company insiders and senior executives used the plans to sell $50 million or more of stock in a single day, the company's stock underperformed that of its peers by 3.19% over the month and 5.75% over the next six months. A 2020 study by Joshua Mitts from Columbia University found that share volume and dollar volume of insider sales under 10b5-1 plans are higher when good news is disclosed, and each of these are higher when the disclosed news is better.

Again, Musk sold stock worth $1.1 billion on Monday alone. Not only this, his restaurateur brother and Tesla board member Kimbal Musk sold 88,500 shares of Tesla on Friday, before the CEO's weekend tweet. Another Tesla board member, Robyn Denholm, and a senior executive, Andrew Baglino, sold 25,000 shares and 1,000 shares in the first week of November and last week of October, respectively.

Since Sept. 14, when Musk inked the plan, Tesla's shares have climbed roughly 64%, making up the bulk of their gains for this year. From January to September, Tesla shares drifted in the $600 and $700 range, down from $880 on Jan 1.

The current SEC chief Gary Gensler has asked his staff to "freshen up" 10b5-1 regulations because they are misused by insiders. SEC Commissioner Caroline Grenshaw told The Financial Times in May that such plans create "a real risk that executive trading could be influenced by inside information."