Tesla CEO Elon Musk has taken to Twitter, suggesting if his followers vote in favor of it, he’ll sell 10% of his stock in the electric automaker.
So far, the vote has gone solidly in that direction, but whatever the final tally, Musk may not have any option considering he’s facing a tax bill of more than $15 billion on his stock options. Now ranked as one of — if not the — wealthiest person in the U.S., Musk collected millions of shares of stock at a time when Tesla’s market valuation surged to more than $1 trillion.
“Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock,” Musk tweeted last week, adding that he will “abide by the results of this poll, whichever way it goes.”
Twitter fans say “Sell”
As of this weekend, roughly 58% of those who’ve responded to the poll want Musk to sell. In fact, it looks like Musk will have no option but to do so, no matter what.
Musk has an unusual financial relationship with Tesla, taking stock rather than a salary or bonus. The number of shares he receives is based on several factors, including Tesla sales and the price of the company’s stock. During the past 52 weeks Tesla stock has jumped from a low of $396.03 to a high of $1,243.49. On Friday, it closed at $1,222.09, down 0.64 percent.
Musk was awarded 22.8 million options in 2012 at a strike price of just $6.24 a share. His gain, as of Friday came to $28 billion on those shares. The CEO has until next August to exercise the options before they expire. If he does so, he will face 37% in ordinary taxes, along with a 3.8% net investment tax. Though Musk recently changed his residence to Texas, he faces another 13.3% tax in California, according to CNBC, because the options were granted while he was a resident there.
At a combined 54.1%, the tax bill on these shares would come to around $15 billion at Tesla’s current stock price. The bill would go even higher if the stock continues to gain value. The share prices has jumped more than 50% during since early October.
More tax bills coming
While Musk is now worth more than $200 billion, according to various analysts — more than Bill Gates and Warren Buffett combined, he may have no alternative way to raise the cash he’ll need to cover those tax bills.
Musk’s compensation plan means he’ll be facing some huge tax bills for the foreseeable future as additional stock options reach the point they will need to be exercised — or lost.
“I do not take a cash salary or bonus from anywhere. I only have stock, thus the only way for me to pay taxes personally is to sell stock,” Musk said in a tweet.
During a conference in September he explained that, “I have a bunch of options that are expiring early next year.” And he will have to act on “that huge block of options,” he added, “or they’ll expire.”
Tesla could be hit hard
Complicating matters, Tesla noted in a third-quarter 10-Q filing with the SEC that Musk has taken out loans using his shares as collateral — about 92 million shares, in total. And, were the company’s stock price to decline, he also could be pressured to sell some stock to cover those loans. But that, in turn, could hit Tesla hard.
“If the price of our common stock were to decline substantially, Mr. Musk may be forced by one or more of the banking institutions to sell shares of Tesla common stock to satisfy his loan obligations if he could not do so through other means,” the company said in the 10-Q. “Any such sales could cause the price of our common stock to decline further.”