Mon. Dec 6th, 2021


Elon Musk’s latest stunt is an example of trolling. So much is clear. What is less clear is who exactly is being trolled. The controversial CEO of Tesla has said that, following the results of a Twitter poll, he will sell about a tenth of his shares in the company, which will incur the tax liability on his capital gains. It was, he said, a response to growing claims that “unrealized capital gains are a form of tax avoidance”.

Shares immersed in reaction but it is not clear whether shareholders were the victims of the scam. If Musk had sold his stake in another way – silently with nothing but a regulatory statement to the market, for example – then they might have fallen further. Investors could have been shocked at the idea that there was still unknown bad news coming out about the company. Musk may rather realize some of his gains while saying it was only in response to the social media poll, which provides justification for the sale.

It is unlikely that it is a joke with the taxman. Musk tweeted that he does not take any salary or bonus from Tesla, which means he usually has no income to tax. All he owns is stock and so, if he wants to pay something to the government, he has to sell some of his possessions. With the value of Tesla soaring, it will face significant capital gains tax if it sells, even after the big drop in the share price.

The proceeds will also enable him to pay an income tax bill on billions of dollars worth of stock options that expire next year; Musk himself says he will pay a marginal income tax rate of more than 50 percent on the deal and is worried that taxes will rise. The Tesla co-founder may be able to sell some of his stock to pay the bill by borrowing from it – a method of load optimization used by many billionaires. However, Musk has previously borrowed against Tesla shares and may at this point be willing to pay taxes instead of incurring debt.

Even without the bill being payable, Musk would likely be smart to sell. The company is the most valuable car manufacturer in the world – with its market capitalization soaring more than a trillion dollars earlier this year. Musk already tweeted in 2020 that its share price was “too high”. Taking a little profit and diversifying into other assets would be a financial decision that many wealth managers would advise.

Maybe the victim of the joke was the Securities and Exchange Commission. The agency is already the source of much of Musk’s anger after he was forced to reach a settlement with the regulator in 2018 because he tweeted that he had “secured funding” to take the company privately at a price of $ 420 per share. The SEC found that the tweet was untrue and amounted to security fraud. As long as Musk follows the results of the Twitter poll and does sell a tenth of his possessions, he’s probably on safer ground. He is still thumbs up for the agency.

Democrats who want him to pay more taxes – some senators have briefly tried to iintroduces a billionaire‘tax last month – is another target for ridicule. Musk warned his Twitter followers last week, before holding the poll, that the senators would eventually run out of “other people’s money”.

Whatever it is, the scam is not ideal for corporate governance. It should indeed be accompanied by a “do not try it at home” warning for other CEOs and large investors. Musk’s online maneuvers are part of its star-studded appeal to legions of dedicated investors. Corporate bosses who do not offer such loyal support may find that shareholders are also less enthusiastic.



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