Home » The consequences of Elon Musk’s Tesla share sale poll

The consequences of Elon Musk’s Tesla share sale poll

by LLT Editor
8th Nov 21 12:08 pm

Elon Musk doesn’t like to do things in a conventional way and so holding a poll on Twitter about whether he should sell 10% of his stake in Tesla might seem crazy, but one could say it is normal behaviour for him.

The majority voted for him to sell, which effectively signals that he is going to dump stock on the market. In technical terms this is known as a share overhang, and it is something that would typically force the share price down.

AJ Bell investment director Russ Mould said: “Investors may look at the situation and try and sell before he does, potentially then buying back at a lower price if they still liked the stock. It’s also an open invitation for short sellers to place a bet that the shares will fall, generating a profit for them if the stock does decline in price.

“The standard practice for someone who decides to sell stock is to make an announcement that various brokers are trying to place those shares with buyers, typically large institutions such as pension funds or asset managers. The announcement often happens after the market closes, so as not to disturb the share price. By the time the market opens the following trading day, the shares should have already been placed with the new buyers.

“Tesla has bonds and shares that trade in Frankfurt, the latter opened down around 9% and have clawed a little of that back and are down 7%. Its main stock listing is in the US where the pre-market price shows a 6% drop ahead of the market open.

“So why hasn’t the share price fallen by a much larger amount? Some investors might be taking Musk’s comments with a pinch of salt.

“He has often made comments on Twitter, implying one thing and then doing the opposite soon after. For example, he said Tesla would accept bitcoin as payment for its vehicles but then reversed course by saying the company wouldn’t take such payment.

“It’s highly unusual for a business leader to canvas social media for opinions over share ownership but Musk has always liked to do things in the public eye.

“He is so rich that he probably doesn’t care if his actions cause the Tesla price to fall a bit. However, he also has a duty to act in shareholders’ interests which he hasn’t done in this situation because the incident has already destabilised the company’s valuation.”

 

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