PR campaign: Elon Musk lets vote on the sale of shares on Twitter – that’s really behind it

Great PR campaign
Why Elon Musk Really Sells Stocks

By Jan Gänger

The world’s richest person promises to sell stocks and finally pay taxes. But there is a special calculation behind Elon Musk’s deal: He has found an elegant way to become even richer.

You have to give Elon Musk: he finally found a good excuse to sell Tesla stock on a large scale. At the weekend, the Tesla boss put to a vote on Twitter whether he should part with ten percent of his block of shares in order to pay taxes. He promised to implement the result. To put it into perspective: According to data from Refinitiv, Musk held 23 percent of Tesla at the end of October, which corresponds to about 230 billion dollars. For ten percent he would get – according to the current status – around 23 billion dollars, which he then also has to pay tax.

Tesla Motors (USD) 1,038.60

The result was clear. A clear majority of the 3.5 million attendees voted for Musk to sell shares. The punch line: Musk forgot to mention that he probably wanted to do that anyway – to be able to pay a billion-dollar tax burden that was already coming.

When it came to the vote, however, it sounded very different. “There has been a lot of talk lately about unrealized gains as a means of tax avoidance,” wrote Musk. “So I propose to sell ten percent of my Tesla shares.” Since he does not receive any salary or bonuses, selling shares is the only way for him to pay taxes.

In the USA there is a lot of discussion about reforming the tax system that could start with wealth. There, price gains on shares are taxed when the paper has actually been sold and the profit has thus been realized. Wealthy people can use it to build huge fortunes without paying taxes.

Nobody is as rich as Musk

In the course of planned tax reforms by President Joe Biden, talks are about to change this. A so-called “billionaire tax” of 23.8 percent on profits from securities, regardless of whether these were realized through a sale or not, is being discussed in Congress. It would affect approximately 700 US taxpayers who have assets over $ 1 billion or who have $ 100 million in annual income for three consecutive years. The money raised in this way is intended to help finance Biden’s planned social and climate reforms. Musk thinks little of the considerations.

Meanwhile, the Tesla founder has become the richest person on the planet because of the gigantic rise in Tesla shares. “Bloomberg” estimates his fortune at a whopping $ 338 billion.

It consists mainly of Tesla papers. Musk also doesn’t receive a fixed salary or bonus payments. His remuneration consists solely of performance-based stock options – i.e. the right to buy Tesla shares up to a certain point in time at a fixed price. However, he is only allowed to exercise these options if Tesla achieves previously agreed targets, such as the market value.

One of these options is about to expire. In 2012, Tesla granted Musk the right to buy 22.8 million shares for $ 6.24 each – redeem until August 2022. At that time, a Tesla share cost less than $ 6, now one is worth $ 1,228. That means: Musk can buy a block of shares for $ 145 million, which is currently worth nearly $ 28 billion.

Option expires

But there is a problem with that, because Musk needs money to do it. He must first raise the $ 145 million to buy it. The easiest way to get the money you need is to sell stocks that you already have. Taxes are also due when the option is dragged. Musk must pay tax on the difference between the $ 6 option price and the current stock price. The federal taxes due and his long-time residence in California add up to around 54 percent, so Musk would have to pay a little more than $ 15 billion. The bottom line was that that left just under $ 13 billion.

For the sale of his 10 percent package worth $ 23 billion, Musk would have to pay taxes on the realized capital gains. The magazine “Forbes” comes to around 5 billion dollars – provided that Musk does not expect any losses from other investments.

Musk could also forego drawing the options. So far, however, he has made it clear that he is not thinking about it. in the In September he spoke of stock sales as he would need money to pay taxes on maturing stock options. He had previously tweeted in a discussion about taxing the rich: “I will only sell Tesla shares when my stock options expire and I have no other choice.”

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