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Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

kbM3

Active Member
May 22, 2017
2,013
11,089
Orlando
A lot of folks are misunderstanding this.

It would be mathematically foolish for Elon to sell any old shares at all to deal with the options.

He ends up with far more shares than he began with if he ONLY pays his tax bill (selling new shares).... even if he sells 10% of total holdings he'd still have slightly more shares than he began with. More below.




Nope. He'd actually pay a lot more tax that way.

He owes short term cap gains on all the exercised options when he exercises them.

The difference between strike and current market price (which is damn near 100% of the value since his strike is incredibly low) is his short term gains at time of sale for all the exercised options.

So he owes that tax for exercising- regardless of how he pays for it.

That sets the new basis value of those new exercised shares to the current market value.

If he sells any of THOSE shares immediately he pays zero additional taxes since he already got the bill for those at current value.

If he instead sells old shares he owes another 20% in long term cap gains on those old share sales.

Selling old shares is worse than selling new ones in this case.



We already knew he'd be doing exactly that- he literally said so last month.


The only difference now is he's talking about selling 10% of total shares.... He only needs to sell about 12.4 million shares to cover his tax bill. 10% of all his shares is either ~17 million or ~19.4 million depending if he counts the exercise shares in his total when doing the 10%.

So he'd be selling roughly 40-50% more shares than actually needed to pay the tax bill at 10% of all shares.

And he'd end up, post tax bill, with something in the 5-8 billion cash left over range.... last we knew he only owed something like 550 million against his borrowing vs shares... so he'd still have 4.5-7.5 billion left over if he paid that off.

Assuming he's not building a Scrooge McDuck vault he'd likely already have some plan for that cash that he thinks is a better idea than holding more TSLA stock.
Agree with one small nit pick.

Elon also will have to pay the Investment tax of 3.8% which applies to income over $200,000 for singles, on top of 20% capital gains tax.
 
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Sofie

HODL: "I’d rather be a part of it, than watch”
Jul 31, 2020
381
2,408
Florida
It appears to me that Elon finds himself in a position where he will have to do something in order to manage the pending stock options expiration.

By doing it this way, with a 4D Chess move, he will:

1) Bring more attention to Tesla via his favorite tool, Twitter. Some percentage of Twitterers who take time to look deeper may be inspired to invest, or, at least gain a more positive opinion of Elon/Tesla. He will have to pay the piper anyway, why not take the opportunity to generate greater awareness in the process?​
2) This also may likely result in a manufactured "correction" in the TSLA price. Possibly avoiding any market-driven downturn that could reach further lows than this move might generate were Elon not have made this very public move. Considering the (well deserved) spike of late, forcing a breather to establish the new normal with a momentary flattening in the meteoric SP rise could be a good thing.​
3) This will result in a buying opportunity for those HODLers with couch money to spare ( @Sofie ?) to supplement their positions.​

Everyone here should be applauding Elon for taking advantage of this opportunity to make Lemonade from the circumstances which decisions about exercising those earned options have him facing. I don't think there could possibly be a more brilliant way to manage this to create maximum long term benefit for Tesla.
Yep. I’ll see what I can do 😅
 
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Knightshade

Well-Known Member
Jul 31, 2017
14,170
25,015
NC
Per our CPA, it absolutely is.

You donate the shares, you DON'T cash them out. You then get the full tax write-off value of the shares at the time of donation, but don't pay any capital gains tax because you didn't "realize the gain" and cash them out.

Gains are realized for these options when you exercise

Even if he sold 0 shares he'd realize the gains between the strike and the current market value at time of exercise.

He could offset SOME of the owed taxes by donating old shares... but there's an AGI cap for donating anything but actual cash... I wanna say it's 30% of AGI or in some cases you can get it a bit higher... but it's very far from 100%.


So I suppose in theory he could donate old shares with market value equal to 30% of the taxes owed on the options and offset that much of the bill... then still need to sell roughly 8.2 million "new" shares to pay the rest of the bill to the IRS.

But seems that'd just reinforce the narrative of rich guys avoiding taxes.
 
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Cosmacelf

Well-Known Member
Mar 6, 2013
9,041
23,821
San Diego
I have no problem with Elon selling 10% of his total shares. What I find most surprising, as a Tesla investor, is Elon's tweet "I will abide by the results of this poll, whichever way it goes", as if a Twitter vote is some source of truth. Twitter can be a source of useful information, but it is also a source of (crypto) scams and people who want Tesla to fail.

He posted the abide tweet about an hour after his 10% tweet. According to polling statistics, he was 99% sure which way the poll was going to go at that point. Ergo, he wanted to sell all along (option exercise taxes) and he’s just trolling everyone and giggling about it.
 
I went to check the result of the poll and see Elon is being political. He changed "abide".






View attachment 730314
Maybe this is all a public service announcement: something to the effect like George Baily said before a run on his Savings and Loan, that “the cash isn’t sitting in a vault somewhere, its (invested in various enterprises that are raising peoples standards of living)“ etc…
 
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Paracelsus

Member
Mar 27, 2015
950
12,096
Idaho
I absolutely think it is a low probability @SunCatcher. But consider for just a moment the very act of Elon so publicly entertaining the idea of not selling. That possibility never even existed in the minds of MM’s just moments before the Tweet. This was serendipitously also an act of legalized cruel & unusual punishment to those who had made a career punishing Elon and his team, and slowing their efforts to advance a more sustainable planet.

I sincerely hope and believe that a 4D Chess player like Elon has found some satisfaction in this surprise move that must have made some MMs that might have gone too far out on a limb wondering if they need to suddenly hedge against their previous hedges IMO. So I don’t think Mondays trading will be as simple as a 10% drop followed by a recovery from people buying the dip. No way. Elon just infused confusion into the minds of those tasked with confusing the minds of retail investors. Boss move as @mongo pointed out.

Elon was glad to publicly humiliate the CEO of Robinhood for halting GameStop trading when shares weren’t readily available and Hedgies were getting eviscerated. He stood up against WS and MMs for the benefit of all of us. And now after both the Hedgies and Robinhood were let off the hook by the SEC, we find Elon’s own TSLA in a gamma squeeze with MMs believing that they will soon be able to cover their short positions with the 2% of TSLA float that Elon should be bringing to the market soon. But then in full Saturday College Football Game Day-Lee Corso-style Elon says “Not So Fast my friends……….I will let Twitter decide your fate”. I love it! What a stud. Because the MMs know Elon’s principles are important enough to him that it is within the realm of possibilities. Elon is playing the role of The Man in Black. He has placed the wine on the table in the form of a Twitter post and the MM’s are no longer confident which glass contains the iocane powder.

We can’t know if the last few weeks have smelled a bit like GameStop behind the scenes in this period of very unusual trading. But we do know Elon is willing to take a stand against such behavior in a most public way when necessary. And while my gut tells me this is just a taunting - I am enjoying the moment - and I am looking forward to the next Tweets from Elon when he ‘taunts them a 2nd time’

 
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Cosmacelf

Well-Known Member
Mar 6, 2013
9,041
23,821
San Diego
Can someone explain how Elon exercising his options will work. Does he end up buying back the shares he has just sold? Will he end up with more of less shares than he has today? Could his buying (exercising) cause a squeeze to counteract tomorrow's sell off?

SP could go up regardless. Elon selling could be seen by the BM funds to be their last chance at getting to equal weight. They need to buy many more than Elon is selling.

On these kind of employee stock options, you are allowed to sell the stock you just bought to pay for the stock you just bought. So, he will buy 22M shares at $6.24. He will then owe $124M to pay for this. He will then also owe $12B in taxes. To cover that expense, he would then normally sell about 11M of those 22M shares at $1100 to pay for the tax and the 22M shares. But to get to 10% sales, he’ll have to sell a bit more, like 17M shares. So in the end Elon walks away with $6B cash (after taxes) and a net increase of about 5M shares of Tesla in his holdings. Rough numbers…
 

kbM3

Active Member
May 22, 2017
2,013
11,089
Orlando
@Knightshade

Although you’re correct that Elon will pay more tax selling shares now rather than at exercise, there is 1 partially offsetting advantage gained and 1 other possible advantage.

1. He’s raising his cost basis, by selling shares with the lower cost basis, rather than the shares with the high cost basis he will acquire from the options. And this could be even more advantageous when selling stock later, if taxes do increase in the future.

2. If the share price is higher now than at the time he exercises the options. Although this could obviously go the other way as well.
 

Artful Dodger

"Ducimus, lit"
Aug 9, 2018
11,056
151,700
Canada
Note that Elon's twitter account has gained 0.2 million "followers" in the past day. This poll is being gamed heavily by a drone swarm of bots. Elon owes no loyalty to the mob on twitter.

I think he should just do what he thinks is best. Personally, I'd wave the stock options and declare the 2:1 stock dividend instead. After the shortzes have firmly bitten the hook. Abide that!

BTW, that $12B in forgone Federal tax receipts would have paid for 2.67M car rebates for EVs made in UAW shops. Schadenfreude for ~6 yrs worth of Fremont 3/Y production.
 

Discoducky

P100DL, 2021 M3, 4 CT reservations and counting
Supporting Member
Dec 25, 2011
4,137
12,342
My mountain
a net increase of about 5M shares of Tesla in his holdings. Rough numbers…
Very important for folks to realize Elon's ends up being *more* invested in Tesla and would be driving harder the advent of sustainable transportation.
 

SunCatcher

Member
May 21, 2016
629
5,883
Arizona
"Texas Institute of Technology and Science, University of Plano Plato"
Fixed that for you;

Why is Plato important to history?

The Athenian philosopher Plato (c. 428-347 B.C.) is one of the most important figures of the Ancient Greek world and the entire history of Western thought. ... In the “Republic,” his most famous work, he envisioned a civilization governed not by lowly appetites but by the pure wisdom of a philosopher-king. ;)
 

Singuy

Well-Known Member
Jun 28, 2018
5,141
43,820
US
Note that Elon's twitter account has gained 0.2 million "followers" in the past day. This poll is being gamed heavily by a drone swarm of bots. Elon owes no loyalty to the mob on twitter.

I think he should just do what he thinks is best. Personally, I'd wave the stock options and declare the 2:1 stock dividend instead. After the shortzes have firmly bitten the hook. Abide that!

BTW, that $12B in forgone Federal tax receipts would have paid for 2.67M car rebates for EVs made in UAW shops. Schadenfreude for ~6 yrs worth of Fremont 3/Y production.
Don't you think there are more incentives for bulls to buy bots than shorts? Millions of Tesla bulls hence the current stock price, just a few shorts now hence the decrease in demand for sturdy ropes.
 

MXWing

Well-Known Member
Supporting Member
Oct 13, 2016
7,704
23,761
USA
Alright, let's put our votes where we think our mouth is at when it comes to price action at the close on Monday.


Trying to calm the f down and think rationally - I think the market will realize Elon can't pull a WSB style YOLO move. He can't login to his Robinhood app and just sell 10% or fat finger and sell 100% at market.

I picked 5% down. Thinking there will be some fear selling, shorties riding momentum.

Smart money should know it's not a big in the end - however, I still would have preferred Elon not do this.
 
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bobinfla

S-Vin 4086 Rdstr-Vin 0019
Supporting Member
Jul 9, 2012
363
1,561
Land O'Lakes
Hmmm. This whole weekend's discussion about Elon twitter-crashing the stock, and all the dangers of using margin, made me log in and see how much margin I have available at the moment. Turns out to be quite a lot.

I don't normally use margin, last time I did it was during May/June 2020 during the Covid crash, which worked out very well. So Monday may be very interesting. :D
 

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