Elon Musk, Tesla CEO, stands in the foundry of the Tesla Gigafactory during a press event.
Patrick Pleul | picture alliance | Getty Images
Tesla shares fell by more than 5% in pre-market trading Monday after CEO Elon Musk asked his Twitter followers if he should sell 10% of his stock in the electric vehicle company.
Shares of Tesla were down 5.5% to $1,155 at 5 a.m. ET Monday, a significant fall on the $1,222.09 price they closed at when markets shut Friday.
The fall comes after Musk asked his 62.5 million Twitter followers to determine the future of a chunk of his Tesla holdings.
In a Twitter poll launched Saturday, Musk said: “Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock. Do you support this?”
The billionaire gave people the option to vote “Yes” or “No” and pledged to abide by the results of the poll, whichever way it went.
Some 3,519,252 people responded, and 57.9% of them voted for “Yes.”
Musk previously said he was likely to sell “a huge block” of his options in the fourth quarter.
At an appearance at the Code Conference in September, Musk said when his stock options expire at Tesla, his marginal tax rate will be over 50% and that he was already planning to sell soon.
“I have a bunch of options that are expiring early next year, so … a huge block of options will sell in Q4 — because I have to or they’ll expire,” Musk said at the conference.
Other current and former Tesla board members, including Robyn Denholm, Kimbal Musk, Ira Ehrenpreis and Antonio Gracias have also sold hundreds of millions of dollars worth of their Tesla shares since Oct. 28, as the company’s stock rallied.
Shares climbed after a record third quarter for Tesla, and an announcement from car rental company Hertz that it was ordering 100,000 Tesla vehicles for its fleet. Musk waited for a week after Hertz made its announcement to clarify that Tesla had not signed a contract with the company yet. Before he made that statement, he taunted investors who were short shares of Tesla on Twitter, writing: “Tesla Hertz shorts.”
Since the Hertz announcement, Tesla shares have risen considerably and so has Elon Musk’s net worth.
No matter the results of the poll, Musk would have likely started selling millions of shares this quarter. The reason: a looming tax bill of more than $15 billion.
Musk’s options expire in August of next year. Yet in order to exercise them, he has to pay the income tax on the gain. Since the options are taxed as an employee benefit or compensation, they will be taxed at top ordinary-income levels, or 37% plus the 3.8% net investment tax. He will also have to pay the 13.3% top tax rate in California since the options were granted and mostly earned while he was a California tax resident.
Combined, the state and federal tax rate will be 54.1%. So the total tax bill on his options, at the current price, would be $15 billion.
Musk hasn’t confirmed the size of the tax bill. But he tweeted: “Note, 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.”
Of his considerable holdings, Musk has options for 22,862,050 shares at $6.24 due to expire on Aug. 13, 2022. These options were awarded to him in 2012.
—CNBC’s Robert Frank and Lora Kolodny contributed to this report.
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