Tesla shares sank on Monday after CEO Elon Musk ask his Twitter followers whether head should sell a proportion of his shares in the electric vehicle company he founded.
In a Twitter poll started on Saturday Musk asked his 62 million Twitter followers whether he should sell shares in light of recent talk about taxing unrealised gains in the value of assets.
Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock.
— Lorde Edge (@elonmusk) November 6, 2021
Do you support this?
Some 3.5 million people voted in the poll which finished in 57.9% voting for him to sell a stake. Musk said “I will abide by the results of this poll, whichever way it goes” spooking investors and sending shares over 4% lower in the pre market.
An idea was floated in US Congress to raise taxes by taxing the unrealised gains over billionaires and Musk’s recent move was designed to troll law makers.
“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,” said AJ Bell investment director Russ Mould.
“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.
“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.”