Tesla stock rises following Elon Musk’s $5 US billion stock sale

Key sentence:

• Despite overnight disclosures showing that CEO and top shareholder Elon Musk had sold roughly $5 billion in stock in recent days.
• The option-related portion of the sale was implemented in September, well before his weekend Twitter poll.

Tesla shares surged in premarket trade in the United States on Thursday, despite overnight disclosures showing that CEO and top shareholder Elon Musk had sold roughly $5 billion in stock in recent days.

The electric-car maker’s stock rose 2.4 per cent to $1,093.65 US, recouping some of the huge losses experienced earlier in the week when Musk sold.

Musk’s share sale was his first since 2016, and it came after a weekend poll of Twitter users about selling 10% of his Tesla stock, which accounts for the majority of his estimated $281 billion U.S. fortune.

Investors dismissed the relevance of Musk’s trading for the stock’s outlook, citing high car orders and Musk’s professed faith in the firm, though analysts predicted a volatile day in U.S. trade.

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“The reason we’re seeing shares bounce is that there appears to be method in his madness,” said A.J. Bell analyst Danni Hewson.

“It’s about ensuring that the market realizes this isn’t something he’s doing on the spur of the moment or because his Twitter followers told him he should. He’s already made up his mind, and it’s been rubber-stamped.”

According to filings, Musk’s trust sold about 3.6 million shares in Tesla, valued at around $4 billion in the U.S. He reportedly sold another 934,000 shares for $1.1 billion U.S. to meet tax obligations after exercising options to acquire nearly 2.2 million shares.

The transaction represents approximately 3% of Musk’s overall interests. The option-related portion of the sale was implemented in September, well before his weekend Twitter poll.

“All I see this doing is offering some short-term volatility and keeping Tesla shares’ valuation multiples sky high as long as Elon stays in the spotlight and investors continue to see him as an ‘exceptional visionary,'” stated Tariq Dennison, managing director at GFM Asset Management in Hong Kong. The latter is net short on Tesla stock.

Demand for the judgment was not returned by Tesla.

A retail frenzy

According to Vanda Research, while Tesla’s stock has lost more value this week than Ford’s whole market capitalization, retail investors have been net buyers, making net purchases of $157 million U.S. on Monday and Tuesday.

However, confirmation of Musk as a seller and the likelihood of further sales could put downward pressure on the price in the short term.

“It will undoubtedly frighten some retail traders,” said Oriano Lizza, a premium sales trader at Singapore brokerage CMC Markets.

“Some people will be tightening their stops or attempting to close out their positions. [Musk] will, however, want to safeguard the stock to some extent and will not want customers running for the door.”

According to filings and market data, four former and current Tesla board members, including Musk’s brother Kimbal Musk, has registered to sell over $1 billion worth of shares since Tesla’s market value reached $1 trillion late last month.

The company’s stock value has soared in recent years, exemplifying the euphoric attitude in American markets and the optimism of smaller retailers who have helped drive it up 51% this year and 1,300% from 2020 lows.

Source: CBC

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