GUEST OPINION: Investors have been confused by the state of Tesla’s share prices this week after CEO Elon Musk decided to sell millions of shares in the beginning of August. The sale details were released in an SEC (Securities and Exchange Commission) report issued on the 9th of August. According to the report, Musk sold a total of 7.9 million shares, raising $6.9 billion in total.
These new purchases represent the first sale of Tesla shares made by Elon Musk since April this year, when he sold a further 9.6 million shares, raising approximately $8.5 billion at the time.
After a sudden sale, it’s common for the shares of a stock to drop, as investors often feel wary about what might be next for the organization in question. However, this wasn’t the case for Tesla.
Here’s what you need to know about the market changes.
Why Sell Tesla Stock Now?
Musk has always been relatively transparent about his stock selling decisions. In April, he revealed he was selling Tesla stock to raise money for the purchase of Twitter – one of the more popular social sharing apps on the market. Elon agreed to purchase Twitter for $44 billion, eliciting a varied response from the investor marketplace, and users of the platform.
However, only a couple of months after the original deal was announced, Elon doubled-back, doubled back, saying he no longer planned to continue with the agreement. According to Musk, he no longer wants to proceed with the deal as Twitter management did not disclose material information about the number of bot and spam accounts on the platform.
Twitter has quickly responded by suing Musk in an attempt to force him to go ahead with the purchase, and the terms agreed in April.
While Musk’s most recent filing for these new sales does not disclose the reasons behind the transaction, we can see some insights from interactions on Twitter.
When asked whether he was done selling Tesla shares, Musk responded “yes”, and elaborated on his possible reasoning. According to Musk, in the event that Twitter is successful in forcing the deal to close, and some equity partners don’t come through for the business, the recent sales will ensure there doesn’t need to be an emergency sale of Tesla stock.
Of course, Musk also said he planned no further sales of the Tesla stock after the April sales too.
How Did Share Prices Respond?
The rapid and unexpected sale of any stock would usually prompt uncertainty and dips on the share price for most companies. Indeed, many easyMarkets investors managing their online portfolios would have likely expected to see a sink in the value of TSLA shares. However, initially, the share prices remained relatively solid.
Between the 9th and 10th of August, the shares dipped somewhat, before rising again drastically and falling into a general slow decline. Over the last 5 days, between the 8th and 12th of August, the share prices dropped by around 5.33%. However, Tesla share prices remain relatively high at this point at $859.89 each. Of course, there’s no guarantee whether the shares will continue to drop in value or regain their strength once news around the sales begins to settle.
Notably, one of the reasons why Tesla share prices may not have dipped too drastically, is that Musk is an extremely well-known and widely-followed CEO. Musk consistently addresses his followers on Twitter, and tends to keep people up-to-date about the state of his company. This transparency has gained the CEO a high level of trust among many shareholders.
Additionally, some investors may consider the recent sale of stock to be a prudent decision. After all, if Musk does lose the upcoming court case against Twitter, he will need to come up with liquid capital quickly. Selling shares now means he can avoid a “fire sale” of the stocks later.
What’s Next for Tesla?
It’s difficult to predict what might happen with the Tesla stock prices in the months to come. There’s a good chance the company will remain in a state of slight turmoil until the time when the court case with Twitter has been fully resolved. If something does go wrong, there’s no guarantee Musk won’t need to sell additional shares as a result.
On the plus side, Tesla as a company is continuing to perform at excellent levels. Although Tesla factories have struggled as a result of supply chain issues and the pandemic in the last couple of years, the company is investing in upgrades planned to improve production capacity by around 30%.